Selling product to Supermarkets

[Dan101]

Good morning all and I hope things are good for everyone? Hoping I could tap the fountain of knowledge here for some advice.

I have had a drinks product developed and I want large retailers to stock it. I have paid the right money for the right expertise on development so everything that should be in place (correct labeling, packaging, warehousing, logistics, admin etc.) is in place and the product I think will fill a real niche. What I am stumped on though is what kind of pricing I should be looking to negotiate with the retailers. My understanding is they do not like to pay suppliers very well and margins are extremely tight. Does anyone know just how tight? If I want my product to sell at £2.50 - £3.00 per unit to the end consumer, then how much would the Supermarket be looking to pay me?

I realise I have been spoiled with the very high markups I enjoyed from my previous business, a restaurant but I just want a better idea of the low ball figures they are going to push on me. Anyone with any experience selling ib to larger retailers your advice would be hugely appreciated. I'm also open to hiring the services of an agent to assist here if required.

Thanks so much in advance.

Dan

 

[The Byre]

Put yourself in the shoes of a buyer for Tesco or Asda. It's Monday morning and you've got a stone in your shoe and on top of that the boss is pushing for better margins and longer payment terms from Unilever, who are drawing a big, red line at 120 days average for deliveries on call. They need an alternative for some of the niche drinks and you come along!

That buyer will ask you the following - What marketing have you done and what is planned for the future? What QC is in place? What do your focus groups tell you? What test marketing have you done? Who are your contract factories? Will you agree to X-million bottles on sale-or-return? What are you paying for shelf space rental? What arrangements do you have in place for collecting unsold goods? Failing that, can you provide a security to cover disposal costs for unsold goods?

Mark-up? Probably not too much during an intro period financed by you, but long-term, maybe 20-50%, depending on sector.

Tip - you might like to start with small, local shops and build from there. After that, go in careful and easy and very small steps up the ladder.

 

[Mr D]

The supermarket sets terms at say 90 days and is late paying. You in the meantime have to pay for your stock you have supplied.
Can you handle the cashflow of months without payment? If not then don't try big retailers.

 

[The Byre]

The supermarket sets terms at say 90 days and is late paying.

Those days are over! Think 120 days as average target for orders-on-call with the big sheds and they are now pushing for 150. Only Aldi and Lidl pay promptly and do not insist on sale-or-return. They also have special regional deals for small suppliers (e.g. craft breweries) and pay them within 30 days.

 

[Dan101]

Thanks so much for the relies everyone, scary, but really helpful stuff.

Cash flow to cover 120 days initially I would be happy to cover, but sale or return I'm not comfortable with at all.

I think my best route is going to slowly build a name and market for my product away from the big guys and hopefully eventually when I approach them I can show them a decent portfolio and its not such a one sided meeting.

Initially in addition to the suggest small local shops I am thinking of reaching consumers via Forfilled By Amazon. My product also has a lot of potential within the bars, coffee shop and restaurant arena so I need to work out the best way to tap that.

 

[Mr D]

Thanks so much for the relies everyone, scary, but really helpful stuff.

Cash flow to cover 120 days initially I would be happy to cover, but sale or return I'm not comfortable with at all.

I think my best route is going to slowly build a name and market for my product away from the big guys and hopefully eventually when I approach them I can show them a decent portfolio and its not such a one sided meeting.

Initially in addition to the suggest small local shops I am thinking of reaching consumers via Forfilled By Amazon. My product also has a lot of potential within the bars, coffee shop and restaurant arena so I need to work out the best way to tap that.

If you do fulfilled by amazon you are competing with your local shops for some of the same customers. The retail shops may not be so keen with a supplier as a competitor, some get quite irate about it.

 

[Noah]

The burden of requirements from supermarkets can be horrible, but not quite so horrible a picture as @The Byre paints. I second the advice to start small - leap straight into supermarkets - if you can even sell to them - and they will screw you into the ground.

