Broker or distributor? How to choose the best option for your product
There are two ways to get your food and beverage product to retail market shelves – via a broker or a distributor. Both have pros and cons, and it comes down to what’s best for your business and your relationship with the representative.
Brokers offer access to retailers’ head office and are an asset in the implementation of sales and marketing programs. Distributors, meanwhile, offer the most efficient and effective solution to get products to different markets.
Are companies or individuals who represent your business to the retailers
Are hired to build relationships with retailers and, ultimately, are responsible for your volume with retailers
Represent several companies that don’t compete
Don’t buy your product – you ship and bill retailers directly
Are companies that purchase your products
Take products to stores to re-sell while you ship your product to the distributor
Generate sales by creating orders or taking the product directly to the store on trucks
Brokers have established relationships with retailers and work hard on your behalf.
That’s because brokers are paid on volume, usually at a rate of 3 to 5% of sales. For example, if your sales to a grocery chain are $100,000, the broker gets $3,000-$5,000. The more work they anticipate they will have to do to generate sales of your product, the more they charge. Like any business trying to generate a profit, they focus on the items with the best return. Some brokers request a monthly retainer until the volume reaches a minimum level.
Brokers also execute the marketing and sales programs you develop. They do not develop them, so finding a broker does not absolve you from figuring out how to sell your products to customers and consumers.
As well, some brokers have retail coverage, an asset since it allows them to help you understand what is happening in the stores. It also means they can get extra merchandising displays, deal with close-to-code product and be your eyes and ears in retail. This usually is an extra cost - make sure you agree on the reporting for store visits.
Distributors perform a different function than brokers. When they take possession of your products, they have added incentive to get them on a truck and sell them. They own the products, so they want to move them.
Distributors have established relationships with stores and, like brokers, only bring in items they think will sell. They don’t want to buy inventory that will be hard to move.
You should plan to pay a distributor 20-25% for shelf-stable products and 25-35% for refrigerated or frozen. Distributors also earn their income by operating on a margin. You sell your product to them for a delivered price to their warehouse, then they apply the margin to the product and sell to retailers or foodservice.
If, for example, the delivered price to a major grocer is $5.25 per unit and you want to use a distributor, you will need to sell to the distributor for $3.95 (assuming distributor margin is 25%).
Distributors will not develop sales and marketing programs for your products, but the good ones will implement them. They can provide perspective on what’s needed for retail programs (such as discounts, demonstrations) but will not initiate them.
To find a broker or distributor, search for companies who want to grow their volume the same way you do. You need to find people who have the relationships where you need them, either in the office or the stores.
Brokers and distributors can be valuable in your business, but they need to be the right ones.
Ask retailers which brokers give them the best service. The stores may let you know how the brokers treat them and if the programs they present are effective. You can also ask for recommendations from suppliers who have similar products as you but who aren’t in direct competition.
For example, if your product is refrigerated and you are trying to increase your sales in a specific retailer, find other refrigerated products in the same department at those stores. Often these suppliers will share insights into who represents them and their strengths. Ask about the frequency of calls, input into sales and brand building, ability to get programs launched and implemented to drive sales and if they have retail coverage.
Ask merchants at retailers about brokers and ask retailers about distributors. Ultimately, it’s the retailers who determine if your product makes it, so the best chance is with a broker or distributor they want to work with. Like checking references before you hire staff, check references for brokers and distributors.
Once you narrow the list, follow these steps to solidify the partnership:
Be clear about fees. Be sure you can budget for everything because it will never cost less than you plan. There is the broker fee or distributor margin but don’t forget the investments required with retailers.
Be clear about the reporting you receive. You need to know what’s selling when and where. This is the only way you can determine what’s working.
Plan to go to some of the calls with the broker or distributor. Retailers want to know who you are, so don’t put all your faith in the broker.
Brokers and distributors can be valuable in your business, but they need to be the right ones, or they will make more work. They are the face of your brand to your customers, so you need to be confident they are representing you properly. They can be important components of a successful business, but they do not replace all the work you must do in sales and marketing.
Article by: Peter Champman