Go to Market Series, Fall 2018. Installment #5: Pathway (Commerce)

Brand prosperity is a lot like the root system of a tree. Although hidden beneath the soil, the root system of a tree is the origin of its strength, stability and capacity to flourish. A nourished root system grows a tree that produces a bountiful yield. Conversely, a deprived root system can compromise the tree’s ability to produce at all. 

In similar fashion, the root system for a brand must be strong and healthy for the brand to prosper. Each root is an integral part of a brand’s path to not just bear fruit, but flourish. A strong root system for a brand is rooted in a disciplined and methodical Go to Market strategy. This is the fourth in an 8-week series outlining the framework of a successful Go to Market strategy. The previous articles can be found here:

First: Purpose

Second: Product Strategy

Third: Production Strategy

Fourth: People (Consumer) Strategy

The fifth root in a successful Go to Market strategy is the focus of this article: Pathway (Commerce) Strategy

Thank you for your interest in this topic. We welcome your feedback and comments, and the opportunity to help you on your journey.

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Imagine you’re selling your newly launched brand in a few dozen locations, and the Kroger or Target buyer expresses interest in placing your product in 250 locations. Should you do it?

What if the Walmart buyer agrees to place your specialty product in line with the traditional CPG competitive set “to maximize shopper exposure”? Should you do it?

If you’ve been selling your new brand on your own web site for the last 3 months, are you ready to start selling in brick & mortar retail? 

Most of the time the answer to these questions is “probably not”, but of course, the answer depends on many factors. Having a compass and benchmarks to help arrive at these decisions methodically, with focus and with discipline is vital. Hopefully I’ll shed some light on the many considerations when developing or refining your commerce strategy.

First, some context

In the ‘old days’ (as in, up until about 3 years ago), building retail distribution for a conscious brand was almost linear. The graphic below depicts the general path a new brand could plan for almost as a template – Get accepted at a Whole Foods store or two, then a few more, then a region, then a few regions, then national. Soon before going national with WFM would come other natural foods supermarkets and coops. Subsequently, specialty supermarkets. 

Before this point, a product was only competing in an environment with similar products, similar consumers, and similar retail philosophies and trade programs. Specialty stores were a great way to start transitioning because about half of specialty store volume comes from conventional grocery products, so they represent a good playground to start testing tactics and measuring performance when conventional products and consumers are in the mix. 

Then it was time for the big leagues – Kroger, Safeway, Publix, Fred Meyer, Ahold, and the others. Slotting fees, retail strategies & organizational structure stacked against a small natural products brand, buyers with little to no knowledge or incentive to sell natural products thanks to natural product velocities being a fraction of traditional CPG items, core shoppers with little to no awareness of your brand, and of course the merchandising debate for natural products to be in the ‘store within a store’ or ‘integrated segregated’ sets. Good times…

Once a brand got their legs under them in this environment and was more mature, depending on its positioning and strategy, the crown of growth was getting into Target, Walmart, and perhaps drug retailers and club retailers. By that point a brand had proved its market strength and was all but guaranteed to be acquired.

Boy how times have changed…

Today of course, times are different:

• Consumer demand for better for you products is pervasive across demographics, lifestyles and geographies;
• CPG companies have modernized their portfolios to respond to this demand and pose a more direct competitive threat to a natural products brand;
• Traditional retailers have restructured their organizations and invested in new processes to integrate better for you products more readily – not the least of which is that Kroger is now the nation’s largest natural products retailer;
• Digital marketing is front & center and is replacing traditional trade spending;
• Ecommerce means you could have a customer a thousand miles away who would have otherwise never had access to your brand; and,
• An entire ecosystem of investors, accelerators and incubators exists to support and learn from start up brands – which also serves to better position the strategic investor in particular to make an acquisition earlier and earlier in the brand’s life cycle to avoid missing out on an opportunity to a competitor.

Where to Sell

People shop “everywhere”. In a 2017 survey, The Hartman Group says 65% of consumers shopped between 3 and 6 retail channels for food and beverages in the past 30 days (includes online). Primary shoppers visited an average of 4.4 channels in the past 30 days. Only 7% of consumers shopped 1 retail channel. As an aside, I think it’s worth noting too that their survey revealed 17% of consumers shopped for food & beverages online in the past 30 days, visiting ecommerce sites an average of 2.2 times during this period. It's not clear whether this is the ecommerce extension of a brick & mortar store or a pure ecomm site. Those are meaningful numbers for sure, but they're not “everyone” and “all the time” as we tend to grossly overstate these days. It is however clearly growing and these numbers will certainly climb.

Given this, the allure of being exposed to and available to as many consumers as possible, as quickly as possible, has a strong gravitational pull. Attempting to sell a product to any consumer in any outlet however can expend a lot of money with not much to show for it. Of course, a certain subset of consumers is more inclined towards a product than others, for a variety of factors. For an examination of these factors please see the fourth installment of this series, People (Consumer) Strategies here. 

