Selecting Your Sales Channel

One of the first decisions you should make, after deciding to pursue a food startup, is how you will sell your products. The two largest sales channels where consumers will seek out your product are online and retail sales (often, you may choose to pursue both). Which of these two sales channels you prioritize will effect your design, marketing, pricing, and distribution strategies; so, it’s important to have an idea of how you plan to distribute and scale your business early on in the process. Foodservice is a third channel you might pursue, which can include businesses, universities, and hospitals, to name a few.

eCommerce Sales

eCommerce sales means selling through online marketplaces such as Thrivemarket.com or Amazon.com and your company’s website, where consumers familiar with your brand can buy your product directly. By choosing this approach, you immediately face a challenge - making consumers aware of your existence. Unlike at a grocery store, where brands compete for consumers’ attention with bright packaging and flashy displays, you have no guarantee that customers will even walk past your display online. The cliché “if you build it, they will come” does not apply to online retail. 

As an online retailer, you need to develop a distinct brand that works across media platforms. You will inevitably run advertisements - likely online through social media and maybe even with paid sponsorships and influencers - and those ads need to attract consumers to one of your sales platforms. Your online identity thus is critical, because that is how customers will engage with and come to understand your brand. Having a consistent brand style and voice through your ads, website, and communications matters. 

If you choose to sell through third-party online retailers like Thrive Market or Amazon, you also face a new challenge - the virtual shelf. This is a different challenge than winning consumer attention on physical store shelves. Each item online gets the same amount of display space, but consumers don’t scroll endlessly through every page of grocery items online. They enter keywords or look at recommended product categories based on their dietary preferences and purchasing habits. Your product must be familiar enough to rise to the top of consumer search results. And if your product is one of the top 15 items that consumers browse, you need to convince them to click through to your product page and ultimately add it to their cart. 

How you sell online will also effect your distribution and pricing. Third-party retailers often have their own distribution facilities, which they expect you to send products to so that customers’ orders can be fulfilled all together and shipped as one. They also expect wholesale (or below wholesale) pricing so that they can earn money for the service of creating an online marketplace. Instead, if you sell through your own website, you will only have to pay for direct shipping to the customer and any fulfillment services you use (the alternative being self-fulfillment where you package and ship directly from your home or office). Of course, shipping to consumers isn’t free, so you will need to think through your shipping costs (do you offer free shipping, and include those costs in the cost of your product, or do you charge shipping on top of product costs?), and you should strive to keep your per-unit cost comparable to retail and other online sales channels, aligning your cost to your product value proposition. 

Retail Sales

If you prioritize retail sales - that is, grocery or specialty foods stores - you face different challenges. Retailers typically have several requirements to get into their stores. Smaller retailers and specialty stores may be more open to trying new products, but if your product doesn’t move off store shelves quickly enough they will unhesitatingly cut it. (Note: once you have been cut from a retailer, it is much harder to return). Selling directly to smaller retail stores can be a good way to learn how your product moves off the shelf, and if you can conduct sampling and surveys at these stores, you can learn quite a bit from your customers. However, selling into stores individually can be a lot of work for relatively limited reach. 

Larger retailers often require that you work with specific distributors if you want to be on their shelves. Those distributors - that is, facilities that aggregate and then ship products to stores on trucks - have limited space, and only accept new product accounts that they expect to perform well. They may require a commitment from a key account (such as a regional chain) to onboard your brand. Larger retailers may also require third-party certification of your production process, as an extra measure of consumer (and liability) protection. Even once you have met their requirements, virtually all large retailers will only consider new products at certain times of the year; if you miss this window, you need to wait until the next cycle, which could be a year out. Understanding the review schedules for new products at major retailers you are trying to enter is critical to your ability to plan. Distributors and retailers also often have strict requirements on order size; they expect you to be able to produce enough product to stock the shelves of several stores at once. If it doesn’t move, they will cut back their orders; but if your product does move, they will ask for higher quantities and you need to be prepared to fulfill these demands or face penalties and fees. 

One way to get in front of many distributors and retailers is to attend a trade show, such as Expo West or the Fancy Foods Show. These multi-day events attract thousands of manufacturers, distributors, retailers, and consultants all interested in new food products. Some of the biggest names in retail will turn their badges around so you don’t know who they are. While attending these shows is a great way to spread word about your business, they can be expensive, so you should have a plan for how to capitalize on your time there. 

At retail, you also face the issue of attracting customers - this time on the physical shelf. The average grocery store has over 20,000 SKUs, and consumers look at any given product for a matter of seconds. Your packaging is your primary advertisement at the retail level, so you should design it to attract the consumer eye and entice them to pick it up. You also must think strategically about how it will display on the shelf. Can it stand upright, creating a larger billboard to attract customers? If you are selling bars, how does the box accentuate the bar’s individual packaging? Where in the store does your product appear? Do you want your Thai inspired hot sauce in the Asian Foods section or in the Condiments aisle with other hot sauces? (Note the complex racism present in ethnic food aisles here). How high on the shelf do you want your product to appear? Often, retailers charge extra for prime shelf space. In addition to your product display, you can also conduct sampling or taste tests in certain stores, which gives you another avenue to increase product awareness and connect directly with potential customers.

Retailers also expect certain concessions to carry your product. It’s not uncommon for them to ask for a free case of each product, with the idea that it helps build initial traction with consumers. Retailers also expect to pass the cost of certain promotions onto you and will require you to bear the cost of certain promotions every year. And if you are going to have any product displays or sample your products at retailers, those are additional costs you as a manufacturer will have to pay (and sampling costs can be expensive, with the cost of the product, space, design elements, and staff all adding up). 

Often, food manufacturers will hire brokers when they pursue a retail sales channel. Brokers will promote your product to supermarkets and distributors and help get you into stores. They also can visit stores where your product is sold to both make sure it is being displayed appropriately and to make recommendations on how to improve traction. Some retailers even require you to use a broker in order to get into their stores. Of course, none of this is free. Brokers, distributors, and retailers all take a percentage of your sales (more on this in unit economics).

If all of this sounds like a lot of hassle, there is another retail option: do it yourself. You could set up a storefront in a major market like NYC to promote your brand and sell your product. You could even do this for a limited time as a popup store. If you don’t envision an entire store, you could collaborate with partner brands if you have the same target customers and your brand identities work well together. A smaller scale option is to attend farmers markets, where you can connect directly with consumers and sample your products. 

Finally, a word of caution. Be careful with small distributors. They may initially be willing to take your product, but then you may not get paid. Or they may offer discounts to retailers that you haven’t authorized and try charging those back to you. Small distributors may even go out of business without paying your tab. Sure, you could try legal action, but it’s likely to take more time, money, and effort than it’s worth (of course - consult a lawyer if you think it may be worth it). 

Foodservice

Another sales channel you might consider is foodservice. In pursuing this sales channel, you work with certain distributors who specialize in foodservice. For example, a university may have a convenience store for undergrads where packaged foods can be bought using dining hall points/dollars. You could get part of that market with your product, but only if you’re there. Other foodservice distribution occurs in hospitals, at airports, to jails/prisons, and to private businesses. If you pursue the foodservice channel you will still need to work with distributors and should heed the cautions mentioned above, but you may find more flexibility and openness from the facility than you would from a larger grocery chain.

Whether you choose to pursue online or retail sales channels, knowing your plan early on will help you prioritize your work as you build your brand, pricing, and operations.