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Expanding Your Business Accross the Border

Family-owned businesses come in different shapes and kinds. A couple of very typical traits are the CEO/Founder is the Chief Everything Officer and the business is concentrated either in a certain county (NOT country..) or a state where it’s headquartered.

Imagine a doughnut bakery and a retail chain that grew to 8-10 stores over the last 15-20 years and is concentrated within 2-3 counties. The business has strong cash flow that’s sufficient for some expansion. Strategies could include building more stores in the same and/or neighboring counties, the rest of the state, franchising it, and/or trying to get national wholesale accounts and ship across the country.


Acquiring wholesale accounts and shipping it across the country is what most challenging because no one outside of the current geo-presence knows or have heard of this doughnut baker, however great and healthy these doughnuts may or may not be.


Creating a PULL demand is the best-case scenario as you'd have brand power and will have some influence over retailer, but most importantly consumer engagement!

The reason why it’s so hard for the majority of plain vanilla brands to expand across the state lines is because every state/city has a very similar product with a different wrapper. People at those locales grew up seeing one or two local brands (excluding national brands of course) and so those are the ones they would tend to buy. So, unless you have immense resources (which is why multinationals can scale a product/brand so much faster), the only tool is to be different or create points of differentiation strong enough to make your target consumer to think “Huh?” when they see your item or campaign.


The “Huh?” moment can be pure marketing that aligns with current trends in synch with your target consumer or different ingredients that serve as marketing tool and point of differentiation.


So, say you’ve accomplished it. Your product has sufficient points of differentiation, and the marketing is great, too. What’s next? Who do we talk to? How do we get our product on the shelves of a retailer at another state?


Convenience stores and grocers of all kind are all competing for the best performing brands. Buyers always look for new products to differentiate their offering, drive younger (or certain age groups) consumer and traffic in general to their stores. So, there is a demand for products that are different vs. what’s already on the shelves. People and buyers both love novelty, buyer though love novelty that sells and keeps selling over time.

First thing to do is try to get a wholesale account at a local retailer or at a local store of a national chain. People know your product in your area and should recognize it and hopefully make a purchase. Once you’ve proven you can sell at this retailer, you can start working with the buyer to access more doors in your state and outside.


No success comes without paying for it forward. Be ready for slotting fees and trade spend. Where slotting fees would get you on the shelf, trade spend will help with increasing sell-through rates (i.e. your sales velocity). This post isn’t designed to get into great details as there are so many, and books have been written about it. The two paths are as follows:


(A) Creating a PULL demand – your product and marketing is very well designed and attracts consumer to try your product, and if all works out make repeat purchases.


This would be the best-case scenario as you’d have brand power and will have some influence with retailers.


(B) Creating a PUSH demand – convince the buyers to let you enter their space and prove to them that you can sell.


This is what most brands do. Investor patience and budgets are not infinite. So, in-store marketing campaigns from in-store tasting to BOGOs, scan-offs, seasonal markdown and many other would need to be pursued.


Expanding store by store may not be the best strategy as it may take too long to scale if everything works out. Getting to several dozen doors in multiple states where your target consumer resides would ideally be the best-case scenario. At least initially and depending on the type of retailer (e.g. Food vs. Drug vs. Mass), trade spend can range from none to 15%+ of sales. Make sure your budget can support this growth for the sufficient amount of time to be able to reach sales and repeat purchase critical mass.


One more suggestion is using distributors and brokers. This could provide an easy, though not free, access to the distribution networks that could help you launch in national retailers. Brokers can cost anywhere from 2% to 7% of cash sales. Most distributors operate under cost + 10% terms. Although volumes can be high, you’d need to re-engineer the packaging or a SKU(s) to make sure your margin is still good to run the business.


In summary, the best case-scenario is creating a PULL demand. This might be easier to implement for new brands as they are in the process of designing their product and brand. For the established brands that are trying to scale, smart marketing and wise trade spend can go a long way.


-A.G.

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