While nothing was decided in the meeting, I think I may have convinced the company to not go the consumer route, which also means they won’t be hiring me, since I my expertise is more in consumer products and brands.  Here’s why:

1.  What’s important to the company owners?  The founders/owners place a high priority in sourcing their raw materials from farmers that have sustainable environmental and labor practices.  This is so important that one of the founders spends 6 month a year traveling overseas to develop sourcing relationships with farmers and their communities.

2.  What value is the company creating?  The company has spent generous time and resources cultivating its supply chain.  Most small consumer companies focus more on the consumer brand by carefully developing the features, benefits and competitive advantages of the products.  They go to suppliers who have the systems, processes and expertise to source the raw materials from farms.  The raw materials purchased by this company include unique crop varieties not found anywhere else, which they can further blend to create distinct flavors.

3.  Where can this value be most profitable to the company? To answer this question, its critical to understand where the industry is going.  In this case, the industry that this company operates may be moving in the direction that coffee and tea have already been.  In the last few decades, these industries have seen a proliferation of demand for blends and flavors that are further differentiated by where they are geographically sourced.  As a result, the industries have fragmented with many competitors, large and small, fighting for the consumer’s mindshare.

In the final analysis, the company may be better off becoming a raw materials suppliers to other brands, wholesales and institutional buyers and take a pass on directly developing a consumer brand and products.  It appears that they may have developed some competitive advantages with their ability to source raw materials that have unique flavor characteristics not found anywhere else in the world.  With this advantage, why not sell to other brands and let them duke it out in the marketplace for a share of the consumer’s wallet.  For a small CPG start-up, it is difficult enough just focusing on developing the consumer brand and retail products.  Trying to also develop and own the supply chain and manufacturing spreads management too thin and requires far more investment that may not yield the ROI.

•  Top Retail Trends 2012 – Who Do Your Customers Trust? The Surprising Answer
• Accenture, comScore, and dunnhumbyUSA Study Shows Direct Correlation Between CPG Brand Website Usage and In-Store Purchase Behavior

The first link shows the most important data sources for help in purchasing decisions.  A swtich occurred from 2010 to 2011, with customer reviews on retailer sites and online professional reviews moving up, while all other sources moved down.  The lesson here, which I’ve been advocating for awhile, is that CPG companies need to have positive product reviews of their products at online retail websites, especially Amazon.

The second link summarizes a study that shows consumers’ usage of brand websites positively affects their purchase of the CPG brand’s product in retail stores.  The study says that the website features most important to influencing in-store spend are persuasive reasons to buy the brand, fresh content and content that engages people to participate.   So, its not just a website, but one that effectively communicates the features and benefits of a company and its products and stays top of mind with the consumer, either with new content or with different ways to engage the customer.

The problem I see from some small CPG companies that I come across is that they don’t effectively engage online like they should.  They stick up a website and then don’t do much of anything else with it and also don’t do much online at other sites (i.e;:  social networks, Amazon reviews, etc).

Channel Conflict

General-Uncategorized and Public

• RT @dhgisme: 5 Online Sources for Local, Organic Food Delivery- Great list on @TreeHugger bit.ly/xxsJXx #foodtech
• Food-delivery startup offers hot deal- charges restaurants just $.10/ delivery bit.ly/xplGFp#foodtech #restaurant #nyctech
• RF-enabled app locates lost objects or children

Retail/CPG (Consumer Packaged Goods)

• Discussion around discounters here:ow.ly/8IKcI Delhaize, Save-A-Lot, Aldi
• RT @brandchannelhub: Brands Risk Consumer Fallout From Green Logo Overload:bit.ly/zFeToW Agreed
• RT @hayesminor: More local efforts to drive shopper traffic and build loyalty: Meijer’s in Michigan to offer local bit.ly/wj3GkL
• RT @i2packaging: Emphasis on ‘pure’, #green#labels and information on product origin in U.S. chocolate. industry. goo.gl/yXJYz
• Fancy Food show wrap-up article…so many small natural/organic food start-ups everywhere.ow.ly/8EKgj
• Great disccusion/comments on Target’s “Poor me…help!” letter to vendors:retailwire.com/discussion/157…via@retailwire
• RT @keith_rng: 7 Thing You Need to Know to Start Your Weekconnected.retailnetgroup.com/index.php/2012
• Showdown Over ‘Showrooming’: ow.ly/8D0EiRetailer vs Amazon…what would you do if you were a retailer? via@retailwire.

