Why independents are worth the investment.

When I first started this business it was based on a lifetime of dealing with independents and hearing their stories, about the lack of information and service they were getting in relation to new products for their business. When I was consulting I remember going to a café to observe their operation and what peaked my interest was a small space in the corner of their business dedicated to convenience products.
As I walked around the small space I noticed that all of the products were brands that I had never heard of before. There were no house brand names or market leaders, and in my 30 something years of dealing with suppliers and manufacturers, I questioned why I had not heard of these new lines before.
This one chance encounter has paved the way for what is now Stock Box, as I set out to truly understand why 85% or more of all new products fail in the first two years. If the statistic is to be believed then are we really saying that 85% of all new products are duds, and if this is the case then why would any company bother investing in new product development, in the face of this overwhelming failure rate?
How can so many new products fail when consumer research indicates that more product choice in-store is what customers are looking for, and our very own member feedback continually encourages us to keep up the good work, to keep sending new and interesting products to range, and to just keep going.
Well the factors that prevent new products from entering the market are more than likely less about the products themselves and more about the incumbent forces at play. Competition plays a large part in the industry along with historical rivalry, bargaining power of buyers and suppliers, and the risk associated with new category entrants. In most cases potential growth opportunities for business is being clouded under the mantra of category management or mismanagement.
It is for these reasons that most new entrants to the market prefer to deal directly with the coalface of retail, and the main reason why independent retailers are being viewed more and more as the new frontier for many new product entrants.
For a relatively small investment and much less red tape, new entrants can penetrate new channels with less financial risk, and with more and more routes to market, they can achieve better distribution reach at a much lower cost.
The main reasons why new entrants are turning away from organised accounts and into the independent channels relate to:
ECONOMIES OF SCALE
For many new entrants the size of volume is a barrier to entry, as most large retail groups will not look at you unless you meet their volume hurdle rates. The risk for new entrants is that their fees will be much higher than the incumbents and they will have targets to achieve. For many this is difficult as it will require them to operate at little or no margin just to maintain parity with the incumbents.
POINT OF DIFFERENCE
You would have heard this mentioned in your meetings all too often. For buyers they have an established network of incumbents, who drive category initiatives and are essential to the performance of the buyer and their team. New entrants either need to be able to demonstrate that their products are not a me-too, and provide real category growth, as opposed to just stealing volume from the incumbents and ultimately overall income.

CO-OP
It’s the one thing that makes most new entrants cringe, but for the buyer they want to know what you are prepared to invest in promoting your brand. If you are of the opinion that your product will just sell, and the buyer should feel privileged that you are looking to leverage their network of retail members and consumers in the process, then it will be a very short meeting. Bottom line is that before you even sell anything you will have invested a significant sum in supporting your products ranging.

IMPLEMENTATION COST
For buyers and their teams there are very real costs associated with including your product into their range. Planograms pick slots, opening stock, internal communications and relays are just some of the costs associated with getting your product on shelf, which you will be asked to contribute or fully fund.
ACCESS TO DISTRIBUTION
For new entrants this can be a minefield, as the incumbents have the advantage of history, where new entrants quite often are flying blind. If incumbents get aggressive on price and promotional intensity, then your product will not move and you face the prospect of date issues or removal for not meeting agreed hurdle rates. If you invest heavily in deep discounting to drive volume then you may face the prospect of out-of-stocks and penalties further eroding margins.
COST DISADVANTAGES INDEPENDENT OF SCALE
Incumbents may have cost advantages that cannot be replicated by a potential new entrant. Factors such as the learning or experience curve, proprietary product technology, access to data, favourable shelf locations and champion status, can place new entrants at a disadvantage.
INTERNAL AGENDAS
Incumbents are not always external as more and more internal focus shifts towards proprietary brands to address bigger company issues around market shares and competition. Increase pressure to perform to remain on-shelf, are very real issues for all incumbents and new entrants. Competition and the pressure to perform will increase, when investment dollars are funnelled towards proprietary discounting.
In a recent article titled “Don’t overlook the small brands you already own” by Eddie Yoon from The Cambridge Group, it was reported that 49 percent of growth in the U.S. food and beverage market over the past 4 years was coming from twenty thousand companies below the top 100 companies.
This statistic serves as validation that consumers are looking for more choice and that the ongoing evolution of retailing and access to more products, more frequently, will drive the need for more points of engagement for all product partners.
It is no mistake that the emergence of online retailing is paving the way for better delivery systems and driving down the cost of these services, to the point that more direct access to independent retailers will provide a lower cost option for many new entrants to establish themselves.
This new focus on independent retailers will also pave the way for larger companies to invest in their second tier brand portfolios as a way of spreading their risk, and drive higher margins for a relatively low investment cost, as a way to offset their exposure on their incumbent high volume/low margin top tier brands.
Craig Matthews is the founder and Managing Director of Stock Box, a product sampling service for suppliers and manufacturers looking to increase their ranging and distribution within the independent channels. We make product sampling simple and now offer suppliers and manufacturers an online sales and distribution service with no distribution gaps to our retail members. For more information go to mystockbox.com.au