The Wild West of Wholesale Costs
Launching or expanding into retail channels can be a wild ride with surprise challenges and costs at every turn. This guide provides insights into the costs of doing business in retail and offers tips to help CPG founders plan ahead for their COGs and working capital.
How to Fund an Expansion Into Retail
This guide outlines what CPG founders can expect to spend time and money on when launching or expanding into retail channels.
Wholesale is a wild west compared to running your DTC business with many surprise challenges and costs at every turn. For single-serve food and beverage brands, it can become your most lucrative channel or a customer acquisition strategy for luring consumers to buy and subscribe to a case of your product online. Without a strategy for staying on shelf and keeping an eye on your costs of doing business, this channel could alternatively deplete your runway and do more harm than good, especially when you get ahead of demand for your products. This is why it’s so important to plan ahead for your COGs and working capital when expanding into retail channels.
The Costs of Doing Business in Retail - What to Include in Your Budget
What each brand has to spend money on really depends on the retailer. Make sure there is at least one person internally thinking about retail every day (could be one of your founders or a retail project manager to a head of sales or your VP of Marketing) for your brand once you go into this sales channel to make sure all of these details are taken care of.
Below is a list of costs that all brands in retail can expect and some tips to guide you through the retail sphere. Even if you’re a retail pro, these costs can sometimes creep up on you unexpectedly, so it’s always good to have this information on hand to refer back to.
Creating & Adjusting Your Products
- Demand Planning — How much new inventory do you need to make?
- Updating Ingredients to meet the store’s nutrition panel requirements.
- Rush Order Charges for Ingredients or Freight — When you have a fast turnaround with a retailer who wants to double their purchase order.
- New Packaging for Retail — Sometimes, if your DTC packaging doesn’t translate or sit upright on the shelf or doesn’t communicate what your product is) — See example from Omsom that sells single-serve packets in Whole Foods and Target vs. selling 3 in packs online.
Getting on-shelf (sales)
- Distributors (See Foodbevy's list here)
- Local DSD partners
- Building an in-house sales team
- Broker (can be alongside or instead of in-house teams)
- For indie stores: The cut that faire.com, Pod Foods, Mable, etc take. Some of these sites cover the shipping cost to small retailers, some of them you have to cover the costs yourself.
- Not every retailer charges for these, but most do in different ways. Some of these are negotiable, but likely not on your first purchase order with the store. You can also get creative and share some of these costs with other brands in the store, like partnering on a demo, or promoting your store launch together on Instagram and in your newsletters.
- Free Fills
- Merchandising teams
- Samples for store staff
- Misc trade spend (marketing, online ads)
- Sometimes: Buying SPINS or IRI data to understand your competition, or a specific retailer’s data dashboard to track your performance
- Optional: Giveaways like stickers or pins
- Distributor fees
- Damages that happen in transit
- Late fees for products arriving late to the retailer
- Freight fees (warehouse to distributor and sometimes distributor to store)
- The importance of insurance for unexpected logistical challenges
- DSD (local merchandisers for stores without a big distributor)
Possible Additional Costs
- Extra protection for delicate packaging in transit (glass, etc)
- Temperature-controlled trucks for freight if you have frozens or perishables
- Be sure to secure insurance for your brand before entering retail channels.
- Plan for seasonal surprises or emergencies like rising ingredient costs, delayed shipments, excessive chargebacks, your product melting in transit in the summer, or natural disasters.
- If you have extra, unsold inventory, consider donating the products or selling them as distressed inventory to martie.com, Grocery Outlet or a discount department store.
Where Does Your DTC & Retail Budget Overlap?
- COGs –– Warehouse, ingredients, packaging
- Data –– Syndicated data to understand your aisle/market.
- Marketing - Acquiring customers with ads that include where you’re now available in retail.
- Inventory - If your packaging is the same for both channels it will be much easier to scale up your costs. If you change your packaging for retail, consider updating it for Shopify as well.
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