The Supply Side: Selling to big retailers is not for the weak

Whether it’s underestimating supply chain costs, falling off trend or being kicked off the shelf by a knock-off product from larger suppliers, selling to the masses is not without its challenges. That was one of the major themes covered by industry veterans who spoke at the Selling to the Masses CPG (consumer packaged goods) School held in Bentonville on Wednesday (April 8).

Bill May, retired Wal-Mart buyer and merchandising manager, said selling to brick and mortar stores is more difficult as the largest suppliers which are growing through mergers and acquisitions are often allotted the majority of shelf space. He said prospective suppliers need to realize that if they get into a retail store than it likely means someone else has been kicked off the shelf. Also, innovative products may disrupt the status quo.

“Buyers are not interested in ‘Me too’ products,” May said.

Getting on the shelf was the easy part, said Rick West, CEO of Field Agent, who took a product to market only to lose his shelf spot from competitive trends to which he wasn’t paying appropriate attention.

“If you think getting on the shelf was the hard part, it might have been. Staying on the shelf is harder,” West said. 

He shared a personal story of how he took an idea to market for disposable man wipes after he found his friends using baby wipes on a canoe trip on the Buffalo River a few years ago when there was not a like product in the marketplace.

“We made it through the entire process of concept to prototype in three months and got on the shelf in six months time,” West said. 

West adds that while he was riding the wave for his one product, other larger suppliers expanded into this new category squeezing his product out. 

“The good news is that our product ranked No. 5 for the year, but bad news was that the buyer only kept the top three,” West said. 

He said not staying on top of expansions into the new category and not working toward expanding the scope of his product development were crucial mistakes that resulted to shelf displacement.

West also said small suppliers today have opportunities today that didn’t exist just five years ago. He said with the advent of 3-D printing, startups no longer have to rely on manufacturers to do everything. 

On the bright side, he said there are going to be items that can be sold at better margins that can be prototyped yourself. But he warns potential suppliers to be experts in the categories because “there will always be tons of folks trying to knock you off.”

“Once you put your idea out, and it starts to spread like crazy others will copy it. You need to look no further than Uber and Lift and other crowdsourcing taxi services that have cropped up around the country in the past two years,” West said.

May said suppliers who manage to get placement into retail stores often underestimate the priority they must give the supply chain, which is the metric that keeps the shelves replenished.

Colby Beland, vice president of sales and marketing at CaseStack, seconded that assessment. Beland spoke on the mistakes commonly made by small-to medium-size suppliers who underestimate their supply chain costs that can vary greatly between different retailers.

He said with Wal-Mart’s 42 distribution centers (DC) network there can be added costs to the supply chain as each DC supplies about 90 stores. If a supplier is in 10 stores in the West and the rest of the stores are east of the Mississppi River, Beland said that can mean some of the DCs are only getting one case per week, which is far most costly than a full truck load at other retailers who have fewer DCs. 

For suppliers with multiple products it can be more complicated as the pick, pack and fill pallet charges add to the costs. He said unless a supplier is willing to invest in overseeing the supply chain themselves with added personnel they likely need to partner with third-party service providers. May said there are a plethora of third-party service providers that can facilitate small suppliers with everything from product prototyping to shipping and replenishment to in-store merchandising. 

Beland said supply chain costs are rising from 4% to 10% each year, and when there are capacity restraints like the West Coast Port issues or a weather event, costs to move product will spike given that there are only so many trucks on the road.

He said suppliers must also be aware of penalties that can result when product gets clogged up in the supply chain. Whether it’s fines and fees from additional labeling requirements, missing the Must-Arrive-By-Date or not following pallet requirements, the fines demanded by retailers can be hefty and may be an unpleasant surprise for small suppliers operating on tight budgets.