Interesting blog post from last year from J&D foods (they made Bacon Salt and a number of other products before selling the company last year... I don't think it was for a ton of money - channel costs ate them alive). The interesting point here is not whether or not you think their products were good, but that even if you have a great idea for a product/brand, the cost of doing business in retail, and specifically in grocery is incredibly high. They needed to produce their Bacon Salt for $0.67 (all COGS and transportation) in order for it to end up at $5.00 on the shelf. This doesn't include all of the G&A costs of running a company, marketing expenses, etc.
Something to think about when you come up with your next big idea for a new brand! http://www.jdfoods.net/announcements/the-best-place-to-buy-bacon-salt-baconnaise-and-why/
[I also know these guys personally, I have a startup in the liquor space. People think that's a fun/easy gig too, but it's insane how much margin you need to allocate to distributor kickbacks, marketing and sales. We've done >$1M in sales for a number of years but our NI hovers close to zero or just above... tough business!]
Cutting and pasting the text in case this blog post eventually gets removed:
THE BEST PLACE TO BUY BACON SALT & BACONNAISE AND WHY
You may have noticed that you don’t see some of J&D’s products like Bacon Salt® and Baconnaise® in as many stores. Well, we owe you an explanation – there are some very good reasons for this that we’ll detail in this post.
Let’s start with how grocery store distribution typically works. We present this to inform you about why we’ve pulled some of our products back from some retailers, and it’s a good lesson if you ever think about starting a food company!
Say you want to sell a product in a grocery store for $5. Your effective price to the retailer would need to be around $0.65. This doesn’t even include some costs of distribution like warehousing your own product after you produce it.
https://reddit-uploaded-media.s3-accelerate.amazonaws.com/images%2Ft2_372i4%2Fdtap8nohqsi01
Other unanticipated costs come when the retailer decides to use “slotting” – what you pay to get your product on shelf – as a profit center and replace your product with the next company willing to pay the high fee to get on the shelf, only to also be replaced down the road. To add insult to injury – when the store replaces your product, you pay for what the grocery store didn’t sell, making the grocery business essentially the world’s largest consignment shop.
So unless you are a multi-billion dollar, vertically integrated company that has the money to pay slotting again and again, the leverage to fight deductions, the shipping economics that come with having your own fleet of trucks and the volume to eliminate distributors and go direct to the retailers, this is pretty tough to make work. There are still a lot of fair and honest retailers that we will continue to do business with – although with consolidation, there are way less than there used to be. In short, you’ll still see our products in stores in various retailers, just not as many as before.
Instead of shopping at your local grocer for our products, pay us a visit. Because moving forward the best place to buy products like Bacon Salt and Baconnaise is going to be right here at our online store, directly from us. We will also be developing several online-only products, our loyal bacon-loving customers – like our amazing Candied Bacon Seasonings and something we loved so much that we named it the Trifecta (Bacon, Sriracha & Garlic in one magical seasoning) – and offering specials and discounts all the time (buy direct & save!). We’ve made it easy to pay with Pay by Amazon, and now offer low flat-rate shipping ($6.95 in the US/$10.95 international).
We love getting to know you, servicing you directly without middle-people (retailers and distributors), and continuing to make the products you know, love and use every day.
So let’s shake up the food and grocery industry together – please visit often and tell your friends!
Yours in bacon,
J&D
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