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US - Distributing Your Products

6.1 Distribution Channels

Overall distribution is an important factor when exporting products and the availability and structure of the distribution channels will have a major influence on costs. When considering distribution channels an exporter should evaluate distribution and channel. Exporters seeking to penetrate international markets must understand the distribution needs, options and assess their impact on costs.

When evaluating transport, considerations should include available carriers, shippers, freight forwarders and customer brokers in addition to the roads, rail networks, air transport, bridges, ferries and ports. Depending on the market the geography, topography and climate may need to also be factored. When considering distribution channels the transport aspect is often overlooked but can strongly influence the movement of products.

When it is determined that a product can be physically shipped to a market, the distribution within that market, through various channels should be evaluated. As previously outlined in the  Market Entry Strategy section, the traditional means of product market entry can be classified into three broad categories, which are direct exports, indirect exports and foreign direct investment. Within each category various potential avenues for distribution channels could be considered.

To reach consumers, a number of avenues can be explored. The most straight forward example of a distribution channel is a specialty food manufacturer that takes an order and ships it directly to the final consumer. For smaller firms, the process for such a distribution channel is often not cost effective due to the required resources and many activities to complete a small export order. Depending on the size and experience of the exporters various channels should be considered. An exporter could consider selling directly to retailer or through wholesalers, distributors, sales agents and/or food brokers. The table below outlines the role, advantages and disadvantages for each distribution channel. An exporter will need to determine how best commit their available resources in order to develop an international business. The selection of a distribution channel is of the utmost importance in order to develop a market entry strategy to become competitive.

According to the NASFT: State of the Industry Report - The US Market 2011 a comparison of purchase patterns show that 49% of purchases came through distributors with the same from direct purchases. It appears that retailers in the US are streamlining their process and relying heavily on distributors since 2009 to reduce the amount of vendor orders, invoices/paperwork and achieve volume discounts.

The retail distribution of specialty food is composed of supermarkets, warehouse clubs and suers, convenience stores, natural food stores and specialty food stores. NASFT estimates that there are more than 180,000 specialty food products in the marketplace in channels that vary from boutiques and department stores, to specialty food stores, natural  food  stores,  supermarkets,  mass outlets, drug, and convenience stores. Mintel/NASFT estimates that the $70.3 billion market for specialty foods is split 80/20; with 79.5% of sales coming from retail stores and 20.5% coming from foodservice outlets. Market share by retail channel is 72.3% for mainstream, 19.3% for specialty food stores and 8.4% for natural food stores.

Distribution

Channels

Advantage

Disadvantage

Retailers -

mainstream (Ex: food, drug and mass outlet), natural and specialty food stores (Ex: Whole Food Market and Trader Joe's).

By selling directly to the retailer this willeliminate the presence of a middle man and any associated costs. Control of positioning, pricing and branding remains with the manufacturer.

Specialty retailers are usually non-mass market, upscale and high priced establishments, the majority of which are small businesses. Several of the important traits with respect to

Specialty Retailers are:

-      They will purchase directly from the producer;

-      Very little dependence on promotional support from the seller; and

-      Orders tend to be small and therefore, a specialized sales approach is needed (National Association for the Specialty Food Trade , 2011).

Manufacturer will be responsible for all market development costs including marketing, promotions, sales and distribution, which can be difficult for smaller manufacturers.

Wholesalers

Purchase products in bulk and distribute toretailers or other customers in the local market. They are useful because theyhave established customers and take responsibility for selling, distribution and marketing from the exporter.

Wholesalers carry competing lines of products. After taking possession of the products, the wholesaler can exercise control over how the products are positioned, marketed, priced, sold and delivered, unless contractual arrangements specify otherwise. The wholesaler can also control the distribution channel, making it difficult for the producer to deal directly with end-users and find out what they really want. Unless the wholesaler is extremely trustworthy, the transaction could end up serving the wholesaler's business interests more than it does the exporter.

Distributors

Distributors are wholesalers that typically carry non-competing lines of goods. The distributor can function as a partner, advising the exporter on how to modify the product for maximum success. Depending on the contractual arrangements, the exporter may be relieved of many of the risks and complexities associated with marketing and delivery.Distributors can sellto retailers or wholesales who then sell to retailers.

Manufacturers need distributors to reach supermarket chains and other buyers who will not purchase directly (National Association for the Specialty Food Trade ,2011). In this sense, distributors are critical distribution channels as they also serve as the supermarket's warehouse/merchandising department for specialty foods (National Association for the Specialty Food Trade , 2011).

After taking possession of the products, the distributor can exercise control over how they are positioned, marketed, priced, sold and delivered, unless contractual arrangements specify otherwise. The distributor can also control the distribution channel, making it difficult for the manufacturer to deal directly with end-users and find out what they really want. Unless the distributor is extremely trustworthy, the transaction could end up serving the distributor's business interests more than it does the exporter.

Food Brokers

Provide direct (personal) selling efforts to retail distribution center(s) and stores. Brokers may also provide promotion, category management and other, marketing-related services. Their knowledge of local markets and vast coverage, often handle all of the outlets in their particular area or region of concentration are major advantages. Brokers typically monitor inventory and proper disposal of out dated or damaged good.

Most food brokers do not take title of the product and is not responsible for distribution. Typically regional coverage is provided, not nation. Brokers represent several lines and carry competing products.