Small Business Lifeskills: What Food Producers Must Know When Offering Products to Independent Retailers

Let’s meet the Retailers 

Independent Retailers are a very diverse group of people. They work very hard, don’t make much money and love what they do. They are very short of time and generally very short of spare cash. Many live, breath and sleep their businesses. I know several companies that closed because of the life they consume rather than the money they didn’t make. One couple was going fine, working hard, making some money and enjoying it. Then one Christmas they lost some key staff, and they just ran out of puff. They sold the business. Another I know owned his shop, and his accountant told him he would earn as much money letting out as working there. So he quit, let it out, bought a longboat and last I heard he was keeping the company of swans in the canals of the UK. 

These are your decision-makers about the future of your products. 

Here are some typical features of Independent Retailers: 

• They have no time 
• They have not much money 
• They change very slowly 
• They are usually integrated into their community, and they feel they know that community well. They feel very loyal to that community.   
• They are slow adopters of new technologies, new products and new fashions 
• They haven’t got the time or the money to take significant risks   
• They see and hear other businesses doing things they wish they could do or do better. That counts double for anything related to social media. 
• They feel they have no power. Rarely buying enough to get good discounts, they can’t control the parking around them, the business rates are hefty, and many have onerous rents and possibly bastard landlords. Most of their time is spent just trying to keep their team happy. 
• Their costs base is rising – rents, rates, staff costs, all the big ones.   
• They emphasise in-store advertising over all other methods. Keeping their regulars happy is the most important thing. 

None, NONE of these are criticisms. They have built their stores up often from scratch and telling them they should do things differently is like telling your grandmother to suck eggs. 

The bigger stores, the larger farm shops and garden centres, these are more professional, with buying departments and stock managers and maybe be even an HR department. The ordinary deli it is one or two people who do everything. 

Yet this team of hard-working family-owned delis and farm shops, butchers, bakers, village shops, even the odd forward-thinking convenience store, shift the vast bulk of the artisan foods in this country. They are the curators, the bulwark, the keepers and the talent scouts of the food industry in the UK, the solid beating heart. 

If they are your target market here is the bottom line: please their customers. Please their customers, and they will keep coming back. What does please mean?   

It means value:  

• A useful product with the right taste at the right price in the proper packaging. 
• Useful, taste; price; packaging. Does your product tick those four boxes? 
• Before we look at how to get the interest of those independents, let’s look at the primary alternative market: Supermarkets. 

Why not the Supermarket Gold Mine? 

If you have a product, and you would like to make a business or a more significant business out of it, you will probably be dreaming of listing it in Waitrose, Sainsburys or Ocado and watching the money roll in. (The Indies know this: they see good products shift up to the Premier League all the time.) 

While getting a supermarket listing does happen, the chances of it happening to you are scrawny. It definitely won’t happen straight away. I am sure you think you are different. Maybe you are, and you have a seven-figure marketing budget, and one of your investors is Cadburys. But for most of the new players coming into the industry, it’s a scrum, and very very few products make it in. 

The bottom line is buyers at the multiples are hard-arsed one-step-up-from-the-graduate-training-programme suits whose product knowledge is no better than the checkout staff, and whose economic knowledge, food safety audit requirements and negotiating skills will knock you over before you’ve got your products on the table. 

Supermarkets have full shelves and a strict one in one out rule. At best, you will get a trial, and if your products don’t meet their minimum performance standards, you are out on your ear. And they will beat you down on price until it is barely worth your effort. And they will offer you a contract so tenuous the bank will laugh at you if you try to collateralise it. 

British Supermarkets are amongst most professional in the world, and they won’t pay for quality, because most of their customer won’t pay for quality. 

And that was before Aldi and Lidl changed everything forever. British Supermarkets ran typically to achieve a 40% gross margin, and Aldi and Lidl have come as effectively supersize convenience stores operating at 25% gross margin. They have slim overheads, flat structures, basic merchandising and a fraction of the product range. The stack it high and sell it cheap. Their traditional rivals are cutting their ranges to compete, so now it’s two or three out, one in.   

And that period when they listed local producers? Over. Waitrose is now homogenising their ranges, so products have to work in all stores, not just a few posh ones. Try getting an artisan cheese into Waitrose now. 

A supermarket buyer invites the products that get in. They come to you. And that is what you want. That is why you need to start outside the supermarket sector and be that ten-year overnight success. 

Have I got your attention? 

So where do most people start? 

