An integral part of any label design must be the familiar Universal Product Code symbol, (UPC). It is imperative that each manufacturer that wishes to sell its product through retail food stores must have the bar code correctly displayed on the label. Brokers, wholesalers, and retail buyers will not even consider handling a product without a UPC.
It is the processors’ responsibility to obtain a code for each product they produce. The initial step is to contact the Uniform Product Code Council. The address is:
8163 Old Yankee Road, Suite J
Dayton, Ohio 45459
They will send you a membership application form or you can complete the process online. The completed form should then be returned, along with your check. Membership costs are based on estimated annual sales. Most new processors will fall into the lowest category. The present fee for this category is $300.
The Council will then issue you a unique 5-digit manufacturers code. It is then your responsibility to assign an additional 5-digit code for each and every product produced. Figure 1 details an example of the manufacturers’ code and the product code.
= 12345-67890 (Note: First 5 digits assigned by UCC, Inc.; second 5 by manufacturer)
Most experienced label printers have the equipment to convert this 10-digit numerical code into the appropriate size bar code that conforms to the size code set forth by the Council. It bears repeating, you will not have your product considered for purchase by major retailers unless the UPC symbol is on the label.
The next step is to determine which system of distribution is best suited to you and your products. The first decision is in regards to sales outlets. Options include retail food stores, specialty shops or boutiques which sell unique or gourmet food items, through less formal channels such as roadside stands, flea markets, or out of the front door of your processing plant.
There are several product characteristics that must be decided regardless of the method of distribution. These include price, size of container, number of containers per carton, etc. If you are aiming for retail stores, specialty shops, or boutiques, you must decide on representation, sales promotions, advertising, etc.
Setting the price you are to receive is a function of several variables. The most important of these is the price that the consumer of your product will be asked to pay. Most retailers who sell to consumers will be expecting to make approximately a 30 percent gross margin on this product. Gross margin is defined as the difference between retail price and cost divided by the retail price. For example, if the cost was 1.00 per unit, the retail price would be set at 1.43 to obtain a gross margin of 30 percent. The price of competitive products is the major variable that consumers are initially going to look at when examining your product. If your competitors are pricing in the $2 range, then your product priced at $1.43 would probably be very well received. You may rationalize that your product is superior due to quality, taste, etc., but to most consumers, the price is the thing that makes the initial sale.
Let’s go back to our $1.43 suggested retail price. If you sell directly to consumers, then $1 would be the price you would receive. If your product is going into the wholesaler’s warehouse, you would not receive $1 per unit. To maintain the $1.43 retail price, the wholesaler would sell the product to retailers for $1. The wholesaler expects to make 10 to 15 percent, thus, they would pay you between 85 to 90 cents per unit. If a broker is used, their normal fee is 5 percent. The net to the processor then would be 81 to 86 cents.
One would normally expect the pricing would be based on the processors total cost plus a margin of profit, but as the previous paragraph shows, the price received by the manufacturer starts with setting a competitive retail price and working backward through the distribution chain.
In reality, most small processors become a price taker rather than a price setter. Because of this fact, it becomes essential that processors develop a very accurate cost accounting system. If this is not done, it is conceivable that the price received could substantially be less than the actual costs incurred.
For most processors, the distribution system of food products is closely akin to a maze. To those who find this to be the case and wish help in presenting their product, it may be prudent to seek representation through a broker. Brokers will assist you in developing a retail price, promotional schemes needed to enhance the products’ acceptance, and will make sales presentations to the buyers of independent wholesalers and large retail food chains. Brokers fees are usually in the range of 5 percent of all sales made in the brokers’ territory.
If you seek broker representation, you may wish to consider discussing your product with a “specialty” broker. These brokers specialize in representing products which fall into the specialty categories. Specialty in this sense refers to relatively low volume products. The products may be gourmet food, or products produced by a small processor who does not wish to enlarge their operation, or new products which do not suit the volume requirements of most mass merchandisers.
The specialty brokers are fewer in number than the “general” food broker which usually represent large national firms who have well known branded products. To locate the specialty broker nearest you, contact:
14229 Bessemer Street
Van Nuys, California 91401
New Item Presentation
If your product is directed toward retail food stores, the key is acceptance of your product by a buyer for either the food chair or an independent wholesaler. The decision to stock an item is made by the buyer, and part of the decision process is based on the so-called new product presentation. There are several basic items that buyers must know about the product prior to making the decision. Among them are:
- Size of container
- Container per case
- Case weight and cube
- Pelletizing arrangement (cases per layer and number of layer)
- Case cost – both delivered and picked up at your plant
- Payment Terms (such as 2 percent cash discount if paid in 10 days – net due in 30 days)
- Promotional allowance
- Quantity discounts
- Advertising allowance
- Minimum order quantity
- Maximum order quantity
- Slotting allowance
- Present distribution in the trade area
- Amount of product liability insurance
- Delivery time in working days
- Uniform Product Code number
- Is sale guaranteed
- Is product advertised –media– dates
- Coupon program
- Method of shipping
- Introductory allowances
- Swell allowance (damaged goods)
- Price protection
- Is product taxable
- Vendor spoils polity
- Pull date information (if applicable)
- Suggested retail
This list at first may seem a bit overbearing. Closer inspection finds that most questions can be answered easily. Major factors that should be carefully scrutinized relate to introductory and/or promotional allowance, advertising allowance, slotting allowance and product liability.
Introductory and/or promotional allowances are expected of new products and may be formulated in different ways. The two most popular means are “free” goods or a “cents off” program. Free goods are in the form that for every x cases ordered, one case is given free. Cents off is a discount off the processor’s unit price on all products bought during the period. These terms are asked to be presented in contract form by most retailers.
Advertising allowances may take either of these forms or a lump sum payment. In return, the retailer features your product in its weekly newspaper ad or with a special in-store display.
Slotting allowances are fees that firm’s are charging per item to stock new items in its warehouse. Be prepared, for buyers may ask for all of these allowances on a new untested product.
Product liability insurance is a must. Buyers will not even consider a product unless a policy is presented. Most expect the policy to be no less than a million dollars.
Another important factor to a buyer is the current distribution in retail stores. This is akin to the “chicken and egg” dilemma. If the product was in distribution you wouldn’t be in his office seeking shelf space. Nonetheless, there is perhaps some small thing that you can achieve in order to show buyers your product has been accepted by consumers.
The first step is to seek out an independent retailer in your local market who is willing to allow you to put your product in their store. Permission will be enhanced is you give them the initial stock and guarantee that you will remove the product if it doesn’t meet sales expectations. Permission should be further enhanced by putting on in-store demonstrations. You, or a member of your staff, should put on the demonstration which consists of providing bite sized samples to customers. Such demonstrations are usually done on Friday and Saturday and a promotional price is often made available. This promotion price could be a discount off regular price, or in many instances, it is in the form of buy one and get one free.
After the demonstrations, you should go into the store at least twice weekly to monitor sales and make sure the product display is in order. Sales should be accurately measured so they may be related to your broker and prospective buyer. This test should last from four to six weeks.