The next time you go shopping at your local grocery store, take note of the vast number of products lining the shelves. How did they get there--and how can you get your product there, too?
Today, securing shelf space isn't easy--especially if you own a small company with only one product. The truth is, it's costly, time-consuming and complicated. It takes a savvy entrepreneur to find the right representation and distribution channels for each market.
This month, I'd like to share with you the success story of a small, one-product company that was able to secure shelf space in grocery stores nationwide in just under two years. The company is Clean Shower LP in Jacksonville, Florida; the product is Clean Shower; and the key to the product's success was the Association of Independent Marketing Services Corp. (AIMS), a Chicago-based sales and management services company and association of brokerage firms.
You may have heard about Clean Shower on the radio or seen its inventor, Robert H. Black, on television singing the product's praises. Clean Shower is a biodegradable spray that removes soap scum, hard-water deposits, stains and mildew from a shower without scrubbing. Black, a chemist who invented the product in 1993 after trying to clean his shower with ineffective products, gave samples to family and friends. When they loved it and wanted more, he knew he was onto something.
Confident the best places to sell Clean Shower were in grocery stores, Black did some research and found that grocery stores purchase most of their products through representatives known as food brokers. So he personally approached several brokers--and got shot down each time.
Finally, in April 1995, Black got his first break when he spoke to a group of venture capitalists about his product and gave away free samples. Paul Porter, whose wife was pregnant at the time, was in the audience that day. Because he was on shower-cleaning duty, he went home and put the sample to the test. He was so impressed that a week later, he set up a meeting with Black. The two became partners, with Porter as president and CEO of Clean Shower and Black as chairman of the board.
Black couldn't have found a better partner. Porter's brother, Phil, had a connection to a food broker, and, working together for the remainder of 1996, the brothers were able to establish distribution in two markets: Southern Florida and Boston. Thanks to a creative radio campaign, Clean Shower achieved great product awareness and sold extremely well.
Despite their success, the partners were frustrated. Clean Shower was a great-selling product, but expanding into other markets was consuming too much time. They felt they were paying a huge price in lost opportunities because they weren't able to expand fast enough.
In January 1997, Paul Porter received some strategic advice from the owner of a food brokerage company. He told Porter to set up a meeting with AIMS, which, among other things, helps consumer products companies achieve their sales goals. AIMS locates the right brokers to represent a company's product, develops sales materials and conducts industry research.
After his first meeting with representatives of AIMS, Porter realized that having the company on its team would give Clean Shower the clout it needed to sway brokers. So Porter hired AIMS to help expedite Clean Shower's market distribution and, as Porter put it, "to validate our product."
The first thing AIMS did was research. It reviewed Clean Shower's market plan, verified its financial backing, wrote a sales manual to be used by the brokers, and conducted research on the Clean Shower product in its current markets. AIMS assessed the product's strengths and evaluated the company's current marketing program for maximum effectiveness. Finding both the company and the product to be sound, AIMS began creating a broker network for Clean Shower.
AIMS representatives contacted prospective brokerage companies and presented them with the opportunity to represent the product. AIMS then gave Clean Shower a written recommendation of the top brokers to consider in each market.
Within nine months of hiring AIMS, Clean Shower had landed broker representation throughout the country. By last December, Clean Shower could be found in every U.S. market and had achieved sales of more than $13 million.
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
Association of Independent Marketing Services Corp.,http://www.aimsnet.com
Clean Shower LP,http://www.cleanshower.com