Training (run, ride, hike, alpine-telemark-XC ski, shooting, weightlifting, rock climb)/Outdoors/Health/Food/Weather/GPS

• Another Google Offer for lodging/lift tickets to Keystone…they must be hurting – lack of snow. in Colo. this year ow.ly/8IFV8
• RT @InStoreTrends: Competing with Amazonshar.es/fHNS9 #amazon #digital #retail#trends #connected cc: @keith_rng #li
• Google Offer: 50% off night skiing at Echo Mtn. Dunno if this is good deal – never skied at Echo, but close to Denver: ow.ly/8HfH0
• For those who get into the backcountry in Colorado, nice map of Berthoud Pass ski area in Colorado (closed). ow.ly/8EA7A
• Northern states of lower 48 have chance to see Aurora displays from recent solar flares:ow.ly/8DRiU
• High avalanche danger in all Colorado mtns but South San Juans: ow.ly/8C3o9 In backcountry? Be careful! (Inbounds ski resorts OK)
• Tree Wells: the Skier’s Deathtrap You’ve Never Heard Of

My first reaction is that Target is shifting the burden onto its suppliers, forcing them to help it stem sales loses.   This is not a bad strategy, I suppose, if I were Target.  If suppliers want to sell products to Target shoppers, they must give Target exclusive products and packaging.  The downside to the supplier is that they will have to add SKU’s, thereby increasing the investment required to hold inventory for these additional SKU’s.

Channel conflicts have always been an issue and will become more accute, especially between offline and online retailers  The Internet, coupled with the increasing use of smartphones,  makes it easy and just plain common sense to see who gives you the best value for your  money.  Since I work with small CPG suppliers and manufacturers, I tend to look at how things like this will affect this group and their ability to sell in retail. I believe that products that have wide distribution are most prone to channel conflicts and retailer angst.  Small CPG companies typically do not achieve such wide distribution due to the investment required to manage inventory and sales to many different retailers, so they probably have less to worry about.  That said, a relatively cost-effective way to eliminate conflicts between offline and online is to sell a higher quantity pack – like bundling 2 cartons of your product together.   Consumers are use to paying more for a product online to justify the shipping or to reach the minimum order to get free shipping.

• Coming retail changes and how manufacturers can take advantage of them

Links

General-Uncategorized and Public

• Nice little case study here on how someone started an online subscription service shipping Japanese candy: ow.ly/8vIQl
• Great way for @garyvee to use subscriber base to crowdsource suggestions for start-up. A few good ideas/feedback. ow.ly/8vJ4r

Retail/CPG (Consumer Packaged Goods)

• Seven Reasons Retailers Shouldn’t Use Coupons: ow.ly/8v3Up via @retailwire. I don’t completely agree, but some good points.
• Online Shoppers Are Rooting for the Little Guy: ow.ly/8v5aH via @retailwire. Small retailers vs. Amazon.
• Great way for @garyvee to use subscriber base to crowdsource suggestions for start-up. A few good ideas/feedback. ow.ly/8vJ4r
• RT @focusonretail: Awesome retail and brand presentation…bit.ly/AyDZGP #CustomerExperience
• Pacific Natural Foods puts QR codes on packaging to simplify shopping:ow.ly/8wsB6 via @MCommerceDaily
• Wegmans has made quality a priority from the beginning: ow.ly/8wvjdvia @retailwire. Great retailer.
• Online companies fight for…offline retail pie: ow.ly/8wvGO I’ve used Square…seems to be front runner for now. via@retailwire
• RT @InStoreTrends: 10 Most Promising Checkout Options: The Future is Already Here shar.es/WS1y9 Great list!
• RT @i2packaging: #Cigarette tax switching smokers to the #Ecig,goo.gl/3Mi2y One of my clients is an E-Cig company.
• RT @keith_rng: 10 Ways Retailers will Reinvent the Store bit.ly/A0pJZp

Training (run, ride, hike, alpine-telemark-XC ski, shooting, weightlifting, rock climb)/Outdoors/Health/Food/Weather/GPS

• High avalanche danger in all Colorado mtns but South San Juans:ow.ly/8C3o9 In backcountry? Be careful! (Inbounds ski resorts OK)

Article 1:  ”RNG Top of Mind: Week 2 January 2012 - Margin Compression”

The first article is about the financial pressures that retailers face in 2012. It can be found here.  You will need to register for a free online account to view this article.  If you are a CPG manufacturer, its worth registering and being on this company’s distribution list.