Most small food businesses are table-top affairs who sell their products initially at local markets and farmers’ markets. This can be good business (if arduous work). Many of the most successful markets run at weekends, and if you operate within 100 miles of London, you can take tables at London Farmers’ Markets, which means lots of driving. But …. You get to keep all the money you make, no middlemen. You can easily achieve 50%GM (100% mark up), often much better, and still, keep affordable prices. 

There are many festivals and outdoor shows that run food markets. Foodie Festivals (https://foodiesfestival.com/) run 20 or so a year. You could make a decent side living making £500-£1,000 every event at those. Better than inviting people into your home for B&B – for me anyway. I’ve don’t it, sold £4,000 in cheese over three days, 50% gross margin. This is really good business for some people. 

However, at some point, you might want your life back, and its time to get someone else to do your selling for you. 

The independent sector 

You need to tread the long hard road of building up your brand outside the multiples sector, and independents are much more approachable than the multiples. 

How many are there? Nobody knows. The figure the industry uses is 3,500 independent food businesses, which seems about right. However, what makes an independent food business? Delicatessen you’d think? Well, there are a lot of delis selling sandwiches and not very much retail.   

Farm shops, yes again, but also some farm shops sell their own produce and not much more. Butchers? Bakers? Convenience stores? Village shops or post offices? Petrol Stations? Service Stations? The Dunning’s’ Tebay Service and Gloucester Services are fantastic artisan food businesses, really first class.  

So I have no real idea what counts as an artisan food store. But there are a lot.   

The Guild of Fine Food did a survey a few years ago and found the average fine food store had a turnover of £220,000 or so. The first takeaway then is that these businesses are small. You are going to need quite a few to make a living.   

Times £220,000 by 3,500, and you have an industry worth of about £770,000,000, about 3/4s of a billion pounds.  

Does that sound like a lot? The UK grocery sector turns over just short of £200 billion. The supermarkets don’t dominate this; it IS the supermarkets. The artisan or speciality sector is less than half a percent of that. The convenience stores put up a fight at 22%, but most of those stores are owned by supermarkets anyway, so you are still sitting down with the same buyers. 

I am not here to bash supermarkets. I use them, you use them, we all use them, but they dominate the market, and they are just not natural places to launch products if you aren’t Unilever. Producers like Tracklements and Belazu who have shelf space in Waitrose and are big companies relative to the independent sector are minuscule players. 

But the independent sector, from your perspective, has real accessibility. I’m not saying its easy, but that is 3,500 buyers you have a chance to persuade, not half a dozen. And there are some really big catches. Harrods, Selfridges, Harvey Nichols or Fenwick’s listing is a real feather in your cap, and achievable. There are some pros (usually gamekeepers turned poachers) who can help you get those listings. 

Pricing with independents 

You need to make a good margin to make any money. Having only sold off table-tops and direct to retailers, your pricing is about to get a rude shock. In your head, you will have a fixed idea about what value in price means to your product. Whether you realise it or not, you will have a bias towards encouraging a retailer to sell it as cheap as possible. The cheaper they sell it, the more money you make. 

No middlemen: Retailer pricing 

You need to know what gross margin Indies will need. 

Gross Margin is the portion of a sale that is profit for the Retailer once you take away the cost of the purchase. (This contrasts with mark-up which is profit added onto the purchase price). 

Convenience Stores run at about 25% Gross Margin. They run at high footfall and low staff overheads. 

Fine food stores – delis, farm shops, food halls – they vary, and times are a-changing, but you should expect them to want AT LEAST a 35% gross margin, more likely 40%. 

This means that for every pound they pay in purchase costs, they need to sell it for £1.54 to £1.67 or multiply your sales price by 1.5 to 1.7 to get their sale price. 

If your product is vatable, then multiply by 1.85 to 2. 

There are variations – alcohols will generally be at lower margins, high waste items like cheese or bread will be more. 

But here is the thing, and you need to be aware of this or your conversations with retailers aren’t going to go very well: 

1. The Retailer decides on their sales price, not you. RRPs and RSPs mean nothing to them. When you sell it off your table-top at a farmers’ market, you aren’t carrying their overheads. 
2. The Retailer needs to get a gross target margin out of their whole product range to make a living. Your product needs to deliver whatever that gross margin is, or it doesn’t get on the team. 

Add in the Middlemen: Retailer pricing using wholesalers 

You need to put a cold flannel on your brow and start calculating retail prices with middlemen and 40%GM retailers.   

I am going to tell you now the high margin retailers – they are going to be the best and highest profile Customers for your business. You need to be ready for them. You have to make space in your prices for the whole distribution chain. 

