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Pros & Cons: Route to Market Models

By: Greg Seminara, Export Solutions
Topics: Food Distributor

Few companies achieve sufficient sales volume to operate offices in every country.
Even Procter & Gamble, Nestle, & Unilever regularly use third party distributors for certain countries or brands.  Distributors, Importers,Brokers, and Agents form an essential part of our industry. Each model provides local expertise in a variable cost model. This frees up valuable company resources to invest in brand building versus start up costs and complexities associated with managing your own subsidiary. However, all models are not created equally. Different third party models play unique roles depending on the country.

 

 

Model

 

 

    Advantages

 

 

    Issues

Subsidiary

100 % of sales force attention.
Direct interaction with customer

Fixed Cost. Start-up - expensive.
Requires critical mass.

Distributor/
Importer

Integrated solution. Variable cost.
Multiple brands drive scale.
Universal. Available  everywhere.

Battle for distributor focus.
Margin impacts pricing.
Lack scale in biggest markets.

Joint Venture:
     Local manufacturer

Integrated solution.
Local expertise, critical mass.
Lower start-up costs.

Focus vs. in-house brands.
Loss of control.
Not strategic for jv partner

Broker/Agent

Efficient, Variable cost.
Critical Mass: USA/Canada

No logistics/financial services.
Limited scale outside N. America.

Direct to Customer

Cost efficient ( no middleman).
Direct interaction with customer.

How to sell all market customers?
Store level execution problems.

Consolidator

Ships small quantities to market.
Limited label changes/currency issues

Another Middleman and expense.
Diverting risk. Small volume.

 

Local Subsidiary
Companies create their own offices in large countries and locations where they maintain factories.
All producers require the same portfolio of logistics, sales, retail coverage, and financial services. A manufacturer must generate a certain threshold of sales volume to provide the depth of services  to efficiently operate a local subsidiary. The clear benefit of this option is that your entire team is 100 % dedicated to your brands priorities.

Universal Model: Distributors
The global standard for third parties is the distributor/importer model.
Each country features a variety of distributors offering an integrated "one stop shop" of commercial, logistics, and financial services. Many types of Distributors exist, ranging from category experts to channel specialists. Export Solutions database tracks more than 6,800 distributors in 95 countries.

Distributors: Different Services
Important to recognize that there are at least three types of distributors active in our industry.
The most common international model is the distributor/importer which imports and sells brands, usually with exclusivity to one brand per category. In the USA and UK, the wholesale distributor model plays a critical role. The wholesale distributor serves as a logistics/financial partner, but does not import and markets all category brands on a non-exclusive basis. Regional Distributors are common in Brazil,India, Russia and China. These distributors work exclusively, but normally handle only one designated region of the country and rarely import.

USA Supermarket Brokers
Why do most successful USA brands use brokers to sell to supermarket chains ? Most companies operate factories in the USA, eliminating the need for importation services.Logistics providers are plentiful and retailers are financially reliable. As a result, most USA brands do not require the integrated services from a distributor/importer, only niche foreign products. Brokers supply essential local selling services. They maintain excellent customer relationships and provide critical store level merchandising. "Big 3" USA brokers offer tremendous economies of scale, but are organized to handle leading brands. Brokers are powerful partners to the supermarket channel. Most manufacturers "sell direct" to Walmart, Costco, Pharmacy, and other non-supermarket channels.

Problems with Joint Ventures
Joint Venture proposals look good on powerpoint presentations in the board room.
Potential value exists in partnering with a dominant local brand owner, with built in critical mass. Unfortunately, my experience is that most joint venture relationships wind up in divorce. Senior management may be committed, but the norm is for the sales team to default focus to their own brands which they find easier to sell.

Consolidators: Opportunistic Volume
Consolidators are local customers who will purchase your brand, comingle it with other products and ship mixed containers to foreign distributors or retailers. Manufacturers with "lean" export departments  view this as simple, incremental business. These companies like the fact that they do not need to deal with label changes, currency exchange, and foreign distributors. In many cases, serious exporters move beyond the consolidator model to take control and optimze sales volume.

Direct to Customer Challenges
Walmart and Carrefour sponsor established global sourcing or "direct buy" programs. For some countries, these programs represent an efficient route to market solution. In other countries, exhibit caution, as direct sales to one customer can disrupt your distributor relationship or preclude you from selling to every other customer in a large country. Few brands are strong enough to sell in a foreign country without any support or in store activity. Normally you need a local "brand advocate" in form of your own employee or local distributor to drive your sales.

Third parties: Shared Services Model
The key challenge for most brand owners is to respect that distributors and brokers employ a
"shared services " model. Multiple brands share the same resources , with time allocated by size of your business. It's a constant "balancing act" for third parties to deliver equitable value to the brands designed on this margin or commission system.

Contact us for advice on best models by country for your brand or finding strong distributors or brokers in 93 countries.