Bob Burke is a rock star in the natural products world. Walk down the aisles of Whole Foods and pick almost any nationally recognized brand, and chances are he’s consulted for them. He is also the co-author and co-publisher of the Natural Products Field Manual, Fifth Edition and The Sales Manager’s Handbook. Prior to consulting, Bob was with Stonyfield Farm Yogurt for 11 years as Vice President, Sales & Corporate Development and Vice President, Marketing & Sales. He spoke recently at Expo West about breaking into the natural products channel– here are the highlights of his presentation.
Before You Manufacture
Burke advised attendees to conduct a feasibility study before entering the market place. He said there may be other points of study, but answering the following questions is a good place to start:
- Do I meet ingredient standards?
- Is what I am offering innovative and meaningfully differentiated?
- Do I have rewarding and forgiving gross margins (Burke defines “rewarding and forgiving” as 50% in food, 50+% in personal care and 60+% in nutritional)
- What’s my plan? Route to market? (direct or distributor/local regional or national)
- Am I driving incremental business or just swapping one product for another?
These might seem like simple questions, but it’s surprising how many people invest resources in a company without answering any of these questions. Wanting to make a better product, your desire to change the world and even the fact that you sell some products doesn’t mean that you can run a successful company.
Natural vs. Organic
Depending on your product, this can get complicated but Burke says you need to understand this clearly. Defined, natural means literally all natural — no synthetic ingredients, artificial colors, flavors or preservatives. In the natural channel there are probably narrower definitions set by retailers such as no hydrogenated oils or milk from cows treated with synthetic hormones. Organic means that your product is certified by a third party to meet standards. Organic is a subset of natural.
Third party organic certification is a hot topic right now. There is no legal definition of the word “natural” and at Expo West the NPA and NSF standards were promoting themselves heavily. You’ll need to do some research about which standard your product can achieve. Can you get the gold standard USDA organic certification? Will you have to settle for a lesser standard? And, what do your customers think about that?
Is your consumer the classic lifestyle natural/organic consumer? Is her commitment to environmentally sound products part of her lifestyle? Is she more likely to shop in health and natural food stores? Will she pay a premium? Does she have a desire to change the world, a moral commitment to protecting the environment? Does she exhibit these traits consistently across many product categories? Is she deeply committed?
Or, is she a cultural creative organic buyer? Does her desire to protect her family and herself and her lifestyle/fashion commitment to health and well being extend to buying only a few entry products?
What drives her purchases?
Burke shared research that points to aging/longevity concerns, new family, dietary restrictions, general health and weight loss adding up to 80% of natural purchase decisions. Does your product start with a trial purchase and then transition your consumer to regular and then committed purchasing? Or does she just buy it a few times and move on?
Traditional entry points into the natural space tend to be produce, dairy, baby food, meat and food-allergen related products.
How You Start
Do you understand the key players in the market? Do you know the retailers of natural products? What about specialty and mass market? Do you know the national distributors, regional distributors, local market distributors and the customer/exclusive distributors? If not, you need to do some research.
Obviously what product you’re producing and your business plans mean there’s no one strategy that works for everyone, but Burke and the other presenters in this series all stressed doing well in your region before trying to conquer the world. Burke suggested looking at small to medium-sized regional distributors when you’re starting out. He also suggests establishing a beachhead with a key customer, ideally a key retailer who will serve as a patron for pushing the product into a national distributor. Then, when you are rocking that region you repeat the process in the next region over.
What Burke lays out sounds a lot like a chess game. You gain distribution in key distributors and run targeted distributor and retail promotions to broaden distribution to key independents. As you establish national natural distribution, work with brokers and distributors to gain distribution in natural sets of mainstream supermarkets.
It sounds so simple, but it’s so tempting for new brands to try to go national right out of the gate. Rather than being #1 in your region and establishing a strong base, you’re pulled by wanting the whole world to know what you’re doing. Burke says that’s a sure recipe for disaster. In a nutshell it comes down to cost accounting and the inability to replicate a successful operation across the nation when you don’t even do it at home.
You also have to work on a compelling case to retailers of how you will grow the category and attract more consumers that they find desirable, not just go after a piece of the market that is already there.
If you still think you know what you’re doing, do you know what the following strategies are, and how have you incorporated them into your plans?
- Free fill/slotting
- Flyer advertising
- Off invoice and bill back allowances
- In store demos at retail
- Sales samples for brokers and distributor sales force
- Brokers commissions
- Trade shows
- Market visits by sales force
- Consumer and trade marketing programs
It starts to get serious now, doesn’t it?
What Makes You Money?
When faced with a myriad of distributor programs, Burke advises that, in general, the closer you spend to the consumer, the more efficient it is. Programs like scans down, bill backs and coupons should be your first choice. The least efficient is off invoice where everything for some period is coming off invoice with no obligation to pass on that savings to the consumer. These programs are just to help you get into more retailers.
Burke also talked about the strategy behind getting a top tier broker with modest commission (and fixed costs) and how that is better perhaps than a second tier broker on only commission.
He advises that you should ALWAYS budget to visit markets. Make sure you get out there and work the markets with the broker – no one will tell your story better than you. You make things happen, you can see things for yourself, you can’t do this over the phone. You can’t just hire a broker and provide them with your sales sheets and wait for sales. It doesn’t work.
What is Gross Margin?
As a former accountant, I’ve had heated discussions with clients who had mistaken notions of what their margins were, and refused to dedicate the resources necessary to truly figuring out those numbers. Burke, and the rest of the experts this afternoon, all stressed this over and over. You have to know how to properly figure out a gross margin. And, you have to end up with a good margin or you’re not going to make it.
Gross margin is list sales minus everything it costs you to get that product to your retailer. Everything. Use GAAP to figure it out and get a good accountant. Period.
What’s Your Code?
Burke says that for any early stage company it’s all about cracking the proverbial code of what works. What is the optimal price point? How do you tell your story? Once you’ve figured that out in your own neighborhood (remember you’re not experimenting all over the world) you go to the next market and replicate your key to success. No shotgunning. It sounds logical, but many first-time business owners don’t have the discipline necessary to focus on their own back yard instead of seeing the bright lights and moving too fast. If you’re not the number one best-seller at all the Whole Foods in your area, do you need to be trying to go national?
How you price your product should reflect your positioning of the brand, says Burke. Are you a premium, parody or value brand? THEN, are you making a good margin after realistic cost of goods sold? Burke says he’s asked all the time how to compete with a mega brand like Kellogs, and he says it’s far better to have $1M in sales and make a good margin than sell more and make less margin.
Burke says to remember that your consumer votes with her dollars. If what you’re offering is worth the premium then she’ll vote and you will be successful. But, be cautious. The natural space is full of premium product success stories but there’s a point when you’re in the stratosphere and no one will pay that price.