What to Know Before You Take a Better-For-You Brand into the Big-Box World01.29.19 / David Lemley
Getting product on shelf at a big-box retailer is the holy grail for many better-for-you (BFY) brands. It may be a goal you and your leadership team have been methodically pursuing over time, or perhaps it’s just landed in your lap. (You should be planning for this, if you aren’t currently.)
Perhaps your BFY brand has good traction at Whole Foods and is growing at a small but profitable clip. Then suddenly Walmart or Costco call and want to get your brand on the shelf. Everything about your business — product, manufacturing, logistics, pricing — suddenly changes overnight.
How do you manage the relationship? Retain control of your brand image? Ramp up production? Stay true to your roots?
Here are some strategies for mitigating the risks when you make the leap.
Upscale Grocers vs. Big Boxes: The Channels Are Different
Whole Foods and upscale regional chains like Wegmans or Sprouts are essential markets for BFY brands to provide you enough national exposure and velocity to maintain reasonable growth. It’s relatively easy to get on the shelf at these chains. (In fact, the challenge may be getting out before the retailer replaces you with a competitor or knocks off your product with a house-branded one. Even these upscale channels can be vicious places to compete.)
But what landed you there won’t get you into Costco. Many darling BFY brands have gone into Costco, started out with good velocity, and then disappeared. Why? They were unprepared to compete in a high-volume, bargain-driven environment.
Big box opportunity and the growth it promises is exciting, confusing, chaotic, and scary. These retailers are going to demand the moon from you. They’ll want input on every aspect of your business, from dictating your margins to imposing packaging and product changes to determining who else is in the channel with you.
Before you go into a meeting with one of the big guys, you have to have your brand story, your pricing strategy, your values, your business practices, your margins — all of it tightly nailed down.
A Strong Brand Story Avoids Consumer Confusion
Understand that the audience that shops Whole Foods also goes to Costco, so they’ll expect to see the story of your brand being told in the same way across those outlets. While Whole Foods shoppers are less price-sensitive, club- or box-store shoppers aren’t averse to paying more for products they feel represent high quality for the dollar.
High-end BFY products can thrive in the big-box environment if they maintain a consistent brand story everywhere. Changing your tune to meet a retail channel’s demographic sows confusion and distrust.
In other words, it shouldn’t be a disconnect for consumers to find a high-quality BFY product like yours at Sam’s Club. You need to have built enough brand equity through other channels and on social media that selling at a club store isn’t a negative for your audience.
We don’t recommend making the big-box leap until you have your brand story straight and enough proof — through velocity at shelf and consumer raves on social media — that you can advocate for what the channel might consider a premium price.
The Financial Challenges of Ramping Up Production
This may be the most panic-inducing aspect of making the move into club, big box, or convenience store chains. You need to expand production, and quickly. And if your business is under about $50 million in annual sales, it’s likely that you’ll need to borrow money to make that happen.
Retailers want to know you can support their demands, and they won’t put you in store until they have proof that you can. They might test your product in a region with 200 stores; if it sells well, then you’ll have to immediately triple production to roll out across the entire chain. If you’re unable to meet demand, you’ll get discontinued because you can’t restock empty slots.
That means you have to invest — to build a new facility or buy production time elsewhere — before you’ve got the business. And quickly, because while you’re scaling up, your competitors may be rolling out a similar product in other outlets. While your sales team is knocking on doors, your operations team should be researching backup plans for production.
Managing The Risks of ‘Growth Implosion’
Without a strong brand narrative, an eyes-wide-open view of the opportunity, and clear plans for production, brands that enter the big box space risk falling prey to growth instead of riding it upward. They either can’t scale quickly enough to land the business, or they can’t maintain production to meet Costco’s demand. We call this “growth implosion.”
So prepare — your pricing structures, channel strategy, brand promise, proven velocity, and production — in order to make a bold move. And it’s OK if that preparation tells you that big box isn’t the right place, at least now, for your brand.