Marketing Agrifood Products to Retailers
A guide to expanding sales into domestic and export retail markets
Retailers are traders, their success depends on how profitability they can on-sell goods. They buy products in wholesale quantities, and sell them in single units. This mode of operating affects how retailers deal with suppliers and as a result you can expect retailers to:
- Want products that are 'retail shelf ready'.
- Want products that meet consumer needs and wants.
- Assess new products based on the trading income they generate.
- Seek suppliers who deliver a consistent and reliable supply.
- Appreciate suppliers that have the capacity to grow as the retailer grows.
- Require suppliers to have an understanding of all packaging and food regulation requirements.
- Be experienced negotiators.
- Be sensitive to building and maintaining advantages over other retailers.
- Seek support from suppliers to promote the sales of new products in order to exceed the performance of existing products.
- Direct suppliers who do not understand their systems to deal through brokers and agents.
Effective logistics are an essential part of a food retailer's operation. They need to be able to efficiently supply thousands of products to hundreds of store locations. This is typically done by receiving stock into a central warehousing facility, then delivering it to multiple stores. This mode of operation means that retailers expect suppliers to:
- Understand food safety as a basic requirement.
- Have cool chain capacity to maintain specified product temperatures.
- Work with the retailer's standards and technology systems.
- Always have stock available and provide a delivery frequency to minimise the retailer's risk of running out of stock.
- Work with and through their preferred brokers and consolidators.
- Provide products in pack sizes that suit their retail merchandising.
- Understand and meet packaging regulations.
It is possible to build an understanding of how retailers work. Many of the processes they use are set out in suppliers' guidelines and are available online. This understanding should be obtained so that product costing can be completed before you put your product offer and price list to the retailer.
Plan your approach
Over 80% of new retail products fail. Sound planning is the common feature of the 20% that succeed. Higher quality planning clearly increases your chances of success. Adjusting your plan is easier than being left to sell pallets of product that retailers do not want.
Find a target market - Seek retailers that match your capabilities and product offering. You need to understand their operations, strategy and development plans. Key questions to answer include;
- Do you have the scale they require?
- Do they have the capacity or desire to stock the products you offer?
- Are they located where you can service them?
- Are their logistics and systems suitable to your current capacity?
Be realistic about the capabilities of your business and match them to retailers such as supermarkets or specialist boutiques. Find those who will value your skills, expertise and product offering. Be objective about how easy it is for others to copy what you can do, because this forms the basis of your competitive advantage.
Know your target retail customers
Seek to understand your customers as it can provide you with a competitive advantage. Work out their priorities and how your product and service levels will help them in their business. Look for ways to do more and increase the value you provide. Retailers will value suppliers that show an understanding of their needs and operating methods.
Decide what you stand for
Determine what it is you will stand for with your customers. This is called positioning for your company and product. It will require you to consider your company and product's point of difference and why customers will buy from you instead of your competition. Your positioning may include; unique products, supply from specialist regions, security of supply, organic or animal-welfare friendly product attributes. You need to look for a 'vacant' position in the market for your business to occupy and defend.
Be open to working with others
Explore options to combine with others to service a target market. Collaboration lets you share infrastructure, service higher volume markets, spread marketing costs and potentially build stronger market advantages. Collaboration is particularly valuable in servicing export markets where the entry cost can be higher. Business arrangements should be based on a clear understanding of 'who does what' and confirmed in written agreements.
Research tips and assessing potential retail customers
Consider the following tips to find an entry-point that most matches your capabilities, your positioning and the product you offer.
The availability of information via the internet has changed the nature of market research. Basic research can start at your desk; use the web to find out about the market, your competitors or existing product offerings. Apart from news articles and trade or government statistics, most major retailers will have an information-rich website. Industry specific information can also be sourced on government or industry web sites. However, for research to be effective it needs to be guided by an objective framework. Without a framework to guide your research you can be swamped by data and unable to use it to make informed planning decisions.
Your research findings can be complemented by contact with potential retail customers and attending trade events. However, the nature and content of the contact should be managed, as it is the start of a commercial arrangement.
