1/ For most of my adult life I have heard people in consumer complain about retailer bad behavior. CPG brands big and small, investors, etc. Not sure if illuminating bad behavior- by naming names- will help stop it. But I am confident it will lose me some friends.
Let's roll.
Let's roll.
2/ I reached out to a group of entrepreneurs to get thoughts. Quotes are real & unedited other than to protect anonymity. For those new to the industry I will define terms. Represents variety of of consumer categories.
Not just a complain-sesh. I’ll try to be productive.
Not just a complain-sesh. I’ll try to be productive.
3/ First - the general sentiment among entrepreneurs is undeniable:
“These big retailers squeeze small companies for margin and give hidden fees etc. that aren't in any contracts and little guys like us have no clout to be able to fight back”
“These big retailers squeeze small companies for margin and give hidden fees etc. that aren't in any contracts and little guys like us have no clout to be able to fight back”
4/ “The tough part is how they treat you. Time and time again buyers degrading what I have done for the last 9 years. I have a list of buyers on my phone called “Bad Hearted People.”
Let’s give examples of the behavior...
Let’s give examples of the behavior...
5/ Slotting fees: @HarrisTeeter taking $10k in slotting per item, pricing it 30% above srp giving themselves like a 50% margin, and then discoing it a year later telling us they will take our new items if we pay slotting.
[Slotting fees:
en.wikipedia.org/wiki/Slotting_…
[Slotting fees:
en.wikipedia.org/wiki/Slotting_…
6/ Free fills: @sproutsfm:
[Free Fill Providing free cases to a retailer to get a new product on the shelf]
gaebler.com/The-Dangers-of…
[Free Fill Providing free cases to a retailer to get a new product on the shelf]
gaebler.com/The-Dangers-of…
7/ Handshake agreements, "contracts" in emails, and lack of clarity:
@FreshThymeFM
(......and why that is so painful)
@FreshThymeFM
(......and why that is so painful)
11/ But it's not just the entrepreneurs that suffer - they're part of a complicated system that constrains other stakeholders as well. There is no sole “bad actor”; rather, there are structural inefficiencies that permeate throughout the rest of the supply chain - for example:
12/ Retailers deal with risk in getting a product on the shelf, ex. @Walgreens charges a high co-op for a new product as a means of de-risking sales for a subscale brand
-Significant overhead driving low margin
-Opportunity cost of failing brands
-Significant overhead driving low margin
-Opportunity cost of failing brands
13/ Entrepreneurs are forced to take bets on marketing tactics that are guaranteed to benefit the retailer but may not result in any long-term payoff to the brand itself. @WholeFoods
14/ Distributors
Price takers vis-à-vis retailers, ex. @UNFI cost plus model where UNFI charges @WholeFoods cost +8%
Aggregation risk (caught between reliance on subscale brands and demand from scale retailers)
Price takers vis-à-vis retailers, ex. @UNFI cost plus model where UNFI charges @WholeFoods cost +8%
Aggregation risk (caught between reliance on subscale brands and demand from scale retailers)
15/ Consumer: Absorb steep price markups so that retailers can optimize profits
@cvspharmacy: "Charges 17% co-op even though we're driving 50%+ margin for them...they continue to up the price above our MAP pricing and take more margin."
@cvspharmacy: "Charges 17% co-op even though we're driving 50%+ margin for them...they continue to up the price above our MAP pricing and take more margin."
16/ So what does it all mean? First, just because retailers charge slotting fees doesn't mean that behavior is bad. I think its dumb, shortsighted, economically inefficient and counterproductive. But it isn’t necessarily unethical.
17/ Putting new brands on the shelf is very risky (we will share that data in the future). Expecting the retailers - which are often sub-3% net margin businesses - to absorb all the risk probably isn’t fair.
[But also lots of IMO unethical behavior by retailers that must stop.]
[But also lots of IMO unethical behavior by retailers that must stop.]
18/ One of our values is Be a Solution. Don’t just complain- offer ideas on how to fix something. So let’s try to live our values here.
Data and Transparency. Let’s shed some sunlight on the problem.
Data and Transparency. Let’s shed some sunlight on the problem.
19/ Imagine being a CPG brand and trying to decide where to spend your offline marketing dollars - i.e. free fills, slotting, promos, etc. How do you weigh a free fill at @sproutsfm vs. slotting at @HarrisTeeter ? You honestly have to wing it.
20/ Transparency through data can bring consistency across the supply chain and ensure that each stakeholder is operating on a level playing field (in turn reducing bad behavior).
21/ There is no concept of LTV or CAC here like there is online. No clearly defined metrics or ways to get benchmarks that matter. The companies are just kind of guessing.
I’m sure it’s hard to believe. It’s true. It’s no wonder the market is so inefficient.
I’m sure it’s hard to believe. It’s true. It’s no wonder the market is so inefficient.
22/ So much of building an emerging consumer is navigating how to grow a business without nearly the data or transparency that other industries have. What if they had that data and transparency?
23/ Transparency in the form of accessible data that could evaluate marketing programs at various retailers compared with the payback those programs expect. An offline equivalent of LTV/CAC.
That could come from brands self-publishing (like a comp survey in Silicon Valley).....
That could come from brands self-publishing (like a comp survey in Silicon Valley).....
24/...Or the retailers themselves could help provide the data. WHAT? “Ryan stop it.”
Hold on Young Padawan. Think about the position the retailers are in right now. They are getting slaughtered - absolutely slaughtered from all sides.
Hold on Young Padawan. Think about the position the retailers are in right now. They are getting slaughtered - absolutely slaughtered from all sides.
25/ WMT and Amazon on price, DTC winning on assortment & convenience, Instacart is taking margin to fuel convenience. Largest suppliers (largest CPGs) not providing innovation. Rent is going up.
26/ Retailers need to fight back. I’ve said the answer is assortment. That will require non-commoditized data sources. But to empower the innovative smaller brands - what if retailers leaned in on providing even more data to the brands themselves?
27/ Retailers giving brands the results of previous demo programs. Exposing shopper card data so the brands could understand who bought their product and what else they bought (anonymized).
28/ Suddenly - with those changes, offline retailers are actually allowing brands to access *better* data than online.
Suddenly offline looks pretty hip. Oh and a better channel to sell your product perhaps- better scale and more clarity levers that could drive performance.
Suddenly offline looks pretty hip. Oh and a better channel to sell your product perhaps- better scale and more clarity levers that could drive performance.
29/ Sure, 84.51 (@kroger ) sells shopper data. And a few others do here and there. But the data is cost-prohibitive for <$15m revenue brands (which is the group of brands generating so much of the growth and stealing share every year).
30/ Take a step back: the retailers can empower the most important segment of their supplier base (emerging brands) to be wildly more successful. That will pull in more consumers - because assortment matters.
31/ But wait - I’m not done. I have another rabbit to pull out.
One reason retailer margins are so low is because they too are guessing on the success of products on their shelves. A massive portion of new products fail.
One reason retailer margins are so low is because they too are guessing on the success of products on their shelves. A massive portion of new products fail.
32/ That hurts margin for retailers - cost to restock if not reimbursed but also opportunity cost. Non-commoditized data will help - as will helping their own suppliers (CPGs) get a better sense of whether it will be successful.
33/ The CPG brand that focuses on making its own product more successful at Retailer X - empowered by data to do that from Retailer X - will be more successful at Retailer X. Guess what - Retailer X will be more successful as well because less failed brands, greater sales.
[Fin]
[Fin]