Where can consumers buy products? Said another way, what are your options to build your brand? The answer is a staggering potential of more than 300,000 locations:

“Traditional” Brick & Mortar Retail (100,000+ locations)

Natural supermarkets

Specialty Gourmet supermarkets

Traditional Grocery

Drug

Mass Merchandisers (Target, Walmart)

Independent natural product retailers

“Alternative” Brick & Mortar Retail (160,000+ locations):

Club/warehouse

Convenience

Supplement/Nutrition

Micro Markets

Fitness clubs/Studios

Food service

Quick serve casual (as packaged item)

On premise

Prepared foods dept in retail

Meal Kits

Ecommerce:

Direct to consumer – your brand’s web site

Ecommerce extension/option of brick & mortar retailer

E-commerce pure play (Amazon.com, Jet.com, Chewy.com)

“Emerging”:

Farmer’s Market

Co-Working space

Corporate campuses

Airports

Hospitality

Home Goods Stores (Bed Bath & Beyond, World Market, etc.)

Concession stands/Kiosks

Vending

Uber (in limited testing)

Lastly, when you consider the hundreds of millions of devices with a browser window or app, “every screen is a distribution point”. (Thanks to my friends at Whipstitch Capital for letting me borrow that phrase).

With more than a quarter million location options possible, where to start? I believe there are two essential factors to consider when choosing where to initially sell:

1. Your ability to control, oversee, and learn during the process, particularly in the early stages
2. Density of high value, early adopter, target consumers aligned to your proposition

The first criteria is fairly straight forward – if you’re based in Columbus, Ohio, choose your early retail partners and locations in the greater Columbus area. Start with a few locations and limit your additional doors to be within the same geography: build selling location density before expanding your geographical boundaries. Many folks will refer to this as ‘going deep and narrow’. Doing so allows for controlling costs while having tighter control or oversight over distribution logistics, merchandising/in store experience, pricing consistency/accuracy, demo management, and getting consumer & retailer feedback – in other words, getting it right before getting so big that adapting to new learnings can be prohibitively expensive or operationally painful. Having selling location density in a given area also allows for more productive marketing campaigns and saturating a geography with event participation, both of which should lead to better conversion rates. The likely outcome of this process is building velocity (sales rate per location). An investor has a lot more confidence and interest in a brand who has 100 locations selling $10/location than a brand in 1,000 locations each selling $1. Strong velocity in a limited number of stores means there’s a lot of runway to expand the brand’s success at a healthy velocity from the start.

The second criteria of knowing where to start relates to where to reach your target consumer. If you first need to define them, feel free to refer to the fourth installment in this series, People (Consumer) Strategies. Once you know who they are, they need to become aware of your brand & product. More on that in the seventh installment, Promotion Strategies, but for now, being merchandised where they shop becomes a potential discovery point. Being selective about these early “discovery points” means knowing generally where your target consumers live and shop, but also the general profile of an account, and more specifically, the profile of each location and the core shopper profile of in each location. In the early days of a brand, selling in (pick your channel – for this example we’ll use natural or specialty) retailers exclusively might make sense. Alternatively, maybe it makes sense to reach early adopters and build a fan base through camping stores, fitness studios, nutrition stores, college campuses, etc. A second wave of location selection could account for the fact that lots of formats in the vicinity of natural & specialty locations don’t look like a natural or specialty store but have a decent shopper base that leans natural/specialty (or for that matter who shop in multiple formats including the natural/specialty store). When talking with larger chains, use data (read: caution or discipline). Most traditional retailers are more sophisticated these days and know which of its locations are better suited for an early stage natural product, so working with them to be selective rather than going for the big store count just because they can offer it is where exercising discipline comes in. 

How to Sell

Using reliable data is always better than taking an educated guess. Plenty of paid research options exist, but so do free sources, including public statistics released by the government (but these can be dated). Other free insights can be gleaned by studying social media and web sites of the businesses in specific areas, and not to mention just visiting the area and retailers to visually assess product selection, retail environment, and shopper base across different week days and day times. I’d even suggest standing in an aisle watching how people consider and shop your category, and how well all of these factors align to your targeted early adopters of your brand profile and proposition.

The point is: start, learn, adapt, build, build some more, then expand.

One of the most effective and efficient learning platforms is selling direct to consumers, whether on your own site or a third party. The direct link to your customer for communication and influence, ability to know their browsing, shopping and spending habits (for your product only if on your own site), their location and potentially their household composition, and ability to ask questions to learn more about them, means you build a relationship on a 1 to 1 basis. You also have full control over testing new products, messages, and approaches. That’s powerful... But it doesn’t seem like it's enough to build scale. Even digital native brands (outside CPG) like Warby Parker and Casper have expanded into brick & mortar. When selling only on your own site, the trade off from brick & mortar retail or an Amazon.com is there are no incidental shoppers on your site shopping the category or other categories and happen to find you. Building awareness is on you, but the knowledgebase and data set you gain about your consumer profile & behavior is immense. While you can learn these things about brick & mortar shoppers too, it’s harder or less precise, and more expensive. The implication is selling direct to consumer is a great way to launch, learn and build, creating buzz and momentum along the way, and likely making your selling proposition easier when it’s time to present to brick & mortar buyers.

