Shelf Life

The Grand Total

So how much did it all cost?

Before answering that question, let me share with you how much it would cost (and the effort it would take) to establish such a broker network yourself.

First, broker relationships should always be established in person. Additionally, there are steep costs associated with researching each of the 35 U.S. food brokerage markets. You have to find out who the brokers are in each market, review their qualifications, and then determine their interest in representing your product. Travel is a primary expense, as you must visit each market at least once.

All that said, many in the industry will quote an average cost of $4,000 per market to select and recruit a broker. Porter, however, spent much more than that setting up just two markets before eventually hiring AIMS.

AIMS charges $1,000 per market (with a six-market minimum) to recommend qualified brokers, in addition to 1 to 2 percent of sales per market for the first two years.

Using a company like AIMS--similar consulting firms can be found via a quick Web search--saves you money in other areas as well. For example, brokers charge a commission that ranges from 5 to 10 percent of your wholesale price, depending on the product category and expected sales volume. When AIMS finds a broker for you, it assists you in negotiating broker fees, which can result in significant savings.

But there is another cost of doing business with grocery store chains: slotting fees. Although many entrepreneurs may not know about these product placement fees, the truth is that almost every grocery store chain charges them.

These fees date back nearly 20 years, when manufacturers were going crazy introducing new products, most of which died a quick death on store shelves. This ended up costing grocery store chains a lot of money, because they constantly had to reset their shelves. Finally, one large grocery store chain decided to control the frenzy of product introductions by charging manufacturers each time they added a new product. The idea garnered immediate industry acceptance from other food chains and wholesalers, and still stands today.

According to a recent slotting fee study done by AIMS, the cost of slotting just one item across all U.S. markets is approximately $1.2 million for a food item (such as potato chips or cereal), $1.1 million for a perishable item (such as butter or chilled juice) and $473,000 for a general merchandise item (such as batteries or mascara). The cost breaks down to $23 to $75 per store--for just one item. So if you sell cooking oil and you have three different flavors, you must pay a slotting fee for each flavor.

A company like AIMS is a great help when you're negotiating slotting fees, because they're determined individually with each grocery store chain either through the broker or in person. And since standard slotting fees do nothing to build sales volume, AIMS has been successfully working with manufacturers to create traded promotional programs that convert some or all of the slotting costs into productive expenditures, such as designing and running an agreed-upon number of radio and newspaper ads in a certain market. With such fees sometimes totaling millions of dollars, having that money go toward building volume can create brand awareness and put money in your pocket.

"I was just a babe in the woods [when we started]," confesses Porter. "Without AIMS, we wouldn't have known how to roll out a broker network. I'm sure it would have taken us several years to do it on our own." And as the success of Clean Shower demonstrates--current revenues top $42 million--getting a product onto the shelves in all markets can have a huge positive impact on your bottom line.

For more information about AIMS and its services, check out its Web site at http://www.aimsnet.com

Contact Sources

Association of Independent Marketing Services Corp.,http://www.aimsnet.com

Clean Shower LP,http://www.cleanshower.com

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This article was originally published in the October 1998 print edition of Entrepreneur with the headline: Shelf Life.

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