Other more advanced research options, such as surveys, should only be considered when all available information has been collected but gaps remain in the market information you need to make planning decisions. This includes arranging a visit to the target market to confirm your findings and finalise your approach. By doing all of your homework beforehand, you will make the most out of a business trip, domestically or internationally.
Your success with retailers will be influenced by their size, type of operations and whether it suits your product. Smaller specialist retailers with more expertise and service levels can help you market new and innovative products, but will sell lower volumes and require higher margins. One stop shop retailers, like supermarkets, will have the capacity to sell higher volumes but the product will need to 'sell itself' in a highly competitive environment. More marketing support, in-store promotions and show cases will be required.
It is useful to define the type of shopping experience each retailer is offering. Whether they are a specialist, convenience store or supermarket can be a useful indicator of their suitability as a trading partner.
The retailer's trading terms also need to be understood before you establish your wholesale prices. Without this information you risk your product being non-viable. While there are some commonality in retailer trading terms they can also differ greatly by category. The task is to identify and include the trading term components into your wholesale price. Also make sure that when the retailer's gross margin is added the final price is acceptable for the consumer.
A possible framework for assessing a market and identifying potential retailer customers
|Market profile||Key features|
|Market growth rates - last 3 years||Population & household totals and growth|
Consumption per person in your category
|Retail market segments and therefore potential target market||Number of retailers & stores per retailer|
Sales by retailer/by store
Price relativity between retailers
New store growth plans
|Products currently on offer in your category in the market||Number of products|
Price range of products
Number of brands & brand pricing
Level of new products introductions
|Supply chain systems||Use of brokers or agents, consolidation warehouses or direct supply|
Pathways into export
There are various approaches to entering overseas markets, some options to consider are:
- Supplying your product direct to the retailer or the merchant wholesaler/distributor is suitable if your product is highly perishable, or if you have the capacity to ship large quantities.
- Freight forwarders can offer services to smaller export suppliers that do not have the volume to fill whole cargo containers.
- Consider export consolidators or distributors with an established presence in your target market. Working with a suitable consolidator allows you to benefit from their expertise, reputation and infrastructure, minimising risk to your business.
- Cold chain management is even more important for export due to the increase in the number of steps between seller and buyer. Pay careful attention to potential breaks in the cold chain such as un-cooled loading periods. There is a chance that the customer may refuse to pay for substandard goods.
- Some export markets will have weak standards of cold chain management. It can be wrong to assume that the buyers understand what is necessary to keep your goods in optimum condition.
- When negotiating contracts for transport and carriage of goods, be especially clear on transporters' duties and responsibilities as to treatment of cargo. This applies for every step between the goods leaving your premises and arriving at the buyers' premises.
Key retail terminology
|Bar codes||A series of lines or symbols that can be read by a scanner. It contains product information that allows retailers to easily track product and line movement.|
|Case deal||A temporary price reduction provided by a supplier on a product.|
|Category management||An approach to managing retail products that groups them into|
categories as seen by consumers.
|Cool chain||A temperature controlled supply chain using facilities and equipment to control product temperatures, preserving quality, appearance or shelf life.|
|Cross merchandising||Displaying products alongside other products that are used at the same time i.e. Salad dressings adjacent to lettuce mix.|
|A warehouse that receives goods in bulk from suppliers before they are sent to retail stores in smaller quantities.|
|Export service providers who handle the important steps in shipping merchandise, including providing shipping rates.|
|Gross margin||The profit that the retailer is left with after a product is sold. It is calculated by dividing the profit by the total value of the sale.|
|Products that have brands that are owned by the retailer.|
|Inventory cover||Typically expressed as the weeks of stock on hand at the rate it is currently selling.|
|Listing fees||Charges raised by retailers to support and stimulate sales of new products.|
|Mark downs||The value of price reductions expressed as a percentage of the original selling price.|
|Mark up||The value of the amount between the cost of a product and its retail selling price.|
|Off location display||A temporary retail display of products in addition to the product's standard location.|
|Point of sale material||Material like posters, price tickets, leaflets that are used to support products.|
|Promotional discounts||Buying and retail selling price reductions that are made to support lower prices when promoting.|
|Ranging and range|
|The assessment of a defined group of retail products.|
|Rebates||An agreed amount claimed by a retailer to support promotional activity or for reaching an agreed sales target.|
|Scanning systems||The processes and technology employed to read and process product bar codes.|
|Settlement discount||The discount claimed by a retailer for payment of accounts within an agreed time i.e. 14 days.|
|SKUs||Stock keeping units. These help retailers keep track of the amount and location of their product lines.|
|Trading terms||The financial structure that will be the basis for transacting with the retailer|
Getting your product into an overseas market involves dealing with several bodies. Austrade, 13 28 78, is a government agency created to assist exporters. Also you may request agribusiness related assistance from the Victorian Department of Economic Development, Jobs, Transport and Resources, 136 186, Agribusiness as well as business assistance from Small Business Victoria: 13 22 15, and Regional Development Victoria.
