Are You Ready for
Retail?
Presented by Andrew Ladd – Local Products Purveyor
Whole Foods Market – Dublin, OH
1980 – Whole Foods Market
Founded in Austin, TX
2005 – First established in Ohio
2011 – 6 Ohio locations
Now the World‟s largest retailer
of natural and organic food
“One of the most misunderstood things
about business in America is that people
are either doing things for altruistic
reasons or they are greedy and selfish, just
after profit. That type of dichotomy portrays
a false image of business. It certainly is a
false image of Whole Foods. The whole
idea is to do both.
John Mackey – Founder and CEO of Whole Foods Market
Trends in Supermarket News
Local foods are one of the hottest
trends in the supermarket right now,
and while supermarkets have been
highlighting local foods for years, it's
easy to understand the renewed
appeal of these products. Some
shoppers say buying local is good for
the environment. Others say they
buy local to support their local
economy. And, most of these
shoppers equate local with fresher,
more flavorful products. Retailers
who embrace the movement often
find that highlighting their
relationships with local growers can
help build customer loyalty, and
establish a great narrative and
theme in their produce
departments.
- Supermarket News
Food Channel
Top 10
Trends:
“Living La
Vida
Locavore.”
“Local is the Next Organic”
- Anthony Capuano (speaking in terms of what the Customer is looking for)
A Week in the Life of Retail
Example Non-Holiday Week in Dublin, OH
• Estimated Weekly Sales:
$800,000 (in a good week)
• Ohio Companies “Local”
Sales Average: $43,000
• 13,400 Ohio units sold / wk
• Approx 5.4% of Store Sales
• Extrapolates to approx.
$2.3 Million annual sales in
Ohio products at a single
location.
The Reality of Retail.
Where’s it all Go?
Based on FY 2010. A stellar performance year in Grocery may
see Net Profits of 5% to 6%. Conversely, in „08 & „09 much
of the Grocery industry experienced Negative Net Income.
$43K avg./wk in “Local” Sales.
What’s that mean for Ohio?
Understanding the Economics
Forget Mark-up - Learn Profit Margin.
• Mark-up equals selling price
minus cost of a good.
• Retail of $5 & cost of $3 equals
mark-up of $2 or 66%
• Margin is % of retail that goes
to the retailer.
• Margin = (retail – cost) / retail
• Retail of $5 and cost of $3
equals margin of 40%
• Meaning 40% of retail stays with
the retailer. 60% goes to the
vendor.
Understanding the Economics
“Target Margin”
• Every manager, Every Team
Leader is responsible to maintain
“Target Margin”.
• Targets fluctuate by fiscal period
and by Dept.
• Margin Mix is the over all margin
average by dept sales.
• Target Margins range from approx
28% to 50% depending dept and
category of product.
Understanding the Economics
Making yourself attractive to a Retailer
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Set up a meeting.
Be prepared with samples.
Know your costs before submitting .
Submit items at a margin that will
allow dept. to maintain target.
• While your LOCAL store may be
able to absorb margin on LOCAL
items, low margin items often
inhibits long term growth.
• For the most part once cost and
retail are in the system, that is what
is worked with going forward.
• Most retailers avoid raising retail at
all costs.
Understanding the Economics
Example: From Farmers Market to Supermarket.
• Vendor makes the best (salsa, BBQ
sauce, honey, jam, etc) in the state
of Ohio
• Production costs $2 / unit
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Ingredients
Packaging
UPC‟s
Labels
Co-packer / facility costs?
Labor
• Great feedback & sells well at $5
Understanding the Economics
From Farmers Market to Supermarket - Scenario #1.
• Vendor accustomed to $5 retail so
presents to Retailer with MSR of $5
• To maintain margin Retailer offers
cost of $3 w/ net profit to the retailer
of 15 cents.
• Now vendor who is accustomed to
$3 profit is offered $1.
Understanding the Economics
From Farmers Market to Supermarket – Scenario #2.
• Vendor who is accustomed to $3
profit, is willing to take slightly
smaller profit; presents to Retailer
with cost of $4.50
• To maintain margin Retailer would
have to set retail at $7.50
• Will the product realistically sell at
$7.50? How many / How few?
• Item probably does not make it to
the shelf at this price.
Understanding the Economics
Somewhere in the Middle – Scenario #3.
• Retail is set at $5.79 & both parties
hope it sells. Net profit to the
retailer of 17 cents.
• Cost to the retailer is set at $3.45 &
39.5% margin.
• “Profit “to the vendor $1.45 / unit or
$17.40 / case of 12.
• Vendor and retailer agree on free
fill, sale pricing & multiple demos to
launch the line.
What Else?
Otherwise known as how far does $1.45 go?
• Will you incur Free Fill or Slot fees?
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Free Fill are cases free to the retailer to
secure the shelf space.
Slot fees are $ paid to the retailer to
purchase the space.
• How is it going to get to the store?
• If Direct Delivery, how far does it
make sense to drive?
• Are labels & packaging, business
basics, licenses, insurance all in
place & legal?
• Shelf Life testing?
• Inspections and Certifications?
• Sampling costs?
