In the food industry, there is a difference between customers and consumers. Consumers are the people who ultimately consume your product, but unless they purchase it directly from you, there’s another important player in the mix – the customer. Customers are the people who buy your product in order to sell it to someone else.
Your specific customers are determined by how you want your product to reach the market. If you are the grower your customer might be the processor, if you are the processor your customer might be a wholesaler or a retailer such as a supermarket.
Once you have decided where your consumers are and which markets you want to target, you can then decide which will be the most useful customers or distribution channels to approach with your product.
Customers tend to be grouped together into groups of similar businesses, known as distribution channels, because they represent pathways through which your products ultimately reach the final consumer. Supermarkets, gourmet stores and similar businesses are broadly known as ‘retailers’, while restaurants, hospitals and school canteens are examples of ‘food service’ customers.
In order for your product to enter the market, you must understand and meet the needs of your customers as well as maintaining the value of the product for the consumer. For customers, consistent quality, consistent supply, packaging and price are likely to be important. It is essential to select customers your end consumer is likely to use. It is all very well to have a fantastic product with a well-recognised brand, clever promotion and a price your consumers will pay, but if they can’t get their hands on it, your efforts are wasted.
Your customers are pivotal in getting your product to consumers. It is important for customers to have as much knowledge as possible about your product so they can (and want) sell it to consumers.
Selecting and managing your distribution channels is a key component of your marketing mix, and integral to the successful operations of your business. Choosing the right distribution channel or channels, and ensuring you understand the process will assist in the development of a mutually beneficial relationship.
Many food businesses use a distributor to represent them, particularly in markets that are not local because it can be difficult for you to get to every potential customer to present and promote your product. A distributor sells on your behalf to customers and they can be really helpful to advise you on what specific customers expect, but they need to make a profit too, so using a distributor will affect your pricing and marketing strategies.
The first decision is whether to handle the whole distribution internally (i.e. conducting all activities to do with selling, distribution, transportation, storage and so on) yourself, or to use the services of intermediaries such as a professional distributors, broker or agent. Remember you can take away the ‘middle man’ but you can’t take away their function, and if you don’t have the skills, resources or time to spend on distribution, then outsource it to the experts.
It is important to start this part of your business planning by noting where your consumers will shop for your product. This will help you decide which customers are likely to successfully sell your product and then you can decide on your mix of distribution channels.
The major supermarket chains have national buying offices. If this office is not in your state, they may also have a local state representative.
Products for the major retail supermarket chains are generally delivered from sophisticated centralised warehouses called distribution centres. Delivery of products onto the shelf is a complex and challenging issue for these nationwide companies due to the vast distances and diverse weather conditions, which can affect supply, particularly of fresh fruit and vegetables.
The requirements of these distribution centres are very specific and the penalties may be applied for missing scheduled delivery times. Be sure you understand all the details and the consequences and make your decision based on your thorough knowledge of your business’ capacity as well as the suitability of your product and brand for this distribution channel. Make sure you can handle the expectations they may have for information technology to facilitate their systems and plan for the consequences of problems such as equipment failure or transport delays before committing yourself.
The distribution channels in the food service sector are more fragmented but this is a growing market, servicing not only restaurants but also hospitals, schools, aged care facilities and other agencies providing meals. There are four major national providers – Bidvest, PFD Food Service Country Wide and CMA. The balance of the food service distribution market is supplied by a number of state-based companies and a very large number of small, regional, local and niche businesses.
Food service distributors generally require bulk sizes of products rather than the normal consumer-sized offering and you may need to be able to provide alternative packaging and labelling to meet their needs.
FOODmapis a comprehensive comparative analysis of food distribution channels for major categories within the Australian food industry, from food producer to consumer.
Deciding to use intermediaries will also determine to a large extent, where you will focus your marketing activities. For example, you may decide to focus your advertising, sales promotion and pricing strategies at generating trade interest and demand for your products, or you may focus these activities on consumers rather than customers. Most businesses use a combination of both, with the balance laying more one way than the other, depending on your target market.
It is important to develop your distribution strategy based on your knowledge of your consumers, your competitors and your market. This will help you when you come to decide:
- The type(s) of intermediaries you need:
- wholesaler (someone who purchases your products at an agreed price and sells them on to customers such as retailers)
- distributor (a business that warehouses your product and has an exclusive right to sell them on to retailers and other customers. A distributor can also be a wholesaler)
- agent (someone you authorise to act on your behalf to market your product)
- retailer (a business that sells your products direct to consumers)
- you can ask trusted competitors and industry groups such as Food SA for advice (Food SA also provides members with access to a national distributors database)
- you can check trade and general directories, such as Yellow Pages, and industry magazines for mentions of potential intermediaries or advertising by them
- The feedback and reporting you require from your intermediaries, how much and how often and in what format
- Whether you want regular meetings with your intermediaries
- What your chosen distributors will expect from you in terms of promotional literature and support
- Set a budget for distributor support activities in your business
- Outline what promotional activities will be directed towards intermediaries
- The background of your business
- Details of your product and target market
- Customer requirements and buying behaviour
- What evidence can they offer of satisfied customers and performance
- What promises are they making (can they meet them and what happens if they don’t)
- Do you feel comfortable with them and confident they will represent your brand and products as you would yourself?
Want more information?
- Key questions to ask (PDF 85KB): A checklist is available to help plan the best distribution channel for your business.
- Australian food distribution channels: A comparative analysis of Australian food distribution channels examines the different ways food reaches consumers ranging from the expected, such as supermarkets and coffee shops, to the less obvious, such as hospitals and prisons.
- National distributors database: Members of Food SA can access an up to date list of distributors across Australia by logging in to the member only area.
- International markets: Exporting can be a profitable way of expanding your business, spreading your risks and reducing your dependence on the local market
- Coles national buying office
- Local distributors
- PFD Foods
- Woolworths national buying office