Welcome to the Community Call Podcast.
I am Melissa Travers, Director of Community here at BevNET & NOSH, here with my co-hosts Jackie Brugliera and Mike Schneider.
If you're enjoying the show, please follow and review us on Apple Podcasts or your listening platform of choice.
You can also join us on Slack at slack.bevnet.com.
Our first Community Call this month actually came from a question that Ruth of Arity posed, and they are an angel investor.
So we grabbed a couple of angel investors, and we're going to try to fix the problem.
So even if we don't have the answers to your questions, we would be more than happy to try and find them for you.
Community Call is such a great resource.
Right?
slack.bevnet.com.
I mean, you have a creative idea for Community Call.
Let us know at slack.bevnet.com.
Yeah.
We want to hear it.
We want to get going on it.
We're ready.
We're chomping at the bit.
You had a problem.
We can't solve it, damn it, but we know we can.
That's exactly right.
We know all the right people.
We know the right people.
So I just got back from Utah.
I was lucky enough to go to Powder Mountain for the first time.
I know.
And I think I finally, I finally understand skiing.
Like out here in the Northeast, I'm sort of like-
It's a different experience.
Yeah.
Like what?
I mean, I guess it's fun, I guess.
It's super fun.
But you become an awesome skier out here because you're basically skiing on like a 45 degree skating rink a lot of the time.
Yeah.
I also love all the names that we come up with, like Dust on Crust, and then they're like the Death Cookies, and I don't even know whatever else there are.
But so I totally understand why people like skiing now.
I'm all about it.
While I was out there, I also had a chance to visit a couple of grocery chains that I'd wanted to check out.
I got to check out Harman's, which is based in Utah.
And then I also got to check out Caputo's.
They have three locations in Salt Lake City.
I was so, so impressed by Caputo's.
They have their own cheese caves inside the stores.
So you go in and they had two separate cheese caves.
They make their own cheeses.
They further age wheels that they get in.
And then they can also revive cheeses that they get imported and sort of like bring them back to their best life.
I didn't know that was a thing.
Do they specialize in cheese?
Like, they're mainly a cheese store, or this is just like their fun hobby on the side.
I thought that was cheese woman's secret hideaway.
I did see a cheese woman cape on the outside of the cheese caves.
I think she's in there doing her business.
Reviving all the cheese.
Cheesy business.
Her cheesy business.
That means something else, by the way, Melissa.
Cheesy business.
I mean, they're all different types of businesses, right?
Yeah.
Yeah, but Jackie, so it's a family-owned business with people from roots in Greece and Italy.
What?
I just-
Doing your business?
I just love this podcast so much.
Yeah, nothing's too ridiculous for this podcast, right?
Here's the thing.
The content of the Community Calls is so serious that we have to really let loose in the banter.
We just balance it right out.
Yeah, it's all about balance.
We get crazy.
We get a little crazy.
Yeah, I don't know.
Do you guys have favorite specialty markets either in your neighborhoods or one that you visited on a recent trip or anything?
Yeah, I mean, I love local international markets.
There's like a bunch in San Diego.
So there's like a small Japanese market called Negea Market that I love to go to.
And then I also go to Balboa International Market, which is a Middle Eastern market.
So I love just like the curated products.
You can get something that you can't get in like mainstream retailers.
And it's kind of an adventure because there's a bunch of things that I can't, you know, pronounce or I don't understand.
And I'm going to open the package and it's going to be a surprise.
We have a couple that are pretty close to the office.
I mean, we've got Cambridge Naturals, which is legendary.
I mean, Marty's Lickers has a section that is worth checking out and the packaging is fun.
There's lots of great import chocolates there.
And then there's one you probably haven't been to, the Spirit of Gourmet in Belmont.
No, I haven't, but now I think I need to go.
Wonderful wine selection, amazing cheese.
And again, just, you know, smattering of excellent stuff.
We also have like, we live super close to Little Armenia too in Watertown, so there's maybe six great bakeries and specialty shops there where you can just get.
Those enormous breads, like table-sized breads.
Muhammurah, I think I probably butchered that.
Muhammurah, you can get.
Wow, the labneh's so good.
My favorite, like dinner.
I could swim in the labneh.
Wouldn't you love a big, nice pool of labneh to just swim through with your mouth open?
