One thing that often gets lost in an early stage company is focus.  The simple truth of an early stage business is that you can only do one or two things well.  If you try to do more than that, you are kidding yourself.  The allure of getting your product stocked on the shelves of large retailers is a strong one and it is tough to resist.  We tried to grow e-commerce, Amazon and retail all at once, and retail generally took all the bandwidth and thought.  So much so, that it took us more than 18 months to start taking subscriptions - a very basic e-commerce tactic.  More on that later - for now I will talk about how retail works and what happened with us.

How Retail Works

Nearly all grocery chains purchase from one of two large distributors, either UNFI or KeHe.  These two firms each operate about 15 warehouses across the US. If you are not stocked at these distributors, most retailers will not carry your products. Distributors will not stock your product at a warehouse unless there are at least 20 stores that will order it from that warehouse. This is a classic chicken-and-egg issue and there are really only a few ways around it.

There are a small number of retailers (20 – 30) that can ‘open’ a distributor warehouse. If one of these retailers agrees to take your product, the distributor will stock your product in the warehouses that serve that retailer. Until you get one of these anchor chains to agree to take your product, you will not be carried at the warehouse.

Getting on the shelf at one of these large retailers isn’t the end of the battle. You still need to generate enough sales to stay in the warehouse because slow moving products are discontinued. We even had a case where a product being carried by a large, national retailer was discontinued by a couple of warehouses, which led to out of stock situations, reduced sales and eventually caused us to be discontinued entirely.

You have very little control over what happens on the shelves. It is harder to convince a customer to buy a product from the store than it is to convince them to buy that same product online. Think about the math: with a regular email/sms that has a Call to Action (CTA) on your site, you might see an open rate of 20%, a click through rate of 1% and a site conversion rate of 5%. In this case it takes about 10,000 emails to generate a single sale. That number goes way up when you move from online to physical stores. It is much more difficult to convince a customer to go to the store and purchase your product, or even just remember it the next time they are at the store. This makes it much more difficult to see a return on your marketing investment.

Our Start in Retail

When we first launched the company, we began getting inquiries from small retail stores. Although we hadn’t intended to sell in retail at the start we filled these orders and decided to try and sell to some stores: Paragon Sports in NYC and Erewhon in LA were two of the first.  

We received a cold email from the Whole Foods national buyer expressing interest in our products. We flew to Austin to have coffee and discuss. They told us we would need to be on the shelf for $2.99 and we could not hit that with our costs. Cold outreach to about 18 large retail buyers with samples landed Wegmans, followed by FreshThyme and Whole Foods in the South. We hired a broker to support our business with Wegmans which helped open up numerous independents. A Kroger buyer reached out and asked us to participate in their review, so we flew to Cincinnati to present. They notified us that we would be in 1,000+ Kroger locations starting in July. All in all we ended 2019, our first year in business, with about 1,500 committed stores.

Retail’s Impact on e-commerce

The whole time we were driving into retail, we were not thinking about e-commerce.  During COVID, email response rates dropped significantly as more brands sent out emails to drive e-commerce sales.  We knew this was happening and we did try to turn it around, but our focus was on retail and the e-commerce business suffered. It is an excellent example of how it is hard to split focus, especially when a company is new.

If this sounds like your situation, you should consider hiring a part-time CMO. This will allow you to focus on one part of your business, like retail, while the CMO can focus on another. If we had taken this path, we could have continued to put all our effort into growing retail without having to sacrifice eCommerce growth.

Mike Morris is the founder of Kettle Hole Partners. When he is not trying to figure out mathematical models for marketing and customer acquisition he is probably riding his bike.