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There is simply too much competition in the food and beverage space and too much at stake to gamble on buyer relationships.
6 min read
Opinions expressed by Entrepreneur contributors are their own.
Retail buyers are the ultimate gatekeepers. They decide whether your brand gets, and stays, on the store shelf.
Knowing how to keep retail buyers happy is essential for your brand’s success and growth. There is simply too much competition in the food and beverage space and too much at stake to gamble on buyer relationships.
So how do you do it? My company surveyed the gatekeepers directly to find out.
The retail landscape
Let’s start by looking at retail pressures. An increasingly digitized commercial space has intensified competition in all facets of the food and beverage sector.
Retailers have found themselves in an intensifying battle for foot traffic as the number of grocery shoppers using online options continues to grow. Currently, 3 percent of grocery sales take place online, but that number is rapidly climbing.
One of the biggest reasons retailers lose coveted foot-traffic at brick-and-mortar locations to online alternatives is because of the inconvenience known as out-of-stocks. Today’s shoppers experience out-of-stocks during one of three store visits, costing retailers nearly $1 trillion in annual sales. Reports estimate that 24 percent of Amazon’s online revenue comes from this issue alone.
In direct response to increased competition, retailers have dialed up their demands for vendors to prevent against out-of-stocks and subsequent ecommerce replacement transactions.
Big box stores are strict, grading vendors on their ability to deliver “on time, in full” (OTIF) and to meet Must Arrive by Dates (MABD). If scores are lower than set parameters, vendors are handed penalties that can range from a flat fee to a percentage of their invoice or their purchase order (PO) to account for lost sales. This can equate to hundreds of thousands of dollars and be detrimental to any size organization.
Not surprisingly, all retail buyers reported in our survey that a vendor’s ability to deliver product on-time impacted their willingness to work with them. Some 73 percent reported ending vendor relationships over delivery issues.
The overwhelming majority of retailers will consider new brands when vendors do not meet their delivery benchmarks. Stores simply cannot afford to work with vendors that do not meet delivery requirements.
Competition stays hot
In our survey, buyers also shared that 54 percent of them oversee six or more competing products in a given the same category, and nearly 15 percent reported overseeing between 11 and 20. Retailers can institute such rigid policies and buyers can walk away from vendors over transportation issues because they have plenty else to choose from.
This hyper competitive environment leaves little room for error, and that room will likely further shrink as private equity and venture capital dollars continue to pour into food and beverage.
In the five years between 2013-17, investors sunk $13 billion in venture capital into the industry. That number has again only increased as funding in 2018 doubled that of 2017. And what’s driving venture capital into this segment is potential return on investment those dollars can bring.
From 2011-2016, approximately $22 billion in sales transferred from industry giants to small emerging CPG brands. Over the same period, small CPG companies in the food and beverage space grew their market share from 23 to 26 percent.
This trend is not only continuing, it is accelerating, as more players get into the mix.
With competition not easing any time soon, it’s essential that your brand find a way to stand out.
Meeting OTIF and MABD requirements is a data-supported method to succeeding, but there is more to fostering retail relationships than that. Vendors must continue to enhance their logistics arm of their organization to exceed the expectations set forth by retailers.
In the same survey, retail buyers expressed their top vendors are those that not only deliver on time but provide regular, proactive communication about order status.
One buyer, detailing what they look for from vendors went on to say, “On-time deliveries, thorough and punctual communication, no rejections, flexibility with emergency orders.”
Another added that they want, “Over communication on order status from receipt of PO to delivery.”
These snippets from retail organizations highlight the importance of a thorough, optimized logistics operation that includes top-notch customer service. Issues are bound to rise with production and transportation, but how you handle the issues and communicate the solution matters. No one can expect perfection, but they can demand honesty and proactive responses.
Communication is a crucial component of success and proper systems must be in place if a brand plans to scale and meet rising retail demands. This can fall on your customer service or sales teams, your transportation department, third-party logistics partners or a mix of all the above.
Logistics excellence at the right price
Acing logistics can lead to improved buyer relationships and secured shelf-space, which can in turn lead to long-term profitability and growth opportunities. Successful brands are those that focus on retail fulfillment, making it a critical aspect of their business strategy.
But that strategy can come attached to a hefty price tag if not carefully crafted with your organization’s profitability in mind. The challenge is achieving logistics excellence at a cost that keeps your product price competitive and facilitates scale.
There are plenty of logistics fulfillment solutions that will ensure your product arrives in compliance with retailer requirements; however, some of those options are not cost-effective and can cut into your organization’s bottom line.
The inverse also exists, as there are numerous cost-conscious transportation solutions your organization can apply, but those will likely fall short of the service requirements of your biggest customers.
The challenge that extends to all vendors in the current retail landscape is achieving a logistics function that satisfies retailers’ delivery requirements while still meeting cost thresholds that keep your product price competitive and facilitate scalable growth.
Devising a logistics strategy that meets both is nuanced work. It requires a holistic approach to transportation that encompasses the entirety of your organization’s strategy and aims to achieve sustainable expansion.
Those brands that can seamlessly integrate an optimized logistics function into their operational strategy stand to emerge as the winners in today’s retail environment.
July 2, 2019 at 12:18PM