You tried yaza at Expo West, yes?
So good.
Talk about swimming, you gotta swim in that.
That stuff, that's one of the best bites I had.
That and Anne's Tomb are two of the best bites I had at Expo West.
If you go to our Instagram, you can check out my interview with Katya Barberi from Anne's Tomb, she's the founder.
And she's just like good vibes personified, and she's talking about the food, and she's talking about how it just brings everyone to the table.
I've got my fingers in it, I'm like trying to get, because the sample was small, so I was just trying to, I wanted to eat it all, it was really good.
Mike has a hidden spoon at all trade shows, and when he likes something like an Inspector Gadget, except for food chips.
I need that.
It's just like, I just use my fingers.
I'm like the Auntie Ray, who he would never think about taking his mask off.
You know, he's like Darth Vader.
It's all about balance here.
We really balance things out here at BevNET.
Yeah, what doesn't kill you makes it stronger.
Yeah, exactly.
Oh, and also, for Maggio, I actually feel like Caputo's was most like for Maggio in terms of shops that I've seen out here in the East.
But I picked up something at Caputo's that I thought was really interesting.
This is Galefi Effervescenti.
Galefi Effervescenti.
From what I can tell, it's sort of like an Italian alka-saltzer.
I'm going to pour you some right here.
There are these little bicarbonate crystals that have lemon powder in them.
We tried to get our Minister of Photography, Nate Brush, aka Rap Boy, to come on the show today because he had a story about this, but it was a great story that you don't get to know, I guess.
Now I'm curious.
I know.
He just told a story about how he'd had this already and that it is quite curious.
And he went to an Italian store.
He went to an Italian store.
There was an Italian man being Italian and telling him about this.
And they said he should buy some of this.
It was like a perfect rap boy story, but we couldn't get him to come on the show.
I know.
Someday, cheers.
When you can't toast with champagne, toast with effort vasemtens.
Watch this.
Breathe into it.
It's just like the bubbles come flying off the top.
They really do.
And the jar itself was smoking when I opened it.
So when are people usually drinking this?
Is this like a?
This is, I believe this is a digestif.
And it's supposed to take.
Yeah, exactly.
So if your stomach is sort of upset, if you eat too much, you know, more Tadella.
I got this for my kids to have sort of like a fun beverage when the adults had their fun beverages.
But I guess I didn't realize that it's basically like Italian alka-salter.
They liked it.
What you didn't realize is that it's fun for the whole family.
Exactly, exactly.
Exactly.
Mike, I see you brought something special.
Ooh, Haven's Kitchen.
I brought this for Jackie because she's the biggest fan.
Let me see.
They sent us Haven's Kitchen.
Oh, yay.
I should have been wearing my hat right now.
I know, where's your aioli hat?
So we've got some Haven's Kitchen here.
I grabbed three pouches.
One is chili bang bang aioli, which sounds amazing.
A sweet and spicy and creamy squeeze for all your dishes.
Zesty jalapeno aioli, and perhaps the most intriguing, herby yuzu aioli.
Ooh, you know, I saw so much yuzu at the show.
The first thing I can think of is Pockets Chocolates yuzu skew.
There's this phenomenal, yeah.
I bet this would be good on like bang bang cauliflower.
Isn't that a thing, bang bang cauliflower?
It is now.
Yeah.
Yeah, I had a chance to try these at the show and they were fantastic and we of course love Alison, so.
Did you see Alvarex April Fool's Joke?
No.
Did you see it?
You know Alvarex, the coffee company out of Anaheim.
They made kids coffee and they have a new baby, so they decided to do something for the kids.
And he made this cereal commercial where he's pouring coffee beans and Lucky Charms marshmallows into the bowl and it's like, Alvarex Kids Coffee, yum bang!
All the sugar and nutrition for your entire family.
Sugar, caffeine, nutrition.
It was hilarious.
I mean, you guys have to see, yum bang has to be a thing.
Yum bang.
All right, I'm gonna check that out.
I actually feel like Lucky Charms themselves basically do that to kids for St.
Patrick's Day.
I took all the marshmallows out of a box of Lucky Charms and made them and I ate them.
I'm just kidding.
I thought you might just control your kids.
Yeah, right.
Did I tell you when I was in college, my roommate and I weren't the best of friends, so to get back at her, she had a box of raisin bran she would eat or whatever.