A few bits of advice :

. You'll require SALSA at least for supermarkets

. Never let a single customer account for more than 10% of your turnover

. Get to know the Groceries Code Adjudicator

 

[Dan101]

You are all so helpful, thank you.

Wow so in theory I shouldn't have any kind of ecommerce set up to sell to consumers myself as this will put off retailers? That's a tough pill to swallow as selling online directly to consumers is obviously a good revenue stream where I can receive better margins.

 

[Noah]

selling online directly to consumers is obviously a good revenue stream where I can receive better margins.

Better margins on product price, maybe; but you have to account for all the overheads of running an online store; processing payments; packing, shipping, and tracking products; managing losses and returns; managing customers...

Look out! Your margin just got up and ran out the door!

Having said that, in my humble opinion, direct selling of your own product should not put other retailers off; we do manage the quantities and prices for what we sell direct to minimise competition with local retail and even supermarkets.

A better alternative to online selling yourself may be to find an existing online business to take your products.

 

[The Byre]

Initially in addition to the suggest small local shops I am thinking of reaching consumers via Forfilled By Amazon. My product also has a lot of potential within the bars, coffee shop and restaurant arena so I need to work out the best way to tap that.

Start with the bars and coffee shops. Once you've got them, look at local convenience stores. Slowly build from there to larger regional supermarkets that are privately owned.

The first port-of-call after that would be as part of the regional small company schemes run by Aldi and Lidl. Given today's retail climate and the ridiculous conditions placed upon suppliers, I would avoid the sheds altogether - well, at least until you are turning over a few million.

The burden of requirements from supermarkets can be horrible, but not quite so horrible a picture as @The Byre paints.

A bit of 'worst-case-scenario' I grant you - but not far off! The shelf rental and the security may be OTT, but the rest will stand - and the one thing I didn't mention is the volumes involved. One large order can cripple a small company!

In the earlier days of Aldi in the 70s, they placed a giant order with the German subsidiary of Rowntree McIntosh for Quality Street. The whole factory had to be reorganised and partially rebuilt just to fulfil the order. The costs nearly broke the company and they had to be bailed out by the parent company in England.

Look out! Your margin just got up and ran out the door!

I shall remember that phrase!

A better alternative to online selling yourself may be to find an existing online business to take your products.

And not just one!

 

[Dan101]

Wow I'm taken back by these replies. I was hoping for some advice but never thought I'd be given such comprehensive info. Thanks so much again to everyone for your time and contribution.

So my next step is going to be getting some samples from the lab and some branded marketing materials including a one sheet made up to take on the road. I will hit bars, restaurants and coffee shops to begin with along with some smaller online retailers within the niche of my product. There are some realy independent supplier friendly smaller retailers like Eat 17 I am confident I could get into next. From there I will be looking to get SALSA accredited so I can begin pitching to the likes of Lidl, Aldi, Ocado, Waitrose. By the time it gets to the big guys, if it does, I should be coming in with enough steam that they want me and will only try to pull my pants down a little bit and not all the way!

 

[Charliechops]

They used to operate on 100% mark up for FMCG

 

[Dan101]

Wow 100% markup leaves very little for the supplier after you factor in all the logistics costs to get the product to them. This thread has definitely steered me to a new path.

 

[AlanJ1]

Having said that, in my humble opinion, direct selling of your own product should not put other retailers off; we do manage the quantities and prices for what we sell direct to minimise competition with local retail and even supermarkets.

Can you come and tell other online and offline retailers this? Massive no-go in the tech industry!

 

[Mr D]

Wow 100% markup leaves very little for the supplier after you factor in all the logistics costs to get the product to them. This thread has definitely steered me to a new path.

Then alter something to change costs or price.
The supplier should be working based on selling at a profit, the retailer should be working based on selling at a profit, just the small retailer won't have the same efficiency as the supplier can achieve.

 

[Noah]

Wow I'm taken back by these replies. I was hoping for some advice but never thought I'd be given such comprehensive info. Thanks so much again to everyone for your time and contribution.

You can share your own experiences here. All part of the cycle of life, innit.