Broker or distributor? How to choose the best option for your product
Friday, April 22, 2022
Reference: FCC
There are two ways to get your food and beverage product to retail market shelves – via a broker or a distributor. Both have pros and cons, and it comes down to what’s best for your business and your relationship with the representative.Defining roles
Brokers offer access to retailers’ head office and are an asset in the implementation of sales and marketing programs. Distributors, meanwhile, offer the most efficient and effective solution to get products to different markets.Brokers:
- Are companies or individuals who represent your business to the retailers
- Are hired to build relationships with retailers and, ultimately, are responsible for your volume with retailers
- Represent several companies that don’t compete
- Don’t buy your product – you ship and bill retailers directly
Distributors:
- Are companies that purchase your products
- Take products to stores to re-sell while you ship your product to the distributor
- Generate sales by creating orders or taking the product directly to the store on trucks
Broker benefits
Brokers have established relationships with retailers and work hard on your behalf.That’s because brokers are paid on volume, usually at a rate of 3 to 5% of sales. For example, if your sales to a grocery chain are $100,000, the broker gets $3,000-$5,000. The more work they anticipate they will have to do to generate sales of your product, the more they charge. Like any business trying to generate a profit, they focus on the items with the best return. Some brokers request a monthly retainer until the volume reaches a minimum level.
Broker marketing and sales programs
Brokers also execute the marketing and sales programs you develop. They do not develop them, so finding a broker does not absolve you from figuring out how to sell your products to customers and consumers.As well, some brokers have retail coverage, an asset since it allows them to help you understand what is happening in the stores. It also means they can get extra merchandising displays, deal with close-to-code product and be your eyes and ears in retail. This usually is an extra cost - make sure you agree on the reporting for store visits.
Distributor advantages
Distributors perform a different function than brokers. When they take possession of your products, they have added incentive to get them on a truck and sell them. They own the products, so they want to move them.Distributors have established relationships with stores and, like brokers, only bring in items they think will sell. They don’t want to buy inventory that will be hard to move.
You should plan to pay a distributor 20-25% for shelf-stable products and 25-35% for refrigerated or frozen. Distributors also earn their income by operating on a margin. You sell your product to them for a delivered price to their warehouse, then they apply the margin to the product and sell to retailers or foodservice.
If, for example, the delivered price to a major grocer is $5.25 per unit and you want to use a distributor, you will need to sell to the distributor for $3.95 (assuming distributor margin is 25%).