And I was pissed at her, so I took all the raisins out of her raisin bran.
And the next time she poured a bowl, I remember her pouring herself a bowl of raisin bran and saying, there are no raisins in here, and she's just like laughing silently.
That must have taken so much time to go through.
It's college.
Yeah, it's college.
This is why you guys think AI Melissa is interesting.
You have to meet real Melissa.
Well, from conserving raisins to conserving capital, in this episode of Community Call, I talked to Bob Burke, natural products consultant, and all around well-known industry expert.
Bob Burke and I continue the conversation series that started with Ken Sadowski and Jerry Kermouche in the last episode of Community Call on Conserving Capital.
Even though investment capital is freeing up a bit, investors are even more focused on partnering with well-run cashflow positive organizations.
So we talk about skew rationalization, high volume, low cost opportunities like Costco, TJX, Private Label, and how to use your P&L as a source of truth for smart decision making.
Please enjoy.
Get the latest in natural food industry news, trends and data with the NOSH Daily Briefing newsletter.
Choose the free light edition or upgrade to Insider Access for exclusive story recaps and insights.
Stay informed and stay ahead by signing up at nosh.com/dailybriefing.
Thank you.
Today on Community Call, we are chatting with a man who needs no introduction in this industry, Bob Burke.
We are going to be continuing our conversation about how brands can conserve capital.
Bob, thank you so much for joining us today.
It is such a pleasure to have you here on Community Call.
Thanks so much for having me.
I'm delighted.
Well, we are delighted as well.
Why don't we start off just by talking about how you work with brands and the kind of work that you're focusing on right now, because I'm sure that changes depending on what the ecosystem looks like.
Yeah, thanks for asking.
So this is my now 27th year consulting.
Most of it would be under the umbrella of bringing natural, organic and specialty products to market.
So a lot of it would be what would be called go-to-market and growth strategy.
So all the things around, you know, timing and sequencing of channels, customers, routes to market, who to partner with, understanding unit economics, building a basic sales plan, growth plan, and, you know, in getting your marketing right in terms of how you're positioned in the category, what you stand for to the consumer, and things like that.
And so along the way, I've done a how-to guide reference book called the Natural Products Field Manual.
I've also been doing sales seminars and financing seminars for a long time.
And I'm privileged to serve on a number of boards and advisory boards, companies, including King Arthur Baking Company, Saffron Road, Uncle Matt's Organic, Walden Mutual Bank, and Ecofish.
And I also do a lot of work with international companies coming in to the US so evaluating opportunities here and then putting together basic plans.
But in the big picture, work with companies of almost every size, stage, category, probably 75% food and beverage and the rest everything else, supplements, personal care, cleaning, etc.
You're just the man for us to be having this conversation with today.
How do you see the current state of capital availability?
I mean, the conversation we're going to have today is certainly important, no matter what the state of the landscape is, but certainly for the last few years, it's been more important than ever.
How do you see things out there right now?
I see it improving, you know?
As everyone knows, the last few years have been really challenging.
Capital markets have tightened, dried up a little bit, and there's been this big sea change in the industry from an emphasis around growth and getting to an exit to a focus on becoming profitable, getting to cash flow positive, and essentially running a sound, healthy business.
I know it's a radical and unfamiliar concept to many, but I would keep in mind that there are funds of every size, so angels who are very active, family offices, small, medium, large funds, strategics, financial investors, who are all looking to put money to work.
And so they're going a lot deeper in terms of diligence.
They're being a lot more selective.
They're certainly focused on companies that not only have remarkable products, but those that have good margins, good velocity, good headroom to grow distribution, all the things that are attractive to investors, but they're looking for a little more scale.
Before, you'd see companies that were quite early getting funded, and now it's usually a little further along, as well as either those that are profitable or have a clean light of sight to being profitable and cash flow positive.
Are there any other trends you're seeing that would set a business up to perhaps be more attractive to an investor?
Everything that you just laid out there, of course, makes perfect sense, a business that's in good health.
Are there any other factors you're seeing that might help improve a business' chances?
These are going to sound like platitudes, right?
But certainly an experienced team.
When you think of investors, if you boil it down and you stand back, a lot of it is around, will this scale and where can we reduce risk?
So if you've got experience on the team or perhaps as part of an advisory board or board, or depending on who early investors might be, that certainly brings down some of that risk.
What category are they in?
Is it a category that has a large addressable market that has a lot of potential to grow, or is it always going to be somewhat niche?
So, I mean, it's kind of common sense things like that that are going to really compel people.
I think the other big C change that ties into everything we're going to talk about is that over the last, I'd say, five, six, seven years, there's been a huge growth in being able to outsource almost every business function, which allows companies to be a little more capital efficient, have lower overheads, get to that break even sooner.
And even if it's a stepping stone, they may have fractional heads of marketing, sales, finance, operations, et cetera.
And that wasn't as common before.
Let's get into those specific ways that brands can in fact conserve capital and the topics that you and I laid out there, they all sort of tie in to helping brands understand where their best opportunities are.
So the first one is skew rationalization is, and before we dive into the ways to best approach skew rationalization, is there an ideal way for a brand to build their initial line up?
I know certainly brand blocking is something that many brands try to do and have three or four skews to launch with.
What's the ideal way for a brand to come to market in that regard?
So having three or four skews works well if it's in the same category.
You know, you sometimes see people in a number of different categories, and that's hard to get that presence on the shelf if they only have a couple of items and it's scattered in different aisles or different parts of the store.
And, you know, I think for a lot of things like snacks, beverages, other things that lend themselves to having, say, different flavors, you know, four might be a good number.
You know, getting fewer than that, like if you present four and you get three, that can work.
But if you have one or two items, it's really hard to both build a business but have any kind of presence on the shelf.
And when people think about flavors, it's often a good idea to think about having that, you know, maybe your spin on familiar, accessible flavors, and then having a signature flavor or two.
So that, you know, if you're doing a snack item, almost everyone's going to have a sea salt or something that's fairly universal, or, you know, white cheddar, barbecue, and, you know, things like that that would be somewhat familiar, and then they might have something really unique and different, you know, sets them apart.
So you've got your three or four skews out there, and there are just some that are going to perform better than others.
How do you assess the performance of each skew?
Is it strictly overall velocity or something a little bit more nuanced?
Well, a lot of it is going to be around the basic fundamentals, right?
So let's say you have four items.
First of all, and I'll just digress for a moment, for especially new companies, it's almost always a great idea to pile it in a region, go through your shakedown, understand what are the key levers that result in selling off the shelf.
And if you're a relatively new company and you launch with four items, it's not unusual for two to be really good, one to need some tweaking, and one's a dog, you know?
And better to find that out when you're in 50 stores or 100 stores when you're in 2,500 targets.
And it's hard to unwind a lot of that.
But understanding the basic gross margin for each item, because presumably a sea salt is gonna be higher margin than a white cheddar, using that example, as well as what are those, what's that sort of threshold velocity for the category you're in?
In part, given your positioning, given your price point, and then how are these items performing?
And when you talk about skew rationalization, there's the big picture of having an efficient assortment.
What's the optimal number of items to satisfy the most consumers in an efficient way, and not necessarily having a long tail when you're going into retail?
And then there's the old adage of cannibalize yourself before your competitors do.
And so if you do have an item that's underperforming at retail, you can take it as a fact that every one of your greedy, avaricious competitors are gonna be gunning for you at that next category review.
And better for you to try to preempt that by offering to swap it out for something new and innovative and exciting than to lose that item.
So let's say you're a newer brand, you're just emerging and you're starting in your own backyard so you can do all your own demos and keep an eye on everything.
How do you know if your sort of breakout flavor just isn't the right flavor for, I don't know, whatever part of the middle of the country you're in?
Like, do you try it in New York and LA before you decide to cut it?
Yeah, I mean, ideally, you know, you want to take into account the environment.
And I'll give you an opposite answer, if you will, which is there's a lot of companies that I meet that are very early who are excited and, you know, just a bouilliant over getting into Airwon.
And the caution is hang on, like Airwon is the bubble, you know?
It's a great showcase, it's a great place to be seen.
They're fantastic stores, but not exactly projectable to the rest of the country, you know?
And I think if you're somewhere in the middle of the country or somewhere where you might have a bit of an edgy flavor, then you won't necessarily kill it, but you may hold it until you move into other markets where you think it might be a better fit.