So take your products and multiply your wholesale price by 2.2 (see below) for a net retail price.   

Set about making that good value. If you think that’s not going to work, then your business model is screwed. You are stuck on your farmers market table-top forever. It’s goodbye weekends or go back to your job in HR. 

What does it do if I am too expensive? 

Well, that’s for another blog. Reducing costs works, it is AN answer, but not the only one.  

Getting listings with independents 

There are two ways: do it yourself or get someone to do it for you. 

Option 1: Doing it yourself means getting on the phones, sending samples, visiting stores. 

Seven advantages of DIY Wholesale 

1. No middlemen: you keep all the money! 
2. Direct relationship with buyers 
3. You can build up a local following 
4. You can keep your prices down 
5. You can be flexible and responsive 
6. If something happens, you can do something about it 
7. You get excellent and timely feedback 

Seven disadvantages of DIY Wholesale 

1. You don’t have a network, and you have to start from scratch 
2. You have no reputation to persuade people 
3. You spend a lot of time in the car making deliveries 
4. It is not scalable – there is a limit to how big you can grow 
5. If you transfer to using a courier, this can be an extra costs or your prices have to go up 
6. You have to have very thick skin, and you will get a lot of “nos”. It can be very dispiriting 
7. If you can’t do it for any reason – you are ill or on holiday – everything stops. It’s all on you. 

I recommend starting with DIY. It is road-testing your products and learning your trade. 

Option 2: Get yourself a Wholesaler 

Wholesalers come in all shapes and sizes, national ones, local ones, online ones. Some own stock, some who drop ship, some who have their own vans, some who only use couriers. Then there are specialist importers, chilled distributers and mainstream brand wholesalers like 3663 and Drinks only wholesalers. There are even ethical ones like Suma. Let’s take a look at some. 

Regional Wholesalers: these operate locally and will be well known in your area but unknown out of it. They 

• typically use their own vehicles  
• will be buying directly from local producers, and larger wholesalers for out of area products 
• will be flexible about their list 
• will favour local products and  
• will take a gross margin of 20% for local products, but less for out of area products 

Pricing: This means a typical one sale by you will be sold by them wholesale to their customers at £1.33 and will retail at £1.92 to £2.08 (£2.30 to £2.50 for vatable products). Local products, therefore, may be more competitive than National Wholesalers.  

Typically, they’re out of region products will be more expensive than National Wholesalers.   

Service and MOQs 

A regional wholesaler can have very low minimum orders as their van routes are set anyway, and can be very flexible, which means they often have loyal followings even if their prices are a little higher. MOQs £0-£120 

National Wholesalers: these operate nationally and are the well-known names like Cotswold, Hider, Cress and Diverse. They 

• have a big warehouse somewhere 
• typically use a combination of their own vehicles and couriers 
• will be buying directly from producers 
• have a lot of competition to get onto their lists; and  
• will take a gross margin of 25% 

Pricing: This means a typical one sale by you will be sold by them wholesale to their customers at £1.33 and will retail at £2.05 to £2.22 (£2.46 to £2.67 for vatable products). 

Service and MOQs 

National Wholesalers have very variable Minimum Order Quantities, and service can vary equally widely, especially for smaller retailers who don’t have any weight to throw around. MOQ typically £200-£300. 

Alcohol & Drinks Wholesalers: alcohol is a very competitive commodity market. It is not unknown for pub landlords to be able to buy spirits like Smirnoff cheaper in their local Aldi than their regional wholesaler.   

There is the same diversity in wine, beers, spirits and soft drinks as in the food sector. The extra challenge of drinks is that they are both heavy and glass, making couriers very expensive. For this reason, the drinks lean heavily towards own-van distribution from local businesses or local hubs from national companies. 

For alcohols Retailers will also not be able to get the same target margins as for foods: 30-33% gross margin would be typical on wines. Retailers can get more for rarer and more exciting bottles where there is less competition, so fine food shops tend to avoid mainstream brands altogether. 

For soft drinks, there is more margin flexibility, and many retailers will sell take away foods, so take away drinks can be a bit pricey compared to coca-cola and similar. The advantage is they are often much less sugary and much tastier, so there is a robust premium soft drink market at 40%GM retail and 60-70%GM food service. 

Alternatives to wholesalers 

Here are two options to wholesalers. They are mostly an extension of DIY selling: outsourcing either stockholding and distribution or the sale but not both. 

