Role of Distributor Manufacturer PresentSell to Customers Deliver

Role of Distributor Manufacturer Present/Sell to Customers Deliver to Customers Wholesaler/Distributor Collect Money From Customers Merchandise Products Place/Manage POS Retailer Secure Multiple Locations Place/Manage Equipment Consumer

What are Distributors Looking For? Ingredients Uniqueness Calories/Fat Product Appeal Consumer and Retailer Demand Margin Pricing and Promotional Strategy Sales Support Exclusivity Buyout

Recommendations for Presenting New Items to a Distributor Full year recommended promotional and incentive calendar by month Ø PUSH Full year recommended promotional calendar by channel Ø PULL How you are going to get the word out about your product (demos, social networking, consumer sweepstakes and promotions, advertising, public relations, guerrilla, etc. ) Make sure you can concisely present your strategy in an easily understandable manner What you are going to do for the distributor and the amount of money they can make selling your product

Distributor Programs Promotional Programs—ex. Buy X Get Y free or 15% off per case Incentive Programs/SPIFFS Ø Can be targeted at distributor sales force, sales management, or distributor themselves Ad/Catalog Fees

Types of Promotions Off Invoice Scan Down Billback Hip Pocket Deals Manufacturer’s Chargeback (MCB) Coupons Case Stack Deals Incentive Programs

Be Prepared to Answer Questions Consumer Research or testing Shelf life and spoils policy Payment terms Order lead times and minimums Delivered or Pick Up Price Exclusivity Where should it be placed? Case/Unit Cost Suggested Wholesale Suggested Retail

Budgeting and Planning Conservative sales projections Ø Need to make sense First round budget for extra marketing and expenses Ø Compare to reasonable sales and eliminate what you can’t afford § Nice to have vs. Need to have The devil is in the details… Success is in the systems Develop Sales slowly Ø 1 Region at a time/Contiguous Ø Work out the kinks § Logistics v Warehousing and shipping § Accounting and collections § Tracking sales by account when possible § Understanding where your product sells best and focus on that channel Ø Contiguous market Expansion Ø Understand when you can afford to go bi coastal Ø Don’t Underestimate freight

How Much Money Realistically $3 M-$5 M Will I Need? Ø A little less for a brand almost exclusively focused on the natural and gourmet channels Ø Don’t need it all upfront but probably need close $500 k to really get started Friends and family are the best route to raise capital Venture capital is the next best but they will want a lower valuation and a larger portion of the company Ø They usually want to see $5 M-$10 M in sales before they are interested in looking at a brand Ø However, if you have something that is breakthrough they will speak to you sooner Ø Strategics follow Venture Capital. They will traditionally want to see more sales than a VC, but if they are interested they can help you in a lot more ways than just capital § Purchasing Power § Logistics Costs Have an exit plan in mind before raising capital Ø You don’t have to sell the company, but investors want to know how they are going to get their money out Ø Have a plan

Margins and Pricing DSD Grocery 30%33% 33%35% 40%44% for WFM, FM Grocery Produce or Dairy 45%55% Natural Foods Distributor 25%35% C-Store 40%50% Drug Club 45%50% 11%13% 6%8%* Major Natural Food and Gourmet Chains work on 40% - 44% Margin Manufacturer Gross Profit Target = 45%

Gross Margin is defined as the difference between the costs (COGS) related to manufacturing your product and the price that you sell the product for Is freight a part of COGS?

Margin or Markup What is the difference? Retailer Margin = Selling Price–Cost Selling Price Retailer Markup = Selling Price – Price Cost

Margin vs. Markup Margin: If a product costs $2. 00 and sells for $3. 00 ($3. 00 -$2. 00)/$3. 00 = 33% Margin Markup: If a product costs $2. 00 and sells for $3. 00 ($3. 00 -$2. 00)/$2. 00 = 50% Markup Understand the Difference

Build a Sales Organization • Start Slow • Need Industry Execs/Counsel • Keep things fresh • It rarely works the same exact way twice • No Re-treads • Make sure this is a symbiotic relationship • Add structure where necessary Entrepreneur Industry Execs No Cookie Cutter Blocking and Tackling Consistent • Product • Pricing • Placement • Price • Promotion • POS