Erewhon is certainly a fantasy land in a few different ways for sure.
And then when do you start assessing the performance of your skews to potentially cut one of them?
Is there a certain amount of time you should give to be able to better understand what's working and what isn't?
Yeah, I don't know.
I think if you're on the shelf for, let's say, you know, 90 days to six months, in other words, give yourself time to support it.
You know, maybe go through a round or two of promotions.
Maybe you're doing some in-store demos.
Maybe you're activating your digital marketing, social media, PR, other things around there to support it and see what kind of takeaway you have, see what kind of lift you might be getting and whether there's any evidence of repeat sales and things like that.
Likewise, for most shelf-stable items, they're also on Amazon.
They might be on their own website.
They might be in some of the B2B wholesale platforms where they might be looking at reviews and seeing if there's patterns of feedback of things about the product that people are unhappy with.
I mean, if it's a good idea to begin with, certainly renovating it, rehabbing it, tweaking, refining is better than just unceremoniously cutting it.
Well, let's move on to our next topic, which is spending your cash wisely.
The first example of this is something that we actually were just talking about, which is outsourcing versus hiring internally.
What is your philosophy on that?
I think especially for earlier stage companies, keeping in mind the guiding principle of being capital efficient, trying to get to cash flow positive, show a line of sight to profitability.
I think if you can outsource with the right partners, I mean, there's a lot of caveats here, right?
If you can outsource with the right partners, it allows you to use people where they have the most impact and the greatest strategic value at the relatively lowest cost versus if you have to, even if you have to get, if you can get somebody below market rate, who is a head of marketing, head of sales, CFO, et cetera.
First of all, you might not need somebody like that full time at that particular stage.
Secondly, it's going to be either a lot of the capitals you've raised, or you're going to be trading a lot of equity to make up for that.
And so I think if you can outsource in the beginning, using sales for an example, you can get, there are a lot of good brand management companies out there.
There are a lot of good individuals out there who are highly knowledgeable, experienced, well-connected, hit the ground running, make things happen.
You can learn a lot from them.
You can leverage their relationships perhaps to get into better brokers than you would get into on your own.
You might even get a break on retainer or commissions because they're dealing with someone highly experienced, that's more efficient for the broker, etc.
As well as getting that guidance around your go-to-market plan.
And I think similar things.
I mean, there's a number of terrific people here in the Boston area who are fractional CMO types, Chief Marketing Officer types, where they've been head of marketing for a much larger company.
They're now doing it on a fractional basis.
And they're not only able to help with strategy, but they help with important things like agency selection and management, and maybe mentoring a more junior person or a mid-level person.
How do you advise founders to understand what they should handle themselves versus what they should hire even a fractional person for?
Yeah, this is going to sound like the bleeding obvious, but I mean, it's often having a high level of self-awareness, a little bit of humility that you're willing to let go of certain things.
And sometimes it helps if you have advisors, advisory board, board, investors, others, people who are going to be fairly objective, be honest, be kind, not nice, in terms of helping you see areas where you make the most impact versus areas that are just outside of your expertise, experience, comfort level, et cetera.
And a lot of founders might be really good at product development, having great ideas around innovation, but aren't necessarily great at sales.
Or they could be great at sales and have a good instincts for marketing, but they're not so great on the quantitative side or the finance side.
And so certainly complementing the founder's skills is a great place to start.
Our next topic is trademarks.
It's not exclusively trademarks.
I think the theme is spend money on the right things, you know?
So as an earlier stage company, you absolutely want to make sure that your IP is locked down.
So you have the right trademarks, you know, for your brand and all of that.
But you may not need trademarks in 50 countries in year one.
You know, that was the theme.
Like, spend it on the right things.
There's a lot of terrific attorneys in the CPG space, and it's a great spend to get their help when you're doing things like coman agreements or copacker agreements, distributor agreements, broker agreements, employment agreements with key hires.
Certainly you would need them around capital raises.
So absolutely you want to spend money on the right things.
And not only that's good business, and it will certainly protect you in the long run, but when the time comes that you're raising capital, if you're eventually getting set up to do a sale of your company to a strategic or financial buyer, those are all those nuts and bolts items that are part of diligence.
