Chen: Hitting Store Shelves No Easy Task for New Products

It’s estimated that approximately 500 to 600 new drink brands were launched in the U.S. market last year, all vying for coveted shelf space in supermarkets, independent and regional chains, convenience stores, and health food stores across the country. Walk down any grocery store beverage aisle, however, and you’ll see that it’s slim pickings when it comes to ready-to-drink beverage choices, so it’s no wonder that few brands survive and make it to the “mainstream.” With formidable powerhouses such as Coca-Cola, Pepsi, and Dr Pepper/Snapple Group controlling much of the retail landscape with their “billion dollar brands,” the U.S. conventional supermarket channel is truly a David v. Goliath world for smaller, emerging brands like ours.

As we launched AL? Drink nearly two years ago , we had no idea what we were getting ourselves into. Our goal was to create a unique drink for the American mainstream consumer market, borrowing from the best traditions from around the globe. If you ever have a chance to travel through Asia, you’ll find a plethora of unique and interesting—even so far as daring—drink creations on conventional convenience store shelves all over the region….stuff that big, American CPG companies would simply consider too risky to launch. Asparagus drinks anyone? Drinks with tapioca balls suspended in them as if they came straight from another planet? Vinegar based drinks?

Several years ago, we came across aloe vera drinks in Asia and liked it. So we had an idea. Let’s create a better product with unique blends suited for the American palette, and tackle the U.S. mainstream market head on. It would be the start of a long road on which we’ve just begun to travel.

"Success in the conventional grocery sector for small, emerging brands like ours critically depends on one’s skill in navigating the complex distribution channel" -President and Owner, SPI West Port, Henry Chen

We knew from the onset that we had a great tasting product. But as we’ve learned, a great tasting product is simply the bare minimum requirement for a successful product in the U.S. mainstream consumer goods market. Certainly, without a good tasting drink, you’re dead in the water. But even with a great product, chances of success are slim.

What we discovered was that success in the conventional grocery sector for small, emerging brands like ours critically depends on one’s skill in navigating the complex distribution channel. It is a combination of sales people, brokers, distributors, retailers, and consumers, married with the right mix of promotion, pricing, and product that determines a brand’s fate.

An army of gatekeepers are present to ensure that every new brand gets if fare share of scrutiny on its way to the mainstream. Without the huge amount of capital needed for a dedicated direct sales force, start-up brands like ours depend on brokers. National brokerage firms such as Acosta and NSSI (Natural Specialty Sales Inc.), as well as regional brokerage firms represent CPG brands primarily on a retainer/commission basis. Their job? To attain retailer “authorizations” for the brand owner’s products and match those up with the right distributors. With tens of thousands of brands out there, finding a brokerage group that will take on an unproven one is not an easy task. The goal in our first year was simply to find the right brokers via countless trade shows, cold calls, sample mailings, and meetings. Brokers may represent hundreds or even thousands of brands…so once a relationship is established, it is the job of the brand owner to become ‘top of mind’ to his broker reps.

Retail grocery stores are serviced by distributors. These are the guys with the trucks that actually hold inventory and stock retailer’s shelves—the next layer in the conventional grocery distribution channel. With help from one’s broker, a brand owner must first break into this network before even having a chance to get onto store shelves. The U.S. market is dotted with regional as well as national distributors, with names like UNFI, Kehe, DPI, and Unified Grocers, that stock tens of thousands of SKUs. Large supermarket chains may even have their own internal distribution arm. Distributors have their own set of category managers as well as sales teams and merchandisers, so as a brand owner you must also sell to these gatekeepers before even getting an opportunity to present to the supermarket buyer.

The supermarket buyer. Reviewing thousands of new products every year to make sure his/her retail shelf space generates the maximum dollar sales per square foot for the company. Not a job I envy. The ultimate gatekeeper that can make or break a brand. Convincing a supermarket buyer to give you a chance takes more than making him/her fall in love with your product. Preparing an annual promotion plan; agreeing to provide free products or hard cash “slotting” fees; promising marketing support such as demos, ad funds, monthly discounts; ensuring that you will support the brand with advertisement all contribute to convincing this ultimate gatekeeper that your brand deserves a chance.

Whenever you walk down any supermarket aisle and see products on sale, that discount is funded almost always entirely by the brand owner. Ads you receive in the mail from your local supermarket? Brand owner paid. Nice folks sampling products by the checkout register? Courtesy of the brand owner. Like the case stack of products near the front of the store? Pay up brand owner for that premium real estate, and be sure you sell your products at a loss for the privilege. New products on shelf? Brand owner provided likely for free, and probably coughed up as much as tens of thousands of dollars per SKU for the honor of being there. That’s the cost of attaining real estate in the supermarket. And for most brand owners, it’s a price they’re willing to pay because if they don’t, 600 other brands are eagerly waiting in line right behind them to do so. It's chump change for the big guys...but a big gamble for cash strapped emerging brands.

As for AL? Drink, a lot of exciting things have been happening. We won a 2010 sofi Silver Finalist Award for Best Cold Beverage by the National Association of Specialty Food Trade and Beverage World magazine’s 2010 BevStar Bronze Award for the New Age/Functional Drink category. In terms of distribution, we’re now in all Vitamin Shoppes as well as Cost Plus World Markets across the country. Our distribution in natural markets, such as Whole Foods Market continues to grow. We’re making inroads with conventional grocery stores as well: as of late 2010, we’re now on shelf at all Lucky/Save Mart stores in the West as well as Ralph’s in Southern California, and nearly 200 Jewel-Osco stores throughout the Mid-West. Hy-Vee stores continue to do well, and we’ve had discussions with other huge grocery store chains and waiting to hear back. We’re cautiously optimistic. But it’s still along road ahead to reach the "mainstream."

Tune in to Supermarkets Inc: Inside A $500 Billion Money Machine on Thursday, Jan. 27 9p ET.

Henry Chen is president and owner of SPI West Port, Inc. , a food distribution and marketing company and the owner of the AL? Drink line of all natural, aloe vera infused beverages. Mr. Chen has a B.A. in Economics from Stanford University, and an MBA from Harvard Business School.