by Matt Weik
Back in the day when I worked for a supplement company, my biggest competitor was my own brand. Wait… what? It’s true. What many people (consumers) fail to realize is that supplement companies, while competing against each other, they are internally fighting themselves – at least from a channel versus channel perspective. For instance, the sports nutrition specialty channel is out selling to supplement stores and gyms while another channel is going after food, drug, mass, c-store, etc. This internal battle always caused friction and it now appears that the sports nutrition specialty channel could actually die off due to the push towards FDM.
Create the demand and then let the other channels steal the consumers
Going back to my earlier example, when a new product would be launched, we would be given it to go and run with. We would introduce it to all the supplement stores in a given territory as well as gyms and health clubs. We, in essence, would go out and create the demand. We handed out samples and were foot-soldiers for the brand – almost like little marketing pawns. We move forward in the “game” just to allow the bigger pieces to come in behind us and make the big moves to try and “win.”
The internal battle starts with the price point. All retailers obviously want to make the most margin from each sale. They will beg and plead to a salesman or distributor that they need better pricing otherwise they’ll go with another brand/product to fill the shelf space. The unfortunate part always seemed to be that the sports nutrition specialty channel could never compete with the wholesale pricing of FDM. Why? It’s a volume issue.
Let’s say you sell to ABC Supplement Store who is an independent mom and pop brick and mortar location. They are ONE location. Now, look at places like Gold’s Gym or Vitamin Shoppe. We are talking about thousands of locations. See the difference? It’s about buying power. If an account can commit to certain sales goals and a certain number of doors, they are always going to get better pricing for the most part.
So, when the sports nutrition specialty channel goes out to sell, they are working off a higher wholesale price than FDM every day. Not only that, but specialty retailers get aggravated when they are selling a bar for $3 to $5 on shelf and one block away at a grocery store they are selling them for $1 to $2 all day long. Looking at it from this perspective it’s hard to argue with the store owner, gym owner, or even the sports nutrition specialty channel salesman for throwing their hands up in the air.
From a salesman’s perspective, it’s much easier to go out and sell a bar for $1 when everyone else is out selling the same bar for double that price (or even more). Therein lies the internal conflict and frustration. When a sales team brings up their tug of war with pricing, many brand managers tell their sales team to “just go out and sell” and “that’s not an excuse as to why sales are down, we’re all on the same team.” Well, it’s a pretty damn good reason if you ask me.
The death of the sports nutrition specialty channel
To make matters even worse, now brands are starting to move away from the sports nutrition specialty channel altogether. While the sports nutrition specialty channel used to be the entry to market with new SKUs, that might not be the case for much longer. You see, there is a saying that goes something like, “fish where the fish are.” Sure, you have people who go to gyms and supplement store, but they are the minority in the grand scheme of things as EVERYONE needs food. So, where do they go? The grocery store. EVERYONE needs gas. Where do they go? The gas station. In a pinch for something? The convenience store is the place to be.
It makes sense to put products where people frequent the most. Do I think it’s the right move? From a business perspective, I would say yes. But, in the same breath, you need to look at brands like EAS who got away from the sports nutrition specialty channel and moved strictly into FDM – they’re now out of business and died a slow and painful death. Maybe their example is proof that going the route of FDM and away from the sports nutrition specialty channel is a mistake? But, if everyone is looking to make the move now, who’s going to stand their ground in hopes their sales don’t get swallowed up by the competition in different channels? That’s a tough call.
While I don’t see the sports nutrition specialty channel going anywhere, I can see brands backing away slightly and even letting their entire sports nutrition specialty channel sales team go. After all, if they are moving towards FDM, do they really need them? With brands having a close relationship with distributors, it would almost make sense to cut the sales team loose and get rid of them so they can use the money to run heavy promotions through their distribution network.
Think about it, if a brand has 4-8 salespeople across the country and each get paid a minimum of $50,000 each year (which is actually quite low and a conservative number), that is a savings of $200,000 to $400,000 (that’s not even counting the savings from benefits, expenses to have the team driving around every week, cost of company fleet vehicles, food, hotels, etc.). Add all of that up and you could be looking at a cost savings of around half a million or more!
To close this out, I think in 2019 and 2020 we will see more brands go the route of FDM and rather than cherry picking their line in such locations, they will open up the floodgates and allow large FDM locations to have access to their full line of products. I might be wrong, but I already know several brands that are currently moving in this direction. It should be interesting to see how all of this plays out. What do you think will happen? Will the sports nutrition specialty channel die or will it hang on for dear life like it currently is? I’d love to know your thoughts.