And if you have any gaps or weak spots or what have you, a classic example is someone who goes to a co-manufacturer or co-packer and they're going from bench top, i.e.
something they're doing in their kitchen or commercial kitchen, and now it's going to be scaled up to run 10,000 units for flavors or whatever.
And the co-man might be tweaking and refining that recipe, that formulation, and years go by and ultimately the brand, if they're not on top of it, may not own their own formula, because it's not explicitly in their co-man agreement that they own the formula.
And even if it means paying the co-man to do R&D work and other related work like that, it's important that you always own your formula, and a good attorney will point that out to you.
There's also good operations companies out there in the industry who would help you with that as well.
I assume that owning your own formulation is something you would certainly want to look for in your agreement with your co-manufacturer, is that right?
Absolutely.
I think one other example that you gave was printing and packaging specific.
So you spend all this money with a great design agency, and you have, you know, seven colors, and then you go to have your packaging printed, and you find that it's exorbitantly expensive.
Exactly.
And, I mean, that's a really good example where, you know, the theme is margin improvement, right?
Where can we ring out cost without any compromises to our offerings?
And, you know, a good example is sometimes beautiful packaging that might win away or might win awards, but it may not be practical in terms of, you know, the cost for printing, for plates, for all these things.
And, you know, there are some fantastic packages out there that might have line art in just a few colors.
And even, you know, four-color process can be absolutely beautiful, but when they start specifying three or more specific PMS shades for different elements in the package, that's where standing back and saying, do I really need this?
Is it really going to make a difference to the consumer?
And can I live without it?
And all those pennies will start adding up to, you know, bringing your gross margin up.
I can also certainly see how a founder may take that first step of getting the beautiful design and then only after they investigate the packaging realizes that the money they spent on the design can't be executed.
So part of it is working with an experienced branding agency, right?
So there are plenty of really good branding agencies in the industry that are used to working with consumer packaged goods companies.
So they're mindful of this.
They're aware of this.
Also, there are agencies that might have specific experience in your category.
So if you do a lot of snacks, they're highly experienced, you know, printing on foil or different, you know, polymers or different types of flexible packaging.
Prior to consulting, I was with Stonyfield, the organic yogurt company, and there's a special experience at printing on packages that are round and sort of convex, right, in terms of designing that package right so it's perfectly readable and prints properly and everything else.
And so that kind of experience can go a long way.
But you don't necessarily walk in saying, I want the most beautiful package you can do and make it as cheap as possible.
You know, you're always going to do some kind of a design brief talking about what that brand stands for.
If you have certain, you know, look, feel that you want to try to achieve, the predominance of the product shot, the size of the brand, color schemes, all those kinds of things that you would do, you know, with that branding company.
So it reflects, you know, your brand.
Our next topic and way to improve cash flow is seeking out high volume, low cost of sales opportunities, such as Private Label, Costco, TJX, those sorts of outlets.
Yeah, I mean, look, the best way is selling your product at a healthy margin every day at full price, right?
So that's, it starts there.
And then when you think sort of laterally, you think horizontally around, you know, what are some other alternate sources of funding?
And if you're making your own food, if you're in, if you have your self manufacturing, certainly private label is an option.
And I would frame it as strategic private label, where it's with a partner where you're making a healthy contribution, i.e.
not being the low bid, which is a very slippery slope.
Could you dig into that a little bit more?
When you say low bid, what do you mean?
Yeah, well, to start with, let me just say, when we talk about, when we're talking about gross margin, I'm using the sort of a gap accounting definition, which would be your gross to net sales, which includes your returns, discounts, allowances, trade spending, and then your net sales minus your cost of goods, i.e.
all of the costs that get you to your FOB point, your pickup point or your shipping point.
Net sales minus cost of goods is gross profit, and gross profit divided into net sales is what the world calls gross margin.
In the world being banks, investors, strategic buyers, it's gap accounting, generally accepted accounting practices.
Then if you take out any other variable costs or sales and marketing costs, so warehousing and transportation, selling expenses, marketing expenses, that brings you to contribution, and contribution is what you have to put towards your fixed and overhead, and anything left over is your profit.
So contribution is where it all comes out in the wash, and when you're looking at some of these alternative sources of cash or opportunities like private label or the high-volume, low-cost of sales, you might just do a comparison where option A is your branded product going through a distributor into a retailer with the normal amount of trade spend using a broker, et cetera, and what's that contribution?