Your sale of goods will be subject to packaging and labelling requirements. For domestic sales, refer to Food Standards Australia New Zealand. Other countries may require labelling in different languages and have specific laws for terms such as 'used by,' 'best before' and 'packed on.'
Austrade can provide some advice on other countries' labelling and packaging regulations.
An export adviser (Customs Broker or Freight Forwarder) can help you comply with regulatory requirements (i.e. customs, quarantine, certification) and set up international transactions (i.e. transport, storage). They can be found in services directories such as SENSIS.
The regulations themselves are administered by the Australian Customs Service: 1300 363 263, and the Australian Quarantine and Inspection Service (AQIS): 1800 020 504.
Customs requires that anything over the value of AU$2,000 that is leaving Australia be declared. Contact Customs or your export adviser to confirm any product specific requirements, declarations or form requirements.
AQIS requires that exporters of certain types of produce (meat, fish, fresh produce) must have a 'registered premises.' Export produce is also subject to quality inspection & certification requirements before it will be cleared for export and subsequent import into another country. www.aqis.gov.au has a searchable database on import (quality and certification) requirements by country. Consult AQIS or your customs adviser for advice on fulfilling these requirements.
Familiarise yourself with terms of international trade. Research the meaning and effect of INCOTERMS, letters of credit, bills of lading (Austrade is a good place to start). Also ask your bank about payment options for international sales of goods. You may also need legal advice from an international transactions lawyer about different foreign legal systems and how they can affect your sales transactions. You may also insure your business against risks such as damage of goods in transit or a defaulting purchasers. The Export Finance and Insurance Corporation (EFIC): 1800 887 588 is a good place to find out what kind of insurance is suitable for
Case study: Carman's Fine Foods
Carman's Fine Foods, founded by Carolyn Creswell, started from a muesli production business. It is now a major supplier of Carman's healthy eating muesli and muesli bar varieties. Carman's supplies to Coles and Woolworths (Safeway), it also exports to supermarkets in 15 different countries.
The Carman's line of products is positioned as a premium health food. It is advertised as containing wholesome ingredients free from GM, flavouring and colouring additives. The product also boasts the sourcing of Australian ingredients whenever possible.
Getting into the retail channel was a difficult task. Despite initial refusal from Coles, Carolyn persisted and eventually convinced the domestic retailer to stock Carman's muesli in 20 of its stores. She has always been committed to preserving the integrity of the brand name and believes this has translated into a key part of customer loyalty.
A major stepping stone in Carman's growth was the outsourcing of its manufacturing and packaging. This increased production capacity as well as streamlined the process for creating a retail ready product.
When first faced with the potential to export, Carolyn feared that the company was not big enough to support this expansion. But with the help of Austrade and its trade seminar sessions, she was able to network with clients and eventually dispatched Carman's first export order within weeks.
In promoting Carman's overseas, Carolyn often works in the market to personally launch the products. This interface has led to innovations in tailoring products to markets. For example, in Asian markets, the Carman's muesli bars packaging is red (symbolising prosperity) rather than the original black.
Carolyn stresses the importance of connecting with international customers on a personal level. This allowed the businesses to develop stronger relationships, as well as giving Carman's direct feedback on their customers' needs and wants.
- When entering a retail market, set out to define a market position you can occupy. Then maintain this position with all aspects of your product, brand and company.
- Close contact with your retailer customers can reveal information that in turn, can provide the basis for competitive advantages.