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16
Feb
2012

Getting your new product to the consumer...........

by Claire Martinsen on Thu 16th Feb 2012 03:06

If I am asked for my advice on how to start a food business then one of the first things I bang on about is to pour lots of thought into how you are going to get the product to the consumer right at the start!

Yeap, that’s right before you’ve even designed a scrap of packaging, before you’ve got any logo designed for the business, even before you’ve given it a name.  Put that creative pencil down and THINK ROUTE TO MARKET!

Why?  Well the long term of how you plan to distribute your product will shape your business financials, and ultimately determine whether you have a long term sustainable business.

By no means an exhaustive list, routes to market could include:

[1] Producer -> Consumer

This is often the model when you first start up.  It could be farmers markets, market stalls, telephone orders via leaflet/flyer etc.  As you grow, it could expand to internet sales, festivals and large consumer shows [eg Good Food Show, Grand Designs etc].

The advantage is that you remain very close to the end consumer and that’s great in terms of direct feedback.  You can also introduce new products very quickly – and try new flavours and varieties on a low level before launching on a bigger scale. Packaging isn’t as essential in this route to market – you do of course need to adhere to food labelling laws, but there isn’t the need for robust primary packaging, and you don’t need to think about things like barcodes. There is also the advantage of cash flow, with potentially a short time from production to sale [no having to wait x days before being paid!].  Plus of course you get paid the retail price point [rrp] for each product sold, giving you potentially maximum profit from every product.

The disadvantage is that it can be a very labour intensive means of getting your product to the consumer.  Don’t underestimate how many weekends will be involved – and whilst this can be great, there may be family considerations which mean that in the long term you might not want to spend every weekend away from home as you grow your business. If you want to sell exclusively via the internet then you’ll not only have packaging/courier considerations you’ll also potentially need a big marketing and advertising budget to get cut through.

There are plenty of businesses who grow to be very big using this route to market [Donald Russell  or Norfolk’s very own Naked Wines] – so its not a barrier to growth!  But for most businesses you can only get to a certain size using this route to market before needing to consider another [or spending lots of money on advertising!]

[2] Producer -> Customer [ie retailer] -> Consumer

For many producers once they have outgrown farmers markets, shows etc, they want to get their product sold in retail shops [eg farm shops, delis, supermarkets].

This has the advantage that the consumer is able to find the product in many more outlets.  The product is not only able to be bought in multiple locations, but every day of the week.  That means it can be a great way of growing sales.

The major different in using this route to market is the need to factor in the customer margin  [ie the retailers profit]- this will vary depending on the product, so its important that you understand what the margin for your product is right at the start!

If you are selling direct to supermarkets then this could be about getting products to a warehouse point. Getting the product direct to other retailers [eg farm shops] might be either via mail order/courier or through company owned vehicles.  So although the volume may be greater than the Producer->Consumer model it may not be any less time consuming.

[3] Producer -> Wholesaler -> Retailer -> Consumer

This model is similar to the one above except that there is an additional ‘wholesaler’ link added in.

The advantages are the same as above in terms of having more points of distribution.  Lots of retailers find it uneconomical to have multiple order points, and therefore prefer to have one order and one delivery drop from a wholesale partner.  There are many products where it may be uneconomical to distribute without a wholesaler. Wholesalers work very closely with retailers supplying a variety of products and sometimes their initimate knowledge of the trade can be a real advantage.  Products are dispatched in bigger volumes to a single distribution point.

The disadvantages is that there are now not one, but two margins to be considered – the wholesaler needs a margin for distributing the product. The margin by category will alter, so again you’ll need to do some research up front.  You will still need to spend lots of time promoting the product, as the wholesaler carries a number of products not just yours. The link between the producer and the consumer also becomes even further away – loosing the intimacy of #1!

-x-x-

So which is the right model?  There is no right model…….you can build a successful business using any of the above [or any other route to market].  But each has very different considerations in terms of margin, profit, volume, labour, scale etc.  Its fine to start a business using one method as long as you know where you want to end up in the medium term.  And its the medium term view that you need to base your business model on – it will tell you very quickly whether you have a financially viable business.

I really hope I don’t sound a bore on the subject…I spent AGES thinking of all the pros and cons of each route to market right up front before I even made my first bottle of Posh Pop.  And doing all that thinking was a great process to have gone through.

Whatever you decide, have fun and enjoyxx

Posted in: Tips for running a food business

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