And option B might be a dead net price to a Trader Joe's, for example, maybe a little bit of shipping, no broker, no distributor, no trade spend, no 2% 10 net 30, no spoils, and then for most people, that contribution is usually higher.
And so if that's the case, that's a good thing to consider doing, assuming you can execute at a high level, you have the capacity in the plant, things like that, and think of it as additional cash flow for your business that might help fund the rest of your branded business.
The part about low bids being a slippery slope is that many times you might have a supermarket chain just putting out like an RFP, a request for proposal, for tortillas, or name any category.
And you might have to submit your sealed bid by midnight on a certain date.
And that can be, I'm being facetious, but who's the dumbest among us?
Or who really needs that business badly?
Or people rationalize almost like selling to airlines, we're not making any money, but we're spreading overhead, we're doing this.
And some of that might be true to some degree, but in most cases, it's not a very good move.
So we've talked about private label and Costco on Community Call, but we haven't dug into organizations like TJX.
I think a lot of brands see them as opportunities for closeout.
Is that how you see an organization like TJX?
You know, so I think it's evolved a bit, right?
So at some point, some people might have derisively referred to them as the liquidation channel.
And if you think of the soft goods that TJX, Marshalls, TJ Maxx, Home Goods, Sierra Trading, they're selling past season closeouts.
They're buying up stuff from the big department stores and others.
On the food side, in personal care and supplements, et cetera, I think there's an opportunity for brands to do sort of in and outs.
It can be a nice cash flow hit.
And it might have changed, but the last time I was in a conversation with people considering this, the high level structure was basically they wanted to offer your product, say, for 20% below the prevailing price, and they wanted to make about a 50% margin.
And they would take huge quantities, truckload or several truckloads, and it would go away with no comebacks.
And you'd get paid promptly, like in a couple of weeks.
And so you don't want to become overly dependent on it, but I think the days where this might have been a stigma on your brand, or you'd get a lot of blowback from other retailers, hey, I saw you in Marshalls, I think for a lot of brands, they might be doing packaging changes.
They might have excess inventory at the end of a season, or things like that, very legitimate ways for selling them.
And for a lot of earlier stage brands, it just might be under the radar, where, you know, again, it's an in and out.
They're not there full-time 52 weeks a year.
And again, it can be a nice cash flow hit to help fund other parts of your business.
The last time I was at Home Goods, I saw Fly by Jing's Chili Crisp, and I have to say I was thrilled to stock up on that there.
So I hope it was as rewarding for them as it was for me.
And it is like, just like Costco, it's the proverbial treasure hunt, right?
Where you better buy it now because the next time you come, it's probably not going to be here.
Absolutely.
And that's a win-win all around.
The last thing I'll say on the topic is I've worked with some companies that this was such a nice business for them.
The risk, of course, is it becomes too big a percentage of your total company sales.
But I've seen companies actually evolve where they do dedicated SKUs for, say, TJX that aren't in distribution at mainstream conventional grocery or natural accounts or other retailers.
And that helps with the channel strategy as well.
We started off the conversation by talking about SKU rationalization.
How do you rationalize creating a SKU just for an organization like TJX?
It's a great question, and it sounds a little contradictory on the surface.
I would say, again, if you look at it as, you know, I am mindful of not having the exact same set of offerings, always 20% lower than my regular retail customers.
You know, in this area, it could be Whole Foods and Roach Brothers and Stop and Shop and Hannaford and all that.
And you're looking at it as, it's a great source of cash flow, and or if I'm making it myself, I have that extra flexibility of, you know, running a dedicated line on these items.
And so I think within Reason, the not to be too wishy washy here, I think you're always weighing, you know, erring towards simplicity if you can, you know, avoiding too much complexity, excess cost, et cetera.
But I'm saying it could make sense for certain categories and certain companies to have a few dedicated SKUs that are just like cash machines every week that are really help fueling the rest of your business.
I think every brand loves the idea of a cash machine, so certainly something to keep in mind.
Our last talking point is trade spend.
As a brand, every time you get into a new retailer, it seems like you're spending money on slotting, free-fill, promos, and your point was that managing your trade spend and watching it very carefully is of course imperative to cash flow.
What are some of the biggest mistakes that you see brands make in that area?