Brokers Natural—separate subject Helpful in grocery, mass, and drug channels May interfere with DSD Usually 3%-5% commission based on volume Ø Some require minimum monthly retainers

Natural Food Brokers Make Wholesaler Calls Book Promotions Build Displays Make Key Account HQ Calls Make In Store Calls Necessary for the Natural Food Channel! Ø Need to be reinforced, at some point, with additional merchandisers Retainer and Commission

Channel Strategy Decide which channels you want to conquer and in what order There are ramifications to each strategy you need to understand before moving forward Various channels Ø Independents Ø Food service Ø Convenience Ø Grocery Ø Drug Ø Mass merchandisers Ø Club Ø Vending

Natural, Specialty and DSD distributors Hybrid or not? Tough call You can’t service the entire country and every account exclusively with either DSD, Specialty, or natural distributors DSD understandably wants exclusivity and protection Ø DSD is very expensive Ø Don’t want to build a brand lose it after all their hard work is done and they are finally reaping the benefits Certain key accounts have “Preferred Vendors” Overall, Depending on the Product, a hybrid system may be necessary. Yet very few beverage companies can sustain themselves long term with sales exclusively from natural and gourmet retailers. Most beverage companies will want to transition to DSD.

Need to Know About Distributors have many brands and you are just a small part Running a distributorship is expensive They bring products from their warehouse to the account Until your brand begins proof of performance, and it will take some time, you need feet on the street to support large distributors Most will not coop costs until have proof of concept in their market They can be very powerful once you get them started. Nothing beats the strength of a good DSD system Need price promotions and incentives Explain to them monthly what they have achieved and what you want them to do the next month/quarter Focus, focus

DSD Contract Exclusivity Perpetuity vs. Term 2 -4 x gross profit for the past 12 months minimum Invasion Fee Manpower and marketing commitments Advice: hire an attorney that specializes in the beverage industry

What Happens If I Can Not Find a DSD Distributor? Think completely out of the box Search the internet for “distributors” Other types of distributors Ø Dairy Ø Produce Ø Vending Ø Snack Distributors Ø Etc.

Trade Promotions Trade promotions are developed to spark consumer trial and awareness in the beginning and to increase frequency of purchase as your brand becomes larger Poor promotions have poor results Promotions that are two “rich” will break you. Speak to your distributor or customer and ask them what has worked in the past and what they recommend for your brand at your sales level Do not fall pray to the $10 for $10 promotions too often (If ever). Only the big boys can afford this. Do not run so many promotions or so deep a promotion that you train your consumer to only purchase you when you are on sale Push vs. pull promotions Ø Some promotions are designed to get the customer to put you on their shelf, expand the number of your skus they are selling, gain better shelf position, or to secure a display. These are called “Push” Promotions Ø Promotions that are targeting the consumer are called “Pull” promotions because you want the consumer to “pull” your Product off the shelf.

Managing Trade Funds Don’t expect what you don’t inspect Make sure you or your accounting folks know each and every promise that your people make to customers. Track these expenses first by asking your sales people for a sales projection and cost per case before they offer it to a customer. Make them write it down and submit it for approval It is critical that these expenses are captured accurately and entered into the G & L correctly Use the promises and the actual results, as learning opportunities If something is successful do it again. Success breeds more success If something is not working well do not run it again, learn from the mistakes and tweak it for the future. Tracking, tracking Analyzing results, analyzing results

Branding and Positioning

The Importance of Syndicated Data Syndicated data is import because it allows you to prepare for your sales call It adds credibility to what you are saying Ø Everyone says their brand is on fire Tells your story SPINS. COM

More Information www. cascadiamanagingbrands. com www. bevnet. com www. SPINS. com www. gglaw. us www. amintalati. com

The End This is not a difficult business. Do not make it more complicated than it needs to be; If you don’t know something, ask for help; Entrepreneurs need expert assistance as much as expert assistance needs Entrepreneurs; Focus like a laser beam; Don’t give up; Don’t let anyone talk you out of achieving your goals www. cascadiamanagingbrands. com Bsipper@cascadiamanagingbrands. com 201. 760. 9019