Just as baseball players dream of getting called up the big leagues, aspiring entrepreneurs aim to get their products on the shelves of a major retailer. Both efforts take talent, preservation and some luck. Most important, however, is a willingness to be coached.
That last is why Heidi Lovig’s vegan cheese substitutes are sold at Whole Foods. The retailer decided to carry Lovig’s product only after she obtained organic certification, altered her ingredients and changed her brand name, twice. All at the direction of Whole Foods. Besides time and effort, it cost her close to $3,000.
Image via AM Northwest
But Lovig’s relationship with Whole Foods also earned her an appearance on Shark Tank. And, as The Wall Street Journal reports, Heidi Ho Veganics expects to reach $1.2 million in sales this year, compared to $340,000 in 2014.
“When Whole Foods gives you an opportunity, you take it,” notes John Simmons, founder of bottled chai tea concentrate maker Third Street.
Selling at Whole Foods requires meeting a list of requirements, including giving the chain exclusive rights to sell certain products.
For example, Third Street makes a line of RDT (ready-to-drink), calorie-free, unsweetened teas for Whole Foods only, while other retailers carry its original concentrate. Third Street has been approached to duplicate its Whole Foods line for other outlets, but had to refuse. While that lost the company some potential revenue, it’s more than made up for by having the Whole Foods relationship, which included a Whole Foods loan to build a bigger plant. So much so that when an exclusive period expires for one particular flavor, Third Street develops another new Whole Foods-only formulation.
Image via the dieline
Pros and Cons of Exclusive Distribution
Of course, nothing is ever perfect. As the Entrepreneur Handbook points out, there are pros and cons to providing exclusive distribution to a single, big-name retailer.
- Increased sales volume
- National exposure
- Greater likelihood of obtaining loans and attracting investment capital
- Simplified distribution to one large company instead of a myriad of small ones
- You’re at their mercy. One example provided by USA Today is Lucy’s gluten-free cookies, which quadrupled production and warehouse facilities to meet demand from Starbucks for 375,000 cookies per week. But when the coffee chain cut back its orders significantly, Lucy’s was stuck with a lot of excess capacity.
- You’re at their mercy. It’s harder to negotiate demands for lower pricing and other concessions when you can’t go somewhere else.
- You’re still at their mercy. Consider Chobani, which Whole Foods dropped from its shelves in 2013 ostensibly because it wanted to focus on other niche brands.
- Of course, you’re only at the retailer’s mercy only if you allow yourself to be. Lucy’s lined up other distributors when Starbucks orders went sour. And as The Wall Street Journal reports, Chobani today accounts for about half of the $7 billion of annual yogurt sales in the U.S. It doesn’t need Whole Foods.
- But, unless you’re an established brand like Chobani, you probably do. If not Whole Foods, some big retailer that has the clout to put your product in front of consumers that a smaller company could never match.
Image via Food Navigator
Related Article: Building Barriers to Entry- How to Keep the Competition at Bay
Getting a Deal for Exclusive Distribution
As The New York Times notes, big box stores want to see a track record. It could be online. It could be at small local stores. But it has to be something that demonstrates both that consumers are interested in your product and that your products align with the retailer’s customer base and values. It also helps to go to trade shows; they can be expensive to attend, so be sure the show is focused on products in the same category as yours.
The key to getting a big retailer interested in you, as The Mogul Mom notes, is to present what differentiates your product from anything else: price, durability, benefits or whatever makes it uniquely able to satisfy customer needs.
Be ready to work with the retailer. And while it might sometimes irk you to make the requested changes, keep in mind that the retailer probably is better at marketing your product than you are. That’s why they are a national brand, and you’re hoping to ride their coattails.