Why National Supplement Distributors Are Bad for Your Business

by Matt Weik

I’ve spent a decade in the supplement industry working for one of the largest supplement companies in the world. That being said, the brand thought they had it all and that if they could get one of the largest national supplement distributors on board that it would further aid in exponential growth. Well, it didn’t exactly happen that way—and for several reasons. Let this be a lesson for everyone.

Who are you, again?

While the brand I was with is one of the largest around, it’s simply because they have been around forever—a legacy brand, not because they are one of the best in the industry. The brand had every product under the sun which helped grow the business, but the brand name simply didn’t carry as much weight as it did back in the 90’s.

When you sign on the dotted line to work with a large national distributor, you need to realize that all they want to do is sell your product in the easiest fashion possible. In essence, this means they don’t want to spend money training their sales team on your brand and products, they would rather have their sales crew walk into a retailer and the retailer gives them an order for your brand’s products without even needing to educate them. It’s a simple sale. If you are a top dog and a recognizable name in the industry, your products will fly off the shelf on their own; however, if you are a start-up or a smaller brand, your chances of doing well with a national distributor are slim to none unless you have wads of Benjamin’s that you are willing to give up regularly.

Distributors don’t want to have to explain your product line, not only because it’s time consuming and work, but that means they actually need to spend time studying—which they don’t want to do. National distributors carry thousands of products, and it’s nearly impossible to know what each product has in it. It’s much easier if a sales guy can walk into an account, say they have your brand, and the retailer simply places an order knowing there’s little risk of him or her sitting on the product. So, if you’re not a household name, the chances of your products doing extremely well isn’t that high.

Let’s think about it for a minute. Let’s assume the distributor has hundreds (but probably more) of brands to sell. Who are the sales guys going to push the hardest? For starters, the brands that give them the best margins, the ones that put the most commission in his or her pocket, but also the easy sale. Some sales guys aren’t that bright so they pick the low hanging fruit or are looking for a layup that offers no resistance. Can you blame them? No. Heck, wouldn’t it be easy to walk into an account of yours and simply say, “what can I get for you today?” You bet. There’s a good chance your brand will NEVER get brought up in conversation from a national distributor’s sales team. They have way too many brands to consider, and unless you have some sort of differentiation from everyone else on the market (which most will say they don’t), then you’re left in the back of the catalog they hand out where no one looks (oh, and by the way, you’re paying to be in that catalog as well).

Shrinking margins

Raw materials aren’t getting any cheaper and with the way prices have been skyrocketing over the years, it makes you wonder how much of a disposable income people will have left. Many people have eliminated supplements from their monthly purchases simply because they are becoming cost prohibited. Many brands try to keep their prices as low as possible to make it more affordable to the consumer—ultimately shrinking their margins. But wait, there’s more! When you work with a national distributor, they are going to squeeze you like a pimple in order to get the best price from you so they can in turn sell it and make more margins for themselves. What’s happening is that you end up losing margin and revenue just to put more money in the distributors pocket—make sense? It shouldn’t. You’re getting screwed.

Don’t give me your wallet, I’d rather take everything in your bank account

Some people think how great it would be to work with a national distributor because they could let them do all the selling for the brand. When they come back down to planet earth, they realize that isn’t the case at all. If you want to get noticed from the accounts the distributor works with, you’ll need to pay to run ads in their catalogs. Generally, a new catalog is released every quarter, so plan on spending a considerable dollar amount four times a year on ads in their catalog. Then, if you want to catch the attention of retailers, you need to put monthly deals together that can be blasted out or spoken about to accounts. These can be anywhere from a 2+1 to a 12+1 deal. This isn’t an expense that you split between yourself and the distributor, this money is coming from your pocket each month when they send you their credits. Many distributors even make you pay for damages or returns from retailers.

It’s a pay to play type of game with national distributors. If you want to play with the big dogs, you yourself need to act like a big dog—even if that means faking it in hopes of making it big. You need to invest a lot of money just to get on their radar and have them pushing your brand to their customers. There’s nothing you will do with a distributor that isn’t going to cost you money. Out of the kindness of their heart, they are not going to “help you out” on their dime. Be prepared to spend a lot of money to get any traction, if at all, through a national distributor.

Don’t forget about samples. Not only is it what retailers expect, but it’s an easy way for a sales team to introduce your brand and products to their accounts. They walk in, give a quick pitch, drop off some samples with a price sheet and on to the next account they go. Hopefully, the money spent on samples will translate into sales, but unfortunately that isn’t always the case—and not all samples are cheap. If you have pills or powders, they are generally friendlier on your wallet than something like a bar or drink. And if you have a salesman who simply doesn’t care, they could drop off a whole case of product and not think twice about it, meanwhile you’re paying for those samples.

You could easily spend thousands and thousands of dollars on samples for only a couple hundred dollars worth of sales. You can even throw swag into this category as well. Many brands produce shirts, hats, beanies, gym towels, shaker bottles, etc. This all costs money with no true guaranteed return on the investment. Sure, you could run a promotion with retailers where if they spend $49 or more on your brand they get a free shirt, or purchases over $19.99 get a free shaker bottle. But again, you’re investing into a sale rather than the product moving off the shelf on its own. There’s no demand for your product if it’s not moving.

I’ve seen it first hand when I worked for a supplement company. People would walk in, grab a tub of protein without any interaction with the retailer, pay for it and off they go. Zero interaction at all. The product sold itself. People come in knowing the brand they want, get it and move on with their day. Retailers don’t want to have to sell anyone product, they want customers who come in and already know how they are going to spend their money. To retailers, money is money, they don’t care what brand it comes from and these days very few retailers have brand loyalty. It all comes down to who makes them the most money with the least amount of effort.

Go hard, but in the end, most employ the pull and pray method

If you aren’t already spending thousands of dollars on marketing your brand and products, you’re going to end up losing. This can be through social media, website ads, sponsoring sites and blogs, catalogs, magazines, etc. You need your brand to be in the face of as many people as you can. It’s not going to come cheap. But what I’m finding is that the lifecycle of a new brand (some, not all) with a national distributor is fairly short. Sometimes less than a year. They jump in with both feet thinking how great it would be to have a distribution network with a large national distributor just to find they’re ass-backwards financially each quarter because of the spends needed just to work with the distributor.

Each distributor could be getting anywhere from 35 to over 50% off just to bring your line in. Your margins have already shrunk. Now you need to spend money to advertise through them, structure deals and promotions, maybe you spiff the sales team based off their sales to motivate them to push your brand, and more. It’s like throwing a bunch of money in a pile and setting it on fire. Because of all of this, many decide to cut ties with the distributor and go back to pounding the pavement themselves (grassroots) or with their own sales team and grow their brand that way.

After pulling out, it doesn’t mean brands will never go back into distribution. What some do is build their brand until it gets to the point where it makes sense to open things back up to distribution. However, many brands do extremely well simply selling ecommerce only and never want to go through distributors. It’s up to each brand to figure out their strategy and how they plan on executing it. In my opinion, working with a national distributor isn’t always the best answer for building your brand, in fact, it could put you out of business.

 

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