Well, Melissa, first I'll say we can spend hours talking about this.
This is a really big topic, but I'll try to go down a few essentials.
First of all, the quick definition is the monies you spend with distributors and retailers, i.e.
the trade, right?
And the fact that it resides in your gross-to-net sales.
So any trimming of your trade spend brings up your gross margin, which means more monies to help cover your costs and get to break even in profitability, as well as make you more attractive to investors and strategic buyers.
So there's that, right?
That's very important.
And the next thing is that people start to track it, manage it, log it, and then understand what programs are more effective than others.
And so for a lot of companies, especially early-stage companies, trade spending can easily be 20%, 25% or more of your sales.
So by and large, the largest bucket of expenses after your cost of goods on the P&L.
And so if you're simply tracking it so you know where you are, you're ahead of like 90% of the companies out there.
If you start to log it so when the deductions come through, you can flag things that seem suspicious, unauthorized, things you're going to dispute or charge back, that's huge and necessary.
And if you get to the point where you start to understand which of your promotions are more effective and efficient than others, you're on this rarefied starry plane.
When we're two for a dollar, we sell this much more than when we're 99 cents or $1.29 or whatever.
But that's huge information to understand.
So even early stage companies doing this all on Excel manually, it's worth it and it's important in all of that.
And now there are a lot more resources out there that can help where you can outsource some of this.
You can use software.
There's service providers specializing in this.
But it's very, very important things to understand and track.
You recommend that brands have a separate P&L for each retailer, for each channel, and is that something that also helps track trade spend to figure out if you're spending your cash efficiently?
Absolutely.
I mean, look, if you're starting to manage your trade spend, track and manage it, you're going to be doing it by customer.
And again, just so it's not overwhelming, think of the world in terms of 80-20, where you might start with your top five customers, your top ten customers, and go out.
And at some point, it's just like all other, right, is the remaining portion.
And if you're able to start to do P&Ls by channel, you know, this is our P&L for, say, Amazon and Econ.
This is it for natural channel, grocery channel, mass channel, maybe even liquidation channel, or whatever you want to call it.
And then you drill down a little lower and say, here's what it is by key customer.
Here's what it is by geographic region, by broker, by spins region.
There's a lot of ways that you can slice and dice when you, you know, after you set that up originally.
But the goal is understanding where you're making your money, where you're not.
If you're not, is it intentional, meaning we're deliberately investment spending to support a new customer?
You know, we're front loading a lot of expenses in that first year.
And then in year two, the free fills fall away, the slotting falls away, some of those introductory deals and demos fall away, and that profit level will be where we need it.
One last question on the P&Ls, which I do think is certainly a separate topic that we should revisit at a future point in time.
How often do you recommend brands update their P&L, understanding that we may have a variety of P&Ls per retailer channel, how often do we need to update those?
So the axiom, right, the rule is analysis without action is BS, okay?
So you never want to be doing it because it's a good thing to do, right?
You want to be honest, like, you know, what is the time to pull all this together?
And then are we going to act on it?
Are we going to do things differently?
Is it going to impact our day to day decision making?
And so I would say for a lot of companies, you know, once you set it up, a lot of companies might be looking at it monthly, at least quarterly, if not mid-year, in year end, you know?
So you don't want to be overwhelmed with, like, busy work and clerical work, and a lot depends on your resources, you know?
Do you have the bandwidth to do it?
If you're a founder, if not, if you're a small organization, Is there somebody who can update this on a regular basis?
The big thing you want to have is an annual operating plan.
So in a beautiful world, at any point in the year, you have a good idea where the year will end.
And that's a good place to be in terms of, you know, managing your business every day.
Great stuff.
Bob Burke, thank you so much for joining us today.
We learned so much and it was such a pleasure to have you.
If any of our audience members would like to get in touch with you after this for more questions, what's the best way for them to get in touch with you?
Well, there's a number of easy, quick ways, right?
So my email is bob at naturalconsulting.com.
My website is simply naturalconsulting.com.
I'm also on LinkedIn.
And I, you know, my MO since I started consulting is happy to give anyone the time of day, hear what they're up to, offer ideas and suggestions, make introductions.
If anything comes up, it's great.
Otherwise, another good contact and all of that.
So happy to do that.
That concludes another episode of the Community Call Podcast.
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