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Here’s the situation… I got a call out of the blue today from a gal in the Mid-West who happened upon my product and website.  She is a distributor for complimenting products (gourmet spices and foods).   Here are my questions (and there are many) .  What EXACTLY is this enigmatic entity called “distributor” ??  I know what the dictionary says so regurgitating Wikipedia isn’t what I need, I need the real skinny.  What is it REALLY?  In a very generic sense, what do they expect? What are their terms?  What should I expect? Using your standard COG $2.50-Wholesale price $5.00-MSRP $10.00 where do they fit in?  Do they normally keep an inventory?  I need the nitty gritty.  The term seems so vague to me and I don’t know what I should expect to give and receive from someone calling out of the blue saