Article also includes:
-Description of various organizations typically found in an inventor’s distribution channel.
-Explanation of how to find a distribution channel for your product.
Many inventors have small novelty products where they want their products sold to convenience stores. This has been a difficult market for inventors because the distributors are typically rack jobbers who actually own the merchandise and buy at 40 to 45 percent of retail. The distributors can be hard to find as they don’t have a Standard Industrial Classification (SIC) dedicated to them, and most operate on the office supplies distributor SIC code.
Recently on a project though, I can across a great source, Mr. Checkout. According to the website description “Mr. Checkout is a national organization of (DSD) Direct Store Delivery Wagon-Jobbers, Distributors, Retail Merchandisers and Wholesale-to-Distributor Warehouses servicing Convenience and Grocery Stores in the US since 1989. Our DSD / Full-Service Merchandising Distributor Members call on c-stores weekly.” The site has a large of services including a Walgreens merchandising program and a product placement blitz service. Everyone should check this site out if you have a product for drug stores, convenience stores or grocery stores. I can’t vouch for the association but I did find the site had a great deal of helpful information.
Over the years I have found that inventors are unfamiliar with distribution, which is the channel that a product follows to take to market. Often products are handled by your own direct sales efforts, reps (also called manufacturers’ sales agents), brokers, specialty distributors, wholesale distributors, other manufactures with complementary lines, and rack jobbers all who may play a role in selling a product. The path your product follows to market is called a distribution channel. For example you may sell a product through a rep to a rack jobber distributor who sells to convenience stores who then sells to the consumer.
Description of terms often used when discussing in the distribution channel:
Direct sales: Indicates that sales are handled by the selling company’s own sales force.
Reps (manufacturers’ sales agents): Independent contractors that promote a Company’s line, but have very limited authority to commit a company to any but its standard sales terms. In effect a salesperson that represents a variety of companies with non competing product lines. They typically call on a specific industry, and carry product lines where the sales volume isn’t large enough to justify a direct salesperson. Reps don’t take title on a product and work commonly on a 5 percent to 20 percent commission.
Brokers: Brokers are similar in some respects to a rep, they are independent from the companies they serve and receive a commission but they are more oriented towards the buyer than the seller. A rep will not carry competing lines and will have a wide range of products. A broker has a narrow range of products and many of them compete. An insurance broker, for example, carries lines of insurance from many companies, and will chose the company that is best for his customer. An insurance agent carries only one company’s products, and tries to steer everyone to buy those products. A clock broker, for example, might have three stores as customers, and have access to many lines of clocks. He would then offer clock lines to his customers so they would have a constantly changing variety of clocks. Reps are far more common than brokers.
Private label: This is a practice where a company makes a product that it sells to another company that markets the product under their brand name. For example, a toy company might make a toy that is sold under the Toys R Us label. Or it might make a toy that is sold to Play School and then Play School would sell it under its label. Private labels sellers own the rights to the product and develop and produce the product to their specifications. Toys R Us might also create a develop toys that they have produced by a manufacturer. That manufacturer would be a contract manufacturer, rather than a private label manufacturer, because it didn’t create the product and it doesn’t own rights to the product.
Specialty retail distributors: Distributors serving small markets, for example baby stores or bike shops. These distributors take title to the product and promote the product and typically carry many products from one product inventor oriented companies. They are a key component in most inventor companies’ distribution plans. They typical mark up (raise their price by) is 35 to 40 percent before selling to retailers.
Industrial distributors: These companies typically sell directly to industrial companies, versus selling to a retail store. Graingers and Fastenall are examples of industrial distributors that sell a wide range of products to companies. You also have specialized industrial distributors. Some examples would be a pump and compressor distributors, a distributor that sell products for high temperature furnaces, or a company that supplies safety equipment. These companies typically have a high level of technical support to help chose the right products and then get the products to work effectively for them.
Trade distributors: These are distributors that deal with tradesmen versus industrial or consumer oriented accounts. Plumbing distributors, wood products distributors that sell to contractors, auto parts distributors that serve car repair shops are just a few of the types of distributors that sell to various trades.
Wholesalers: Wholesalers are also a distribution point between manufactures and their customers. While distributors provide promotion and service, wholesalers typically don’t. They also rarely carry products from inventors as they purchase very large stocks of products and serve markets like grocery stores. Like distributors they take ownership of the product, but typically only mark the product up 15 to 20 percent.
Rack jobbers: Rack jobbers are a specialty type of distribution. Most distributors take title to the product and then sell it to a store or industrial company that takes title. Rack jobbers instead rent portions of a store, which might just be a section of a rack, or endcap positions at the end of the store aisles by the cash registers. Durable hair care products (brushes, combs and other product related hair care products) at drug stores are a typical rack jobber item. The rack jobber owns the merchandise in the store, replaces it and is only paid for the merchandise when it is sold by the store. Typically rack jobbers raise their purchase price 50 to 75 percent and then the stores mark the product up an additional 50 percent.
Selling through other manufacturers: One of the reasons companies use reps is that they don’t have enough sales volume on their own to justify a direct salesperson. Those companies are often willing to pickup a line from another company if it puts them in a position to have their own direct sales force.
How to find agents and distributors.
Step 1: Start by looking for trade associations, trade magazines and trade shows. You can find associations and trade magazines with Google searches if you are lucky, or by going to one of your larger libraries, where you can look for The Encyclopedia of Associations by Gale Research, and also Gale Research’s Directory of Magazines and Broadcast Media. Both of these directories have a wide range of groups for even thee smallest trade associations and trade magazines.
Once you find a list of associations and trade magazines you should go to their site and look for a list of manufacturers’ representatives or distributors. For example I went to look for products for the baby industry in Gale’s Encyclopedia of Associations. I found the association Juvenile Products Manufacturers Association. When I went to the web site, jpma.org, I found they had a list of manufacturers sales agents. Often the web sites will also have a list of distributors, similar to the Mr. Checkout web site.
Step 2: Develop a list of manufacturers in the industry. You can find lists of manufacturers in the trade association and the trade magazines web sites. Trade magazines will also have a list of trade shows. If you go to the web sites for those trade shows you can usually get a list of exhibitors. You can make the list more complete by using your library again. Most bigger libraries have a service called Reference USA in their online services. You can also use the service at home once you have the library password. Go to the site http://www.referenceusa.com before going to the library to see what information you will need. Then look up the SIC codes for a few companies on the site. SIC stands for Standard Industrial Codes, and typically most companies in the industry will have the same code. Once you have the SIC Codes you can do a search based on SIC codes and get a list of many of the companies in the industry.
Step 3: Go the web sites of companies in the industries. Some of the companies will list distributors, and others will list manufactures representatives. Other companies will be looking for representatives or distributors. Often it pays off to call those companies and see if they would like to partner with you in marketing your products. This is a tactic to consider because often manufacturers reps and distributors don’t want to carry a line that is too small. You and your partner company might have enough volume together to entice distributors or manufacturing reps to carry your product.
You can also find representatives at the manaonline.org, which is the site of the manufacturers’ agents’ national association web site.
If you are a minority or women-owned business you might want to check out the site http://supplierregistration.target.com/Supplier/supplier_registration.aspx to get idea of the information you need to know to become a supplier for a leading store.