Future of Distribution is Controlled
Saying NO to some revenue creating opportunities will help minimize business continuity risk long-term in today’s market! Huh? Isn’t a company’s main goal to maximize shareholder returns, and it would be tough maximizing returns if you are turning down revenue, right? Seems counterintuitive…unless you understand that not all revenue is created equal.
Stack It High & Let It Fly
“We are in 10,000 retail distribution points…”
You’ve probably seen that mentioned within an entrepreneur’s LinkedIn “humble brag post”, corporate press release, or quarterly earnings report. It’s the supplement brand entrepreneur equivalency of when meatheads talk about “how much they bench.”
Shotgun Distribution is the approach of trying to cover as much as you can…as fast as you can. This is sometimes called the “stack it high and let it fly” approach. The CPG brand doesn’t care where, how, what, or why something is selling, they just want sales action.
Shotgun Distribution Misfires
Can you imagine how the “stack it high and let it fly” approach might be less effective today?
While I can provide unlimited examples from every sales channel, here are a few that the internet created recently:
Amazon (and other marketplaces) exposed poor strategic pricing and promotional strategies of CPG brands.
Working through 100s or 1000s of intermediaries have left legacy CPG brands without precious first-party customer data.
Revenue Growth Management
Here’s the thing about that “door/store count” vanity metric though…it’s basically meaningless without also knowing sales velocity. More important than the absolute value of sales velocity itself, is whether it’s increasing or decreasing. A change…and the size and direction of that change can expose how well your brand/product is performing from the following two distribution-related perspectives:
Growth in the existing base of stores or distribution points. (i.e. organic growth)
Growth relative to your existing base plus any new stores added.
How do you do that? While there’s many ways to get to a similar result, a great strategic framework to consider would be Revenue Growth Management.
Revenue Growth Management is "the discipline of driving sustainable, profitable growth from your consumer base through a range of strategies around assortment, promotions, trade management and pricing".
Control your Destiny
If you control your distribution, you control your destiny. As mentioned earlier, not all sales are created equal…and you must understand how each retail partner provides value to your supplement brand long-term.
As an example, your startup protein powder brand gets a call from a regional discount retail chain buyer in Seattle. You could obviously use that potential revenue, but you spot a few problems…
You are a premium priced product.
You are based in Ohio and have no human capital resources in the Seattle
Do you say yes?
Stack it high and letting it fly = you make it happen with no regard to how that might create other challenges in your business.
Controlled distribution = likely pass on the opportunity today because it would require price-pack architecture adjustments to not dilute current strategic pricing and it would also add major operational/administrative costs that are better utilized in current or better aligned future opportunities.
I should mention though that this type of controlled distribution does require a entrepreneur to understand their supplement brand strategy, their customer, and how decisions with retail partners play into that. Remember that you don’t need to be everything to everyone. You can win in the pockets/fragments in the market. Controlled distribution also requires an entrepreneur to understand that if you authentically stick to your plan and put blinders on to your competition, you can have a better chance of winning. The hare might be flying past you in the race, but the intentionally moving tortoise will eventually catch up and pass the hare that becomes lost.
Let Nike Show You the Way
Nike knew that if they wanted to continue their dominance in the market, they would need to make a radical shift in their sales channel strategy.
Consumer Direct Acceleration Plan = a strategy focused on speeding up the prioritization of DTC channels.
Consumer Direct Offense Strategy = extensive multiyear retailer rationalization process that rated/ranked each partner to understand if they were value accretive or dilutive to their new strategic plan.
Nike has reduced wholesale accounts by more than half including big name retailers like Dillard’s, DSW, Macy’s, and Big Five Sports. For those retail partners that were deemed as value accretive, Nike will focus on deepening those partnerships and driving growth through them because they see the same future.