‘No longer does the mass channel have to be the last piece of the puzzle,’ vendor rep says

By Elizabeth Crawford contact

- Last updated on GMT

Source: Getty/Yaoinlove
Source: Getty/Yaoinlove

Related tags: Entrepreneurship, Startup company, Retailers, Walmart, Target, Whole foods market

As consumers increasingly demand natural, organic and innovative products across all retail channels, emerging brands are no longer restricted to the classic route to market that began with independent, natural retailers and slowly expanded to conventional before mass, according to industry experts.

“Our thesis is that no longer does the mass channel have to be the last piece of the puzzle,”​ TJ Varecka, a principle with KMG Group, told attendees at NOSH Live in New York City last month.

“The formula used to be get into Whole Foods, either in a couple of regions there and the global, get into best in class conventional like an HEB or Wegman’s or Publix and then once you had pressure tested the concept and the brand, then go to mass retailers like Walmart or Target,”​ he explained.

But pointing to brands such as Cleo’s chocolate, which launched early in Walmart, Varecka said, the model for building a brand is changing, and “it is exciting”​ to see Walmart in particular “want to be flexible, to help and go slow with some of these emerging brands.”

Duel demands for wellness and nutrition are driving retail shift

Tracy Miedema, VP of innovation and brand development at Presence Marketing, agreed that the path to market for natural, organic and emerging brands is no longer as prescriptive or restrictive as it once was – a shift she attributed in part to consumers’ increasing sophistication about the role that food and beverage plays in their health.

She explained that in the past 10 years she has seen a shift in demand for natural and organic products in the conventional channel go from about 25% of commerce to about 65% -- a trajectory that she predicts will “keep evolving as consumers want to find products that are tailored to their particular needs where they shop,”​ which for many is not the natural channel.

In particular, she said, consumers want to see more “deep nutrition”​ products, such as those with collagen or healthy fats, and retailers across channels that support emerging brands that meet this demand will be rewarded.

Consumers “are seeking out products that meet really specific nutritional needs,”​ and open-minded retailers that offer these products will gain access to “very lucrative shoppers”​ who also are extremely loyal, she said.

Strategies to balance simultaneous distribution in different channels

Brands that want to take advantage of increased consumer demand for their products across different retail channels, should know that with each additional channel and retailer comes additional obligations and complications, Varecka and Miedema warned.

For example, Miedema explained, brands traditionally considered ‘natural’ likely will need to work more aggressively with conventional retailers to ensure that consumers can find their products on shelves, which are typically more crowded than in the natural channel.

“The natural channel is, of course, still a really good place to incubate deep nutrition products,”​ because it still tends to attract a higher percentage of shoppers who are focused on health and wellness and there is limited shelf space, which means brands don’t have as much competition at shelf, she explained.

However, she added, conventional stores attract more people overall, so even if the percentage of ‘core shoppers’ is lower in this space, there is the potential for more consumers to discover a brand in this space.

Parallel distribution in natural and conventional is risky, but also acceptable

With that in mind, Miedema said, emerging brands looking at parallel distribution strategies across natural and conventional at the same time, need to understand the strategy can be risky even if it is no longer a punishable offense by predominant natural retailers.

“The ‘very core natural stores’ used to punish you if you started at these other places, and it was kind of like ‘Supplicate thyself at this throne first,’”​ but “that model is really changing where there is now an openness for multiple venues for a product launch,”​ she said.

However, Miedema cautioned, just because brands can launch in multiple retail channels at the same time, doesn’t mean it is necessarily a good idea.

She explained brands that do this must “carefully attend”​ their pricing and ensure they do not stretch themselves so thin that they are not able to support retailers sufficiently.

“Retail is expensive. You are going to be spending a lot on the free fill cases and getting that whole model set up and intensive promotional activity in year one. So, in a world of unlimited cash, yes we would push out everywhere [at once], but [because cash is limited] it is a careful pursuit,”​ she explained.

Playing the long-game

A duel launch strategy also requires more long-term planning, Varecka said.

Carefully crafting from the beginning a pricing and promotions plan that takes into accounts all retailers and channels is particularly true if a company suspects it might want to go into Walmart at some point, Varecka said.

“Decide as early as you possibly can what you want to look like at Walmart. What would your SKU count look like, and ideally what do you want your retail price point to be at Walmart? Walmart is [everyday low price] and we don’t apologize for being [everyday low price] – that is where we stand for our customers. But so that you don’t have sticker shock when you get there, you need to effectively manage your trade spend, your frequency and depth of discount on this journey down to Walmart, so you are managing your [average retail price], because ARP is what we are going to benchmark against, and not your everyday shelf price,”​ Varecka explained.

He added that to effectively manage this, companies need to plan months, if not years, in advance for pitching Walmart.

Develop a clear channel strategy

Brands that take a duel retail distribution approach also need to have a clear channel strategy that considers velocity, fit and how to best leverage what different retailers have to offer, Varecka and Miedema said.

Varecka specified that brands need to be aware of the benefits and challenges that different channels offer and pose, and create a strategy that allows each retailer to do what it does best.

Miedema added that this includes considering the different demands each channel requires to efficiently and sufficiently drive velocity, because if a brand’s approach is simply to test and see where distribution is best they might lose accounts if their products sit on shelf and not be able to earn them back.

To craft this strategy, both encouraged companies to have an honest conversation with retailers, noting that everyone shares the same goal, even if for different reasons, and that by working together they are more likely to see the results that they want without over extending too quickly.

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