Option 1 - Direct Delivery
• Vendor keeps control of products
• Keeps costs & payments internal
• May allow for faster delivery to
Retailer – Sometimes Not!
• Helps build relationship that could
lead to sales opportunities.
• Can time deliveries with Demos.
• May serve as incentive to expand
within a geographical area
• How far does it make sense to
Drive. What if you‟re driving 3 hrs
for one case?
• Involves Cost, Gas, Time, Mileage
• Might be least expensive but with
unknown cost then profit becomes
unknown
• Often limits long term growth?
Vs. Shipping
• Often fastest delivery option
• Vendor does not have control of
product
• No relationship w/ retailer.
• Shipping cost must be absorbed by
retailer or vendor. This must be
part of the initial price discussions.
• May make sense on light items
• On heavy product, the Shipper may
be the only one who profits.
• If shipping, best to build cost into
the cost first presented to the
retailer, then vendor pays the actual
bill.
• If shipping becomes a hidden cost
to the retailer, it can be a deal killer.
Vs. Distribution
• Vendor does not have control of
product
• No relationship w/ retailer.
• Distribution cost must be part of
the initial price discussions.
• Can increase ease of ordering.
• Can decrease vendor set up
requirements.
• Could be your fastest route to
growth.
• May need eventually anyway.
• Distributor taking on some of the
paperwork and liability.
• Ohio Distribution ranges from
$3.50/case (Caito) to approx 40%
Margin
Adding Distribution
Back to Scenario #3.
• Retail at $5.79. Quoted Cost to
store needs to stay $3.45.
• Distributor mandates 20% margin
so vendor receives $2.75
• ($3.45 – $2.75) / $3.45 = 20%
• Vendor absorbs distribution cost
and Now profit to vendor is 75
cents/unit.
• Equals $9 per case of 12
Caito & Whole Foods Market
Partnered to Help Ohio Product Get to Ohio Stores.
• Caito distribution opens prospect of
9 WFM stores plus “other”.
• Cost of Distribution to WFM is
$3.50 / case regardless of weight or
product type.
• $1.45 – ($3.50 / 12) = $1.16
• Profit to vendor is $1.16 or $13.92
per case.
• Still up to vendor to grow the line.
Getting Approved as a Vendor
• Ingredient Verification
• Label Review
• Certificate of Liability Insurance w/
$2M Gen Agg and Products, $1M
Auto and Workers Comp.
• LLC / Tax ID documents.
• USDA / ODA inspections.
• Food Handlers licenses.
• Applicable Certifications: Organic,
Gluten Free, etc.
• Electronic Funds Transfer – What is
2%Net30?
• Indemnification Signatures.
• Supplier Compliance Checklist.
…Ohio Farmers Pick:
• Farmer‟s Pick is a program
designed with Ohio-grown produce
lovers in mind. WFM customer‟s
membership serves as an easy way
to support LOCAL farms. As a
Farmer‟s Pick supplier, Whole
Foods Market would link your
farm‟s products to customers to
whom you may otherwise not have
easy access.
• [email protected]
Packaging & Label Review
Is it Legal / Will it Draw the Customer?
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www.fda.gov/Food/GuidanceComplianceRegulatoryI
nformation/GuidanceDocuments/FoodLabelingNutriti
on/FoodLabelingGuide/ucm064880.htm#ingredient
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Packaging sealed and food safe
Does it merchandise well
Graphics & Layout
UPC‟s required
List every sub-ingredient
Nutritional Facts or proof of
exemption
Batch codes or best by dates
OG, Gluten Free or Health Claims
verified
Declared allergens & hazards,
“Keep Refrigerated” language
Directions for use
% Juice & other Declarations
What’s a Compliance
Checklist?
• Producing in a USDA / ODA
certified facility?
• Following Home-Produced
Regulations?
• Shelf Life testing?
• Recall System?
• GMP, GAP and HAACP for high
risk items?
• Employee Illness Policy?
• Bioterrorism Act of 2002 compliant?
http://www.fda.gov/Food/FoodDefense/
Bioterrorism/default.htm
Building the Line
• Most common way onto
Supermarket shelves is to create
interest at a single store and work
with store to become approved
vendor.
• Build sales, demo, put on promo,
get local signage, participate in
events, be proactive about
merchandising opportunities.
• Expand to area stores and show
strong sales in multiple locations.
• Submit for Regional category
review and move to distribution.
• Best case is to get in Plan-o-gram.
• Continue to build relationships at
the store level.
Or Occasionally…
• Though not as common, it is
possible to Submit for Category
Review at the Regional level as the
initial step.
• Wow them with quality of your
product and professionalism of your
presentation.
• Be prepared to move to distribution.
• Best case is to get in Plan-o-gram.
• Once in, build relationships at the
store level.
Demo’ing for Success
• Avoid the mistake of believing that
once on the shelf that the vendor‟s
job is done.
• Sampling is the #1 way to introduce
your product and secure new
customers.
• Be as proactive as possible.
• Build sales in one location vs.
focusing on expansion.
• Builds relationship with customers
& the retailer.
• Demos can be vendor driven, inhouse or 3rd party.
• All may have Cost associated with
them.
Interested in Selling
Through Whole Foods
Market ?
In OH, KY or Eastern PA please email
[email protected]