Note that I have not addressed the operations, cost implications, and customer acquisition costs of using the traditional path of warehouse to retailer vs D2C fulfillment. In D2C you can clearly measure CAC because you have a single/limited distribution point and know how many customers/orders you fill. In traditional retail there are retailer fees, broker & distributor costs, and it’s almost impossible to know exactly how many consumers you have. There’s much debate over which has better ROI and is more sustainable, but most of the debate centers around non-consumable goods. More case studies and/or hard analyses are needed in the consumable product area to shed more light on each path. I feel strongly that neither approach is meant to be exclusive, so the goal is finding a profitable and operationally sustainable D2C process in combination with an effective and profitable brick & mortar strategy.

Lastly, I am not a fan of the term “omnichannel”. Sure, there are store types and formats with characteristics that look like the legacy labels of a grocery store, convenience store, etc. However with the evolution of retailing occurring before our eyes, formats are morphing and lines are blurring – mainly due to the fact that 2/3 of shoppers buy food & beverage from as many as 6 formats. The best way to build a commerce strategy is by being where the consumer is. Don’t worry about channel labels, focus on being where the consumer shops and can find you.

Merchandising Strategy

Merchandising in brick & mortar is a completely different experience from on line merchandising. In ecommerce, products only have to be segmented into general, logical categories, and search terms provide for an infinite configuration of products to be displayed in browsable lists. (As an aside, a browser or app is also endless real estate to convey your message). In retail stores, a product is ‘fit’ into a finite category set. With some effort, making the case why a shopper would seek your product in an adjacent or complementary section or department of the store (ie, produce, deli, checkout, natural living) can result in secondary placement. But what happens when categories start to blur – do energy bites belong in the energy bar category or snack category – or retailers designate a portion of the store to natural/allergen friendly products? What about when a disruptive product turns the logistics of how a category is merchandised on its head (ie, Once Upon a Farm refrigerated baby food)? If the retailer offers no flexibility then the decision has been be made for you. In this case you might need to weave your merchandising into marketing campaigns and messaging (ie, “find us in the snack section”). Unfortunately this approach also implies you’ve given control to the retailer to make the decision for you – not recommended, unless it’s a mutually planned starting point to get you into the ideal set/section and the retailer agrees to waive or substantially lower its velocity hurdles for your product until it’s in the right set. Avoid this by being proactive and strategic - make your merchandising strategy an explicit part of your proposition. How do you make the recommendation? Know the answer to these questions:

1. Where does a shopper expect to find my product?  
2. For what product am I trying to be a substitute or replacement?
3. Am I willing to pay/can I calculate a reasonable ROI on slotting fees to secure certain placement position in certain retailers?
4. Does the use occasion for my product lend itself to a certain physical store location?
5. What complimentary or adjacent categories or departments lend themselves to my product? 
6. What other products do my consumers tend to buy together?

These points relate to everyday merchandising. Promotional merchandising will be treated in the seventh installment of the series, Promotion Strategy.

New Account Timing

Retailers have category review schedules where they will only consider new products (to them) within a category at a certain time each year. If you miss the window you may have to wait as much as another year to be considered at that retailer. Given a retailer’s multiple steps in a category review process, it can be as much as 6 months from the initial review meeting to retailer decision to product getting on shelf. Keep this in mind for resource planning and financial projection purposes too – a product won’t start selling in the same month or even the following couple of months after a retailer review because it won’t be on the shelf that quickly.

Seasonal Considerations

All products have a seasonality factor, but some a lot more than others. As an extreme example, holiday specific items like Halloween, 4th of July, Thanksgiving, etc. have a brutal seasonality factor. Most areas of the US have distinct meteorological seasons so sun screen, bug spray, canned soup and tea usually sell better certain times of the year than others. Even snacks can ebb and flow a bit. It’s a lot more fun (and financially simpler) to sell a product all year ‘round than having 75% of sales in a single month. If your product is subject to seasonality, consider formulations that permit extended use. I am not suggesting losing focus or uniqueness by making a confusingly non-specific product. I am instead suggesting developing formats or messaging that move it out of a singular use. As an example, in the tea category, there’s traditional black, green & white teas along with exotic varieties for general occasions, but there’s also herbal blends formulated for functional purposes (sleep, indigestion, nursing, immune, etc.).

In summary, start online and/or curated locations where your early adopter consumer target shops and can find you; maintain as much oversight and control as possible while you test, learn and adapt; build your velocity before over extending on door count; take a proactive approach to merchandising; and be mindful of retailer category review schedules. 

A closing question: A start up natural cookie brand told me they were selected by Walmart to be placed in 500 locations across the country that Walmart knows to perform well with natural products. How would you respond……? 

Next week: Pricing Strategy