In the food industry there are eight channels of distribution. Each channel has it advantages, disadvantages and challenges. Since time and money are always limited, this discussion I hope will assist in your strategic planning.
Grocery /Supermarkets: Provides the largest channel of distribution in the food industry, with both chain and independent stores. You can sell to these stores either directly or through distributors. Distributors that take your product work on a 25%-35% margin, so your margins will be lower, requiring good purchasing and cost control. In many cases, it is best to “pioneer” the product yourself. The best way to do this is to identify 2-3 chains in your area, meet with the store manager and see if he has the authority to “slot” a local product. When volume builds, he may assist you in obtaining additional stores in the chain.
Warehouse & Club Stores: Best to approach directly or with a broker that has a strong relationship with the buyer you need to convince. They will purchase large quantities for a region. However, they have the reputation of cycling products in and out, so unless the product is a substantial success, be prepared to lose the account every few years.
Gourmet / Specialty Food Stores: These stores are small and usually the owner works in the store. They can be sold directly or through a broker or distributor. They buy in small quantities but will be knowledgeable about the product when a customer asks a question.
Natural Food Stores / Supermarkets: Will focus on “all natural” or fully organic ingredients. They can be sold directly or through a natural foods distributor. Make sure your label meets their requirements so you don’t waste your time.
Gift, Promotion, Catalog and Department Stores: All can be sold direct or through specialty food distributors. Quantities will generally be small and some may ask for a “guarantee of sale.” Be careful and think through this issue before accepting an order.
Discount / Non-Traditional Food Retailers: Stores like Marshall’s, Bed Bath & Beyond, Walgreens, etc can be sold direct or through specialty food distributors. They may provide significant volume but will expect larger discounts than normal.
Foodservice & Institutional Channels: Generally small and large food service distributors sell to restaurants, hotels, inns, schools, prisons and other institutions. They require larger sizes and your product will have to be competitively priced, but this is a good segment for continued steady volume and profits if handled correctly.
Internet and Catalog Marketing: Can be a good segment with high margins if managed correctly. Small volumes and higher shipping costs bear close watch. For some companies, shipping is a profit center.
Download this article as a PDF: POV_22 Distribution Channels