By Nicole Potenza Denis
Selling in volume and having a successful SKU in a warehouse environment can generate millions of dollars in potential annual revenue. For some food companies, having a product placed in club store like Sam’s or Costco is a major step toward big sales and product efficiencies. The potential revenue opportunity and product exposure a club represents is tempting. But how do you know whether you and your product are ready for the transition?
Specialty Food News spoke with Jeremy Smith, COO of Level One, a full-service sales andmarketing group located in San Ramon, Calif., that helps companies and their products break into club markets like Costco, Sam’s Club, and BJ’s. Smith shares some insider tips on the warehouse environment and what placement can do for you.
What kind of vibe do the clubs give off?
Jeremy Smith: From the moment the doors of a club open and their members push their way into the warehouse, there is a level of excitement you do not see at a typical supermarket. There is just something exciting about being in a club warehouse. It’s the combination of the “treasure hunt” atmosphere along with the inviting energy coming from the demos and road show personnel welcoming all of those who enter each warehouse.
What does it mean for a brand to have club potential?
JS: Club-potential companies are on the verge of taking the next step into the club market. Most club-potential clients have strong local distribution but are usually lacking national distribution. Club-potential companies have budgetary considerations and often are best suited for local-regional launches. Clubs like Costco can be advantageous for many club potential food companies because they provide the ability to help expand distribution outside of their local areas. Or if they stay local with club, the potential for high revenue growth is huge.
A company that is what we call “club ready” will offer a high-quality, growth-oriented product for the club environment. They are interested in high-volume distribution channels and profit that meet goals within their corporate planning.
What does a company need to know to be successful in the club environment? JS: A company needs to make sure they have enough cash flow to fund the initial costs of doing business at club. Costs associated with clubs can include specific packaging as well as demo funds, an essential part to launching most brands at club level.
The more retail distribution a company has prior to launching at club, the better odds they have of succeeding. That’s not to say you cannot have success at club without distribution at other retailers. However, we have seen a direct correlation between higher sales at club when a brand has well-established points of distribution in advance of club placement. What are three attributes a product should have to help make it ready for club placement?
JS: While most food products work well at club, not every product may be right for club. That said, three traits are key:
1. Well-designed packaging that inspires and elicits the consumer’s desire.
2. Be DUE-worthy: Disruptive, Unique, and Exclusive to the category. We coined this term at Level One and believe it gives a definite competitive advantage for any company’s brand.
3. Clean and better-for-you ingredient decks. All natural. No high fruit corn syrup. GMOfree or organic, if possible.
Are the clubs a hard sell?
JS: In business there is no such thing as an easy sell, but I would define selling to clubs as hard. If you have the right broker partners, the process of selling to club can be made much easier and less time-consuming. There are some aspects to selling to club that by nature can make club more challenging than selling to traditional retail. Club retailers do not normally add SKUs like traditional retailers do. For some companies, this can make the challenge of getting into a club a bit more challenging.
What determines if an item is a winner or a loser?
JS: Buyers always are the final decision makers as to whether an item is a “winner” or “loser.” We usually do not look at items as winners or losers. I have a strong belief that most often the reason an item does not do well on a retailer’s shelf is due to poor packaging design. Quite often companies forget the first interaction a consumer has with your product is your packaging.
What do clubs look for? Do they want niche or products with established track records?
JS: Club buyers have sales targets they need to hit and they have to make sure they have the right set of items in each category so they achieve this. This may mean they will carry a mix of both niche/regional items and national brands with an established track record. Private label is also part of the mix as well. There are other factors that come into play from time to time, too. For example, Costco is currently expanding their organic SKUs and this offers organic companies of all sizes an opportunity for placement on a much larger scale.
Should brands stay local in club stores, go regional, or go international?
JS: Usually the decision whether to launch in a single region and stay local or go to multiple regions is dependent on the maturity of a client’s brand and their manufacturing capacity. We usually do not look at international until we have maximized our client’s opportunities in the United States. However, depending on our client’s needs, we would never rule out looking at the international opportunities. This also depends on the food category. Yogurt manufactured in the in the United States is extremely difficult to get in to Canada due to their customs and regulatory issues with dairy.
Why are some companies hesitant to go into clubs?
JS: Once in a while potential new clients will tell us they believe if they sell to club they may lose one of their existing traditional retailers. We have heard from some food brands that Whole Foods is becoming more aggressive in threatening to remove products from those food companies who sell to club. The most successful companies always find ways to overcome these minor obstacles.
What would you tell someone to help overcome reluctance?
JS: Placing products in club stores can bring enormous benefits at little incremental cost, including huge revenue, market share growth, and the ability to introduce products to desirable demographics.
One of the best rewards of placing products in club stores is that, with the right business and branding strategy, you will drive your existing business outside of club at the same time. Contrary to what buyers at other retailers may tell you, the fact is, the more successful you are at club, the more your business will grow outside of club.
How can companies leverage their existing business or potential clients outside of the club business?
JS: In our many years of working with food brands, we have seen dramatic growth outside of club due to expansion into club. Most club consumers shop outside of their clubs. Because club retailers carry a more limited SKU set than traditional retailers, it allows the club consumer to discover not only the value proposition a club provides but also the extensive product line a food company may offer outside of club. This leads consumers to purchase the additional flavors not offered at club from other retailers.