16.07.2024
Study
8 mistakes food and beverage brands make when moving to retail
While many small brands often start out in the direct-to-consumer model, entering retail is mostly the ultimate goal and the big leap these companies intend to make. And when the doors of supermarkets open, it is certainly an exciting opportunity. But that success can be short-lived if small food and beverage brands don’t understand – and have the flexibility to get around – some of the biggest pitfalls when diving into the retail world.
1. Thinking that it’s just business as usual
When small companies are transitioning from a direct-to-consumer business model to retail, the first – and likely most fatal – mistake is not understanding the real differences between the two models. According to Dipti Desai, founder and CEO of Crstl, an EDI platform that helps brands transition to retail, “many small food and beverage companies think that selling to retail is the same as selling direct to consumer, just on a larger scale, but it’s not.”
Desai warned that small producers cannot simply use the same resources and processes and move the needle from 100 to 100,000. According to Desai, small companies entering the retail business should do so with the understanding that such a leap requires “rethinking and reevaluating everything they may have done up to that point.”
2. Do not adapt the packaging for retail
It only takes seven seconds for shoppers to evaluate a product’s packaging. Add to that the fact that 72% of consumers believe that appearance matters, and it becomes quite clear that packaging is a key factor for any company looking to get on store shelves.
Desai cautions food and beverage manufacturers to rethink their packaging. Packaging that has worked so far, no matter how well tested, may look different on store shelves and ultimately affect sales.
3. Lack of reassessment of operational excellence
According to Desai, many small food and beverage producers often “fail to re-evaluate their view of operational excellence, that is, how they work with raw material and ingredient suppliers” on the way to retail.
“Operational excellence in this context refers to how they fulfill retail orders,” said Desai. “How do they fulfill orders smoothly and efficiently? Have they chosen the best 3PL (third-party logistics) partner? How do they respond to customer requests?
“Ultimately, consumer goods manufacturers need to ensure that their processes work as well for the 1000th time as they did the first time,” Desai said.
4. Wrong choice of leading logistics providers
Desai noted that partnerships matter, and choosing the right 3PL or 4PL partner to manage your logistics can be a crucial factor in scaling your operations. Finally, small companies that want to survive in retail should do their best to make sure that potential 3PLs or 4PLs have enough manpower, space, and systems to ensure efficient inventory management, warehousing, and order fulfillment.
He following points should be considered when choosing a 3PL:
- good customer service/reputation
- Availability of security systems to protect your data and resources
- Scalability
- technology compatibility
5. Relying on wrong indicators
“Food and beverage brands often make the mistake of relying on historical data to forecast demand and solve supply chain problems,” says Troy Prothero, senior vice president of product management, supply chain solutions at SymphonyAI Retail CPG.
The problem with this, he says, is that “consumer purchases and consumption can change on a dime (as we’ve seen over the past three years). Therefore, statistical models based on historical data are no longer an accurate basis for forecasting, as the information becomes outdated by the time decisions are made.” Instead of relying on such misleading indicators, Prothero said: “Consumer goods companies should use AI-based technologies to stay ahead of rapid changes in demand. Ultimately, the forecasts will be data-driven, scientifically sound, and as accurate as possible.”
6. Lack of understanding of supply chain requirements
“Retailers have a lot of requirements, and small brands that don’t understand these requirements risk losing a significant portion of their operations to fines,” says Desai. “So a well-run ship is crucial.”
According to Desai, FMCG manufacturers just entering the retail market typically receive supplier compliance manuals that carefully spell out package size requirements, detailed instructions on how to print shipping labels, instructions on shipping times, and more.
These are not rules for the sake of rules. Ultimately, they exist to reduce inefficiencies and keep things moving forward. Brands that don’t get up to speed quickly will likely be subject to huge fines for non-compliance. “It’s not uncommon for retailers to fine brands up to 10% of total sales,” says Desai.
7. Misunderstanding of pricing and marketing
“The pricing and marketing that worked for the direct-to-consumer model may not work for retail,” says Desai. “Brands must quickly realize that involving an intermediary – a retailer – adds another layer of cost.
Instead of going from the warehouse to the consumer, the product now has to go through a supply chain that includes wholesalers, distributors, etc., and logistics quickly adds to that cost.
To be and remain profitable, Desai says, brands must “use data early, often and aggressively to shape their pricing strategies.”
8. Lack of a strategic approach to logistics
“The biggest challenge facing FMCG brands today is their view of logistics as a whole,” says Andrew Lynch, president of Zipline Logistics.
Many don’t realize the cost savings and competitive advantage their brand can gain by approaching logistics strategically. If they don’t, they end up having to deal with the consequences of not getting their products on the shelf on time.” Lynch explained that the consequences of these lost opportunities include high late fees, lost gross margins, and damaged relationships with retailers.
“Retailers want what CPG brands want: to have products on the shelf that drive sales and foot traffic,” Lynch said. “If you’re not on the shelf, you’re only pushing frustrated shoppers to buy the same product elsewhere. That’s bad for your brand and bad for retailers.”
Lynch told Food Dive that Vita Coco has done everything right. “Vita Coco didn’t beat out Coca-Cola and Pepsi for market share just because they produced superior quality coconut water. They beat them because they had a better set of operating principles. [Coca-Cola and Pepsi] sold coconut water in Tetra Pak bags with similar flavors, but Vita Coco made sure their product was on the shelf on time, all the time. As a result, they gained ownership in their category and created a multi-billion dollar brand.”
Lynch added that brands such as Fever-Tree and Poppy dominate their categories in the same way because they operate under similar philosophies.
“The roadmap to category leadership is not about reducing transactional transportation costs to the penny,” he added. “It also doesn’t mean that you have to break the budget to get the product on the shelf in any weather, any day. You can’t buy logistics efficiency in retail; you have to be strategic, adaptive and proactive.”
As for what that looks like, Lynch said: “It’s increasing order transparency and analyzing performance data with delivery analytics software. This type of technology provides shippers with powerful visualization and data to track shipments, create an organizational structure, and analyze logistics performance data. It also reveals the inner workings of your supply chain and helps you identify areas that can be improved to maximize efficiency and save costs.”