What are Distributors and Why to Work with Distributors


warehouse

 

Distributors Consolidate Warehousing, Delivery & Billing

  • The larger distributors move sufficient volume to offer cost-effective shipping, inventory management and storage. Without distributors, a jar of pasta sauce would cost as much to transport as the value of the product. The need of course, differs greatly from category to category.

  • Distributors are much more efficient for storing goods until they are needed by the buyer. Otherwise both the producer and the grocer would need significantly more warehouse space.

 

Distributors Act as a 'Buying Club'

  • With significant financial and inventory management/warehousing resources, distributors are equipped to make large orders meeting sellers’ minimum order requirements, with the potential to make very large, business-changing orders.

  • Distributors promote products through published catalogs and provide samples to grocers and other wholesale customers. As your product is sitting in their trucks and warehouses, they are incentivized to move it.

 

Are They the Right Fit for Your Product?

Depending on the product focus, distributors are outfitted with the appropriate resources:

  • Understand what kind of distribution your product requires. Some distributors deal solely with categories like fresh or frozen and have specialized transportation fleets and staff who know the ins and outs of that category and its buyers.

  • Small local distributors have limited facilities so they may not work with cold or frozen goods. However, they often have relationships with smaller independent stores, which are unable to meet order minimums for larger distributors.

  • Large distributors carrying an entire range of goods from shelf-stable to frozen, offer versatile storage and shipping methods. They treat each product most efficiently for its needs.

 

Distributors provide logistics and fulfilment but are not a replacement for sales reps.


WANT TO WAIT?  ALTERNATIVES TO DISTRIBUTION

Deciding to work with distributors can be overwhelming and unnecessary until your business grows beyond a certain size and region. If you haven’t yet reached that point, here are the alternative methods of getting your products into the hands of retailers.

Local Delivery

 

What it is: You hand deliver your product directly to the buyers.

Details: Chances are that you will/have done this at early stages of your company. Of course, it requires ownership/access to transportation and it’s limited to local buyers.

Good for: New brands testing and building market demand.

Bad for: Products sold to many smaller buyers with multiple locations

 

Direct to Store Delivery (DSD)
What it is: A seller (or outsourced deliverer, often called a ‘jobber’) handles Delivery and Merchandising, either renting space on the shelf or providing guaranteed sales.

Details: Typically, there is a revenue share arrangement with the retailer and a form of sales guarantee provided by the manufacturer. This sales guarantee encourages the retailer to overstock the items and accept some spoilage for the benefit of a fuller-looking display.

Good for: Products with high turnover like as snack foods and drinks and products with short shelf life, such as fresh and prepared refrigerated products.

Bad for: Products with longer shelf life or slow turnover.

 

Direct Shipping (“Direct”)

What it is:a seller ships orders directly from your facility to buyers.

Details: You’re probably already doing this. If so, you have a storage facility and software to manage orders and returns. If your shipping volume is not very high, you will not be able to negotiate cheaper rates with shipping companies. Depending on your category and product, it is possible to grow a large business on direct orders alone.

Good for: Products with long shelf life, and products that are easy and cheap to ship.

Bad for: Products with short shelf lives under 45 days (e.g. fresh cookies), low price-to-volume ratio (e.g. potato chips) or low price-to-weight ratio (e.g. ready-to-drink beverage, pasta sauce)

Regional Distributors

What it is: Smaller scale distributors are typically regionally focused.

Details: Small and regional distributors can fill gaps, reach specific accounts, and can be a stepping stone for brands that (for example) have limited production.

Good for: Ideal for new & niche products, products lacking economies of scale

Bad for: Products which need large economies of scale to succeed, such as hotly-contested categories.

Summary

 

While it’s possible to build a small local business, most successful food companies work with distributors, whose warehouse and delivery services (“logistics”) bring down the cost of getting the inventory onto store shelves.  Often, sellers piece-together distribution, with different solutions by region.

 

Next Article: Choosing Distributors and Presenting to Distributors