Secret Sauce: 10 Tips for Getting Your Product into Whole Foods is a guest series by the founders of Bandar Foods. Follow along as Dan and Lalit share their tips and tricks for starting and growing a specialty food company.
Welcome back to our Secret Sauce series! So now you have a standardized recipe for Grandma’s sauce, the beginning workings of a brand identity and a general idea which sales channel you plan to tackle first. Still to go is thinking through administrative logistics, sales presentation and determining how much investment you will need. But at this point, let’s take a quick break and provide an overview of all the players in the specialty food space.
If you’re new to the industry, you might not know the difference between a broker and a distributor. There are a lot of players who are integral to growing a strong food business. And it’s extremely important to know who everyone is and how they’ll play a role in ensuring Grandma’s Famous Sauce makes it to store shelves.
BRAND: AKA the vendor. This is you! Your role in the entire chain is to create, grow, build and nurture Grandma’s Famous Sauce. This includes figuring out how to make, check, store, market and sell the products you make. At the end of the day, all decisions come down to you choosing all of the other players on this list.
MANUFACTURER: AKA the co-packer or co-manufacturer. We discussed this player in our second post, but this is who actually makes the final product. If you decided to make Grandma’s sauce yourself in your own kitchen, then you are the manufacturer. Otherwise, you are likely working with a third-party factory that produces your recipe on your behalf.
INGREDIENT SUPPLIERS: AKA the farms, mills, etc. These are the organizations that produce the tomatoes, chili peppers, flours, sugarsor whatever other ingredient your manufacturers need to create your recipe. Many established brands don’t work directly with the farms themselves, but with larger industrial suppliers who provide many ingredients at once. Our advice is for young brands to have a general understanding of the source of their ingredients. Knowing your ingredient suppliers will not only help you better sell your product (your passion will shine through if you can talk about where your tomatoes are grown), doing so will help you predict and manage shortages, price changes or potential recalls.
SUB MANUFACTURERS: These are the groups that make jars, bottles, labels, boxes, packaging, cardboard cases and all of the other necessary non-edible components of your product. Often times your manufacturer will already have relationships with many of these suppliers; however, you may want a special jar design for Grandma’s sauce. To do this will mean finding a jar supplier, working with them on a specialized design, buying separately and then shipping directly to your manufacturer so they can fill those jars with your recipe.
WAREHOUSE: AKA third-party logistics or 3PL. To sell food in the US, you need to store your products at an FDA-registered facility. Most small brands cannot afford their own warehouse space, but instead rent space from larger warehouses who maintain a level of cleanliness and upkeep approved by the FDA. A warehouse is necessary because as you grow, you will need to coordinate larger shipments with truckers who will be unable to pull their rig up to your apartment. A third-party logistical warehouse will also help you keep track of your inventory and coordinate shipments on your behalf, so you don’t need to be present every time a truck needs to carry product somewhere.
SHIPPERS: AKA trucks or carriers. When you’re small, you may be able to drop off product yourself or send via FedEx or UPS. However, as you grow, your quantities will increase and you will need to ship via trucks in order to maintain acceptable costs. Depending upon your relationship with your distributors and retailers, you may need to coordinate shipments with carrier companies to send sauce across the country. There are many shipping brokers who can help you with this step, and your warehouse may have preferred carriers they like to use.
DISTRIBUTORS: Aside from the brand or retailer, the distributors are probably the most important part of the food chain. The distributors (typically) take ownership of the product from the Brand, store in their own warehouses and then sell and deliver to the retailers. For this service, most Distributors earn money buy marking up your product when they resell to the retailer. For example, they might buy the sauce from you for $1/jar, and then sell it to the retailer for $1.33/jar. Though possible to expand your business by solely shipping directly to retailers, it becomes extremely difficult as you get into larger chains. When an inventory clerk at a retailer realizes they sold out of Grandma’s Sauce, it becomes much easier for them to place an order at one of the 50 distributors they use to get product, rather than call up each of the 5,000 brands. Do your research and find distributors who work with similar-sized brands and are committed to helping you grow.
BROKERS: Brokers are outsourced sales reps who split their time between several brands. A good broker becomes an extension of your sales team and helps you sell into desired stores, assures your merchandise looks good on the shelf, coordinates promotions and paperwork and provides guidance in unfamiliar territory. The best brokers have excellent relationships in place with retailers and can offer guidance on strategy. In most instances, brokers will either charge a retainer (i.e. $500/month) or commission (i.e. 5% of all sales) for a particular geographic territory. Though a number of brands opt not to use brokers and coordinate sales themselves, a good broker network can drastically help small brands expand their footprint.
RETAILERS: AKA the store. Every retailer has someone who makes a decision on whether to take on a new product (often referred to as a buyer or category manager). For independent retailers, this can be the store manager, whereas larger chains have entire buying teams in place to help manage inbound requests. Retailers also have stockers, merchandisers and marketers who you might get to know in time. But the buyer relationship will be the most important as they have the power over your shelf placement.
This list is by no means exhaustive. We haven’t even touched the legions of outside marketers, demo specialists, branding agencies, brand ambassadors, designers, data companies, master brokers and other advisors who can help you along the way. However, this list includes the most common players you will encounter on your specialty food journey.
Next week we will go through the administrative steps needed before bringing it all together with a number crunching- focused post.