Dropshippers who sell but do not hold or distribute stock for you (outsourcing the selling); and  

3rd Party Stockholders who hold and distribute inventory for you but don’t sell it (outsourcing the stockholding and distribution). 

Let’s look at them: 

Dropship Wholesalers: Dropship means the “wholesaler” makes the sale, but the product is shipped directly from the producer. Most dropshipping refers to B2C services, direct to the consumer, but as a model, it works exceptionally well for Wholesale. The costs of direct distribution are smaller relative to the value of the sale. 

Dropshippers are a modern phenomenon, so they tend to be wholly or mostly online as well, part of their package. This makes their marketing more reliant on digital techniques, where traditional wholesalers put more emphasis on catalogues, telephone sales and sometimes reps in cars. 

There are several different business models dropshipping. For instance, Delishops acts not as a wholesaler but as a sales agent. There are, however, other businesses with different angles. Dropshipping gives you a high degree of control in how you want to make your sales. 

Dropshippers have several advantages: 

1. They can list a much, much broader range of products and produces, as they do not hold stock. Dropshippers are the place to find the small, rare and new artisan producers. 
2. As they have lower overheads, they take a much smaller margin (Delishops takes 10% of the net product) making products cheaper and leaving more for the producer and the Retailer. 
3. They can “stock” ambient chilled and frozen stock, alcohols, and many other things too complicated for standard wholesalers to be able to cope with. 
4. They can respond quickly as their product register is online, less reliant on catalogues and set date product launches. They can often have you up on their websites in a couple of weeks. 
5. With some dropshippers (like Delishops) you set the price, keeping you in control of margin 
6. PERHAPS THE MOST IMPORTANT TO YOU dropshippers have few if any barriers to listing with them. They have no limits to their “virtual warehouses”. Getting listings with dropship wholesalers is the easiest route for start-up and small producers. 

But traditional wholesalers have two Important advantages over Dropshippers 

1. Traditional wholesalers have warehouses and picking teams that can assemble a delivery from a variety of producers to reach a minimum order quantity. With Dropshipping each shipment comes direct from the producer, so minimum order quantities are per producer, not per order. This can mean Retailers have to order £70-£120 orders from each producer, which may put pressure on retailers to order more, or more lines than they would prefer.  
2. Traditional Wholesalers still have the lion’s share of the market, so are often eth first port of call for buyers.  

I and others like me are trying hard to change this culture. Digital marketing and online ordering are the future.   

3rd Party Stockholders: these are beneficial businesses to small producers who want to concentrate on making and selling their products. 

The Stockholder has a warehouse, and they hold and distributes stock for several clients. You the producer lodges your inventory with them, and you piggyback their distribution system. An IT solution notifies the Stockholder to dispatch an order to a specific address.   

The distribution costs are usually very competitive as the Stockholder is distributing a large volume of product and can negotiate a good deal. 

Are there any other options? 

Many. 

• Trade shows 
• High footfall markets such as Borough Market 
• Sales agents and PR companies 
• Awards 
• Foodservice/catering wholesalers 
• Export 
• Airlines 
• Hotels  
• Restaurant chains 
• QVC  
• Amazon 
• Gift packing into, e.g. Not on the High Street 
• B2C online other than NOTHS or Amazon 

All these are ways to get yourself into lists or spaces publicised by other people, which leverages your brand. They all, however, require more experience and in some case, specialist packaging or commercial partnerships to make them work. The Indie sector is the best place to get your product right before exploring these options, but they can be precious when you are ready. 

Your next step: how do I get a listing with a wholesaler? 

For Delishops give my team a call. 020 8126 3300 or help@delishops.co.uk. 

For everyone else, give them a call. That is always the best place to start. They all have systems for reviewing applications.  

Sales Partners, PR and Sales agents who can do this for you. Some are excellent and may be able to get you listings in one of the icon stores like Selfridges as well. They are often worth the money, but they can’t make a silk purse from a pig’s ear.   

They certainly are worth talking to as part of your education process. I can recommend one or two. 

If you are a Sales Partner and are interested in working with Delishops, or just having a chat, click here 

I will shortly be publishing a list of UK national and regional wholesaler that we know of, so if you haven’t already registered with Delishops to access our whole range of channels, products and blogs.  

Summary 

I hope that helps you. If I have any advice, it is to focus on the wins along the way, not some long term goal. Doing What You Can Now always trumps Waiting for the Big One. 

And welcome to the Independent Food Industry. It is full of interesting and often curious and chaotic people. For many of them, a good life is half their pay packet.