Competing for shelf spaces

Competing for shelf space

Will retailers, particularly the big guys, take in new products from small business owners?
We explore how small producers should go about approaching the bigger players…

Your Business Magazine asked business consultant and retail expert Wayne Poggenpoel for his tips to help small manufacturers and suppliers get their products into top retail stores.

Your Business: How do you decide which retailers to target?
Wayne Poggenpoel: Retail is about supply and demand, i.e. how best you can supply products or services to cope with demand in the most efficient and cost effective manner with the aim of making a profit.

Firstly, you have to understand the market, the market players and who needs the product you are offering. Finding this out will reveal the market segment you should be targeting, which retailers to collaborate with and which products or services are the common denominator. To determine this, you need to analyse the market to determine who to target and which retailers service your market.

YB: Should you start by approaching specialty retailers?
WP: Much of the power has moved from the producer to the retailer, especially the larger ones, so as a small producer you have very little bargaining power. Most large retailers also have preferred supplier or vendor lists, so a small producer with an unknown brand name, may find it difficult to get a foot in the door.

However, this doesn’t mean that you can’t get in, it just takes time. Considering these obstacles, it may then be advisable to approach speciality or smaller retailers during the initial stages. Why? The barriers to entry are lower, it will give you the opportunity to build your brand and you will have a bit more bargaining power with the smaller retailers. You should also display your products at markets or trade shows initially as this will help get your brand name out into the market.

YB: Once you’ve narrowed down the list of shops likely to attract your intended customers, who should you approach about getting your products in?
WP: At the smaller retailers, you would look to approach the owners as they perform most functions and are also the key decision makers.

With the bigger retailers, it would be the buyer. Retail buyers are responsible for developing product assortments using market trend information, as well as managing sales and margins. It is a multi-faceted role that includes contract negotiations, inventory management, sales planning, forecasting and close coordination
with the merchandising and operations teams. Buyers will identify growth opportunities and risks in their assortments and develop contingency plans. They are expected to build strong vendor relations and put together solid business plans, including strong and detailed promotional programmes. They are the best people to approach as one of their main goals is to grow the market with available or new products.

YB: Are there brokers/middlemen who deal with the retailers?
WP: There are various channels that retailers use to get products from manufacturers to stores namely: direct sourcing from manufacturers, centralised warehousing and sourcing from agents or couriers. These paths tend to roughly correspond with the nature of the commodity supplied.

• Direct sourcing from manufacturers
In general, non-food, general merchandise and large appliances are sourced directly from manufacturers. Buyers negotiate prices, terms of delivery, credit etc. with the manufacturers who then supply the products in the required amounts as per a delivery schedule. In the language of the retailers, these goods are characterised by low volume and high mark-ups. They include fridges, stoves, hi-fi equipment etc.

• Centralised warehousing
Centralised warehousing is a system where companies use one or two national warehouses of enormous proportions to stock goods for systematic distribution to stores. Centralised warehousing is used for specific categories of high volume goods. These include non-perishable foods (e.g. tinned foods, packaged foods etc) and can also include low-priced bulk buy clothes (e.g. T-shirts, popular branded goods etc). In this approach the retail company buys in enormous bulk and stores in one or two national warehouses.

• Delivery through agents or couriers
In studies done on relationship between retailers, suppliers and distributors in the commodity chain, analysts have focused on the extent to which the retailers are increasingly able to dominate the terms of trade. This process has put such a squeeze on suppliers that they have largely withdrawn from distribution and this function has been taken over by agents or couriers who are seen to be logistical specialists able to function under these onerous conditions.

YB: What sort of commission should pay middlemen?
WP: This charge is pretty much negotiable and can take the form of a retainer or a percentage of sales. It would also depend on whether the agent distributes the product and whether they create the display in the retail shop. All these functions are extra and can increase the costs of getting the product to the retailer and then to the consumer. The commission could be as little as 1% or as much as 10% of sales.

YB: What information will retail buyers need?
WP: When offering a product to a buyer, highlight the
following:

The appeal the product has

  • for the consumer
  • Why consumers will buy the product
  • Where it fits in the range currently stocked
  • Who your competitors are
  • If it will show sufficient profit
  • How it will be displayed
  • How it will be advertised and promoted
  • What the pack sizes are
  • That the continuity of supply is secure
  • The nature of the available after-sales service

Remember also:

  • Retailers are the middlemen between suppliers and consumers and their aim is to generate the maximum profit per square metre of available selling space. If your product can generate more rands per square metre than an existing product, you will be able to displace them and vice versa.
  • Retailers are not particularly interested in whose product they sell.
  • It is the supplier’s responsibility to ensure that consumers choose their product.

YB: When presenting what should you bring with you?
WP: You would normally create a Sales Presentation Folder that covers all aspects of your product, including the target market, market research, consumer test results, consumer benefits and advertising and promotional plans for the product. These must be presented to the buyer in the correct sequence and with the correct emphasis. Each page of the folder should cover one relevant topic.

Your Sales Presentation Folder, together with all documentation on market research and consumer test results, must be readily available. Aim to peak the buyer’s interest before revealing the product to avoid being rejected before the buyer has all the relevant information. On your first visit, make introductions pleasant but formal, avoid “small talk” and begin by providing a short background of the product’s development, its competitive edge and main product benefits using the Sales Presentation Folder. Once the buyer has been made aware of these facts, reveal the product and reinforce the consumer benefits outlined a few moments before. Next, present the market research results, indicate the target market, discuss advertising and promotion plans and possibly offer exclusivity for a limited period.

YB: How important is publicity?
WP: In my view, this is as important in retail as it is in any other industry. If no-one knows what you are selling, how are you going to convince them to buy? This should be looked at on a continuous basis from the start. Remember, you are selling a product and, even if it is being sold to the retailers, it will ultimately land up in the hands of consumers. If these potential customers don’t know your products, they will be unlikely to buy.

YB: How important is packaging?
WP: Packaging is a very important marketing strategy to
glamourise your product and attract attention. In some instances, it is so important that it costs more than the product itself and is designed to lure customers in. Packaging should definitely be included in the four major P’s of marketing (product, place, promotion and price). Most consumers judge a product on its packaging, so attractive packaging is crucial in order to get first time buyers to purchase your products. Your first tiny steps into the retail channel will be crushed if your packaging is ugly.

YB: Pricing – What cut is taken along the way?
WP: In terms of pricing, there are various factors to look at.
There are five criteria that will ultimately determine the prices you set for your products: supply dynamic, product attributes, competing products, competing retailers and consumer demand. You will also have to look at the market channels used to reach the consumer i.e. direct, retailer, wholesaler or agent/broker. All of these factors influence pricing and the cut along the way, though negotiable, can be as much as 20%.

YB: Payment terms – How long will retailers take to pay?
WP: Payment terms can be as short as seven days or as long as 90. Remember cash flow is important for retailers and the longer they can stretch out the payment period the better for them. Factors that could influence this include your bargaining power and negotiating skills.

YB: How do you build credibility?
WP: Your initial sales presentation to the buyer is your first
opportunity to work at building your credibility. You could draw on present and past clients that you have supplied to provide references. Remember to emphasise the quality of your products and show that continuous supply is assured. If the buyer gives you the nod, you will then have to ensure that a quality product is delivered to the appropriate location in a timeous fashion.

YB: What are the other challenges?
WP: There are many:

  • They are very demanding as bargaining power has shifted
    to them.
  • They are very cost sensitive in order to improve their profits.
  • They thrive on controlling the supply chain.
  • They are very product standard-orientated and products have
    to comply with their standards.
  • They hold the view that you need them and will, therefore,
    always try and negotiate the price to their benefit.

Wayne Poggenpoel of retail property management and
consulting firm Synergex can be contacted on 021 526 0475 or
wayne@globalsynergex.co.za. Visit: www.globalsynergex.co.za.