There was a time when the retailers were not very interested in small businesses because they could not supply on the mass scale needed to fill the shelves of the national chains. Not anymore.
In the past few years there has been a big shift amongst large retailers towards buying from small enterprises, in the belief that entrepreneurs bring innovation and freshness to their shelves.
How it works
You can either supply the retailer or supermarket with products labelled with your own brand name, or you can supply them with unbranded products, known as “white label” products, which a retailer will then sell under their own brand, or label, for example Tesco’s Finest range, or Sainsbury’s Taste the Difference range. Either option may be possible, but unless your product is really special the retailers are likely to prefer a white label deal because your products will boost their own brand range. Supplying white label goods is likely to generate higher volumes but lower profit margins, and as a commodity supplier may leave you vulnerable to aggressive margin squeezing tactics by the retailer.
Advantages
1. Higher sales volumes
2. Banks may be more willing to lend your business money if you have a supplier contract with big name retailer
4. Simplicity of dealing with one or two large customers rather than hundreds of smaller ones.
Disadvantages
1. The price you get will be a fraction of what you would get selling direct to customers and you will also have to take the hit for promotions, special offers and discounts offered on your product by the supermarket.
2. Supplying most of your products to one large customer can leave you extremely vulnerable if they decide to put pressure on your prices and margins.
3. It can be a demanding partnership – if your product sells well the retailer or supermarket will want a constant stream of new products and ideas.
The practicalities
Most supermarkets and high street retailers now have a structured route to bring them into contact with new small suppliers. Tesco, for example, holds regional road shows for small food producers, where they can meet the supermarket’s senior buyers face to face. Argos occasionally holds open days for inventors and small suppliers to meet the buying team.
Sainsbury has a programme called Supply Something New, to make it easier for small suppliers by providing free training days, technical support, and supplier certification. Waitrose’s Locally and Regionally Produced Initiative now includes almost 1,200 product lines from small suppliers.
Things to consider
1. Think about where would you actually like your product to be sold – what kind of image do you want it, and by extension your business, to have? Some entrepreneurs are desperate to be signed up by a supermarket chain; others go out of their way to avoid them.
2. Before approaching any high street retailer with your product or prototype, make sure you have done your research. Go into their stores and have a look at their existing range of products and think about where yours might fit in, both in terms of price and quality. Then think about how yours might offer something a bit special or different to what they already sell.
3. Go into a meeting understanding what your options are – a retailer may offer one of several options to a small supplier: a supplier contract, manufacture of the product under licence, or even purchase of the intellectual property outright.
4. The price – be prepared for a shock. Selling through a retailer of any kind is going to be a painful experience compared to selling direct to customer via your website, because you have to factor in their profit margins too. If you sell via your website you will get 100% of the retail price; if you sell via a retailer you will get half that. If you are not still able to make a profit at this level then you will need to rethink.
5. If you decide to sell your products through a high street retailer you will need to come to an agreement with them about whether can still sell via your website too. Some larger retailers may insist on exclusivity and refuse to let you do this, on the grounds that it is competition for their firm. Others will be happy to let you continue selling via your website provided the product is offered at the same, or a higher price.
6. Be on top of it from day one – some supermarkets will give your product just 12 weeks to shine on the supermarket shelves before pulling it if it is not performing well enough.
The practicalities
1. If you are selling a food product, make it as regionally identifiable as possible. Provenance is the buzz word right now – customers love knowing where the ingredients come from.
2. Don’t worry about how small you are – small food producers with Tesco and Waitrose supply their products to only between 10 and 20 stores on average, and both supermarkets have taken on small producers who make only enough to supply one store.
3. Work out your cost price – in other words the minimum price at which you would be prepared to sell to the supermarket. This is the cost of making your product, plus the cost of packaging and delivery, plus a profit for yourself. Do not forget to include your own profit in this figure, which is the money you will make after all costs have been accounted for. There is no hard and fast rule about how much profit you should be making on each item sold, but you do need to be comfortable with it and for it to be enough to feel it is worth the effort you are putting in.
4. Understand how supermarkets and large retailers work. Never try to contact a buyer on a Monday because that is when they have sales meetings. Always contact them by email rather than by phone because you are unlikely to get through.
5. Think about how you are going to deliver your products to the retailer – and how you can make it cost-effective. Few supermarkets or retailers accept direct deliveries to a store, so you will have to take your goods to a central distribution depot which could be 50 miles away. One solution is to join forces with another producer in your area to share costs.
6. If your product is taken on, get involved in promoting it. Make sure it is being displayed properly and offer to do in-store tastings.
Useful resources
Johnlewispartnership.co.uk
Waitrose.com/sourcing
Sainsbury – supplysomethingnew.co.uk
Argos.co.uk
Tesco.com
Heart of England Fine Foods – heff.co.uk
Top tip
Make sure you totally understand the jargon before meeting a high street buyer. If you are unsure of the difference between net profit, operating profit and gross profit, for example, you could end up in big trouble.
Case Study
When Daniel Woolman approached Asda, the high street retailer, to see if it would be interested in his invention, a clip-on deodorising spray which keeps wheelie bins fresh, he didn’t even have a finished product to show them. He only had a single prototype of his product, Binifresh, which had cost him £1,000 to make. “The prototype was like gold dust,” says Daniel, “Whenever anyone asked if they could keep it, I would say no.” Nevertheless the buyer at Asda decided Daniel’s spray would sell well at a retail price of £14.99 – and promptly ordered more than 5,000 of them. Meetings with John Lewis, Lakeland and Tesco were also fruitful and they too agreed to stock Binifresh. Daniel has since launched the Minibini, a clip-on spray for kitchen bins, and his business is doing really well. Ends.
Source of the article text:
http://www.entrepreneurhandbook.co.uk/sell-to-supermarkets-and-retailers/