This post will discuss the impact on manufacturers from some of the areas that this article talks about that retailers need to focus on in 2012

Finances

Retailers are under financial pressure and are looking at all levels of their operations to squeeze out costs and maximize profits.  What this means for manufacturers is increased pressure to hold the line on price increases and the possibility that they will have to shoulder additional burdens associated with operations and marketing costs.  In operations, I sense from talking with manufacturers that retailers may be placing smaller more frequent orders to maximize their cash flow and minimize inventory, which means greater freight costs borne by the manufacturer.  In marketing, the retailer may be negotiating more marketing co-op fees to help the retailer market the manufacturer’s products.

Innovation

Retailers want to push innovation to attract shoppers and manufacturers need to be constantly innovating as well to stay on shelf.  Innovation at the product level includes things like better or new ingredients that improve functionality or taste (for edible products).  There’s also innovation in the supply channel, like sourcing cheaper or better materials, which might be things to communicate to consumers (ie: raw materials that come from sustainable growers) or which might just reduce your COGS.

Value Proposition to Shoppers

Its critical to communicate why consumers should buy your product and it needs to be done quickly because the consumer is only going to spend on average  a few seconds looking at your product.  Think about where the product is shelved,  how it can differentiate in look, feel, size, design, etc, if the packaging can communicate the value proposition of the product and can other forms of store marketing be employed to motivate sales (shelf-tags, endcaps/displays, smart promotion/couponing, QR codes).

Article 2:  ”10 Ways Retailers Will Reinvent the Store”

This second article is from the same group that wrote the first article.  No registration is required to view this article.  It can be found here.

Based on this article, I think a manufacturer should be asking two key questions:

1. Where can the product be sold?
2. How the product can be sold.

Where

Where is not just a question of which channels and retailers within a channel, but which distribution points offered by the retailer. One of the 10 ways cited by the article is Site and Store integration.  In this case, as retailers beef up their e-commerce and mobile capabilities, manufacturers need to also stay current.  Manufacturers should at least be doing the following:

1. Ensure that their product packaging can display well online in a thumbnail format;
2. If they have e-commerce capabilities, try to sell different pack sizes so as not to compete with a retailer selling the same product on their e-commerce platform;
3. Ensure that their site is optimized for any device (smartphones and iPads);
4. Have positive reviews of their product on appropriate websites across the net (such as Amazon.com).

Other ways cited by the article include Prepared and Ready-to-Heat Food, Instructional/Educational Space, and Social Space. I am currently doing some work with a small CPG organic food start-up, whose product can be used for stand-alone consumption as well as an ingredient in cooking.  Here’s the areas of a specialty or higher end grocery store in which this company can display its products:

1. Store-prepared foods.  In this case, the manufacturer sells the product to the store to use in its prepared products.
2. Cafe area of the store.
3. Educational space. In this case, the manufacturer sells the product to the store to use in its prepared products.
4. In stand-alone product displays.
5. In the aisle on the shelf

Of these areas, all but the last one are in the perimeter of the store.  The perimeter of the store sees more traffic that the aisles.

Finally, the article talks about Automated Retail kiosks, which is another area to sell a product.  It is no longer just selling to the retailer and sticking it on shelf, but looking at all the possible distribution points offered by a retailer.  I think that while this dramatically increases the location and opportunities for a manufacturer to sell its product, it also introduces many more complexities into understanding where its best to sell a product and how to sell in those locations.

How

To me, how you traditionally sell a product involves the packaging (how it presents, does it grab attention), in-store marketing (content on packaging, couponing, sampling). But as indicated in the article, when you consider the areas of Instructional/Educational Space, Interactive Space and Retailtainment,  there’s more a manufacturer can consider when it comes to how a product sells.  For example, here’s what I’ve seen recently:

• There are product demos, but I know of one boutique ski manufacturer that takes it a step further and meets prospects at the resort to analyze their skiing, which helps guide the manufacturer into developing the right ski for that individual.
• Sampling taken to a higher level where there are more organized cookouts by the retailer to showcase products.
• Farmer’s markets in the parking lot of retail malls, but in this case, several retailers had tables with products at the event.

While the ideas for how to sell a product are specific to that item, it appears to me that manufacturers have increasingly more opportunities to get creative.

• 2012 Retail/CPG trends, from my vantage point
• How COGS impacts a CPG company selling to retail

Links

General-Uncategorized and Public

• Leo Burnett’s Evolving American Consumer: ow.ly/8fUJ9 Some good discussion points here.
• Where Did Nine Million Cable Subscribers Go? ow.ly/8jqFw via @PBSMediaShift I’m one of those seriously thinking about it.
• RT @SocialCPG: RT @lisajmpierce: ow.ly/8jG47 Deloitte outlines consumer trends most likely to influence CPG strategies in 2012
• RT @MarketngTidbits: Excellent #branding post – RT @johnmorgan: 10 Triggers Of Brand Influence bit.ly/xmMzSu
• Some great ideas here. I’d use the the thermodynamic stones, pot hole app and the skin scan app. ow.ly/8os0E  What would you use?

Retail/CPG (Consumer Packaged Goods)

• Retail Customer Experience: Small Surf Shop Plans to Overtake E-Competitors With Technology: ow.ly/8fULu Cool uses of tech.
• RT @retailigence: 2012 and the Age of Mobile Commerce: Bringing the Online Offline bit.ly/sXtc3f via @adage #mcommerce
• RT @RethinkRetail: Only 5% ever scan! RT @retailmaire Why Marketer Love for QR Codes Is Not Shared by Consumers adage.com/u/bA5Zka
• How an Independent grocer competes with the chains: ow.ly/8jjw3 Nice article.
• Publix Abandoning Curbside Service: ow.ly/8kAJp via @retailwireCurbside service does not make sense to me; delivery, yes
• Wegmans again to freeze prices on some products: ow.ly/8kAUZWonder how or if Wegmans is pressuring suppliers to hold prices.
• RT @i2packaging: Consumers increasingly relying on QR codes for info. on sustainable products as #labels on #packaging are confusing…
• Publix Heading North and Straight for Harris Teeter: ow.ly/8rdbt via @retailwire. Good discussion/comments
• Kroger Installs Shop24 Robotic Store At Ohio Northern University:ow.ly/8rdns #vending is evolving.
• RT @kenclaflin: Walgreens key strategies for pharmacy retail:bit.ly/yTRN5n Interesting, but #Costco is still a lot cheaper (for me)
• Supermarket API Could Save Companies $100K+ Annually ow.ly/8rNZM THis is interesting.

Books/E-Books/Publishing/Blogging

• What’s Coming In 2012: Book Publishing: ow.ly/8hbk3
• Cracking the Paywall: ow.ly/8pTYC via@mediatwit How offline content providers are steadily moving revenue sources online.

Dogs

• RT @TheLightOfDog: Pet food giant Science Diet receives FDA warning:ow.ly/8ovGC

Jesus Christ/Christianity

• RT @MichaelAYoussef: If the Lord drags you into something don’t drag your feet, just GO DO IT! Me: Well said.

Take a look at this basic example:

The rule of thumb margins are for an established ongoing CPG business.  The example includes an actual business, where wholesale price is the cost to the retailer and the gross revenue to the CPG company. Net includes the earnings before interest and taxes (EBIT).

In this next table, we’re doing an ROI anlysis of the year 1 and year 2 sales (projected) to a specific retailer, based on the terms they are offering.  The fees are converted as a percentage of total projected sales and represent a true cost.  As you can see, we don’t earn $1.00 on revenue, but its actually $.88 and .$94, respectively in years 1 and 2, for sales to that retailer.

Finally, in this last table, we pop in our revised adjusted revenue to see how it impacts net, especially if we hold our other expense buckets the same.

This is a very simplified example used for illustrative purposes only, so don’t use this for real.  The reason is if your retailer fees change, it also changes your operating costs, which might also change your marketing costs.  You have to do an ROI retailer analysis in the context of how it impacts your financials on a holistic level.  The lesson here and the point of this article is that COGS really impacts your financials.

A few recommendations with respect to COGS:

1. Its OK to have a higher COGS when you are a start-up, but you have to have a path towards reducing those costs.  The lower the better, but shoot for 30%, which is very hard to achieve in the organic/natural food space unless you are doing some real volume.
2. Raise your cost to retailers.  That’s really hard to do, unless you can demonstrate rising raw material costs, because the retailer will likely pass that on to consumers and that will likely hurt sales.  Its better to start out with as high a cost as possible to the retailer.  Conduct thorough category/competitor research and develop your product so that it has high value to your consumers.  This gives you room to charge a higher price.
3. You could reduce your pack size, but not drop the cost and suggested retail price by an equal amount.  In essence, you are fooling the consumer.  Consumers are generally adept at price shenanigans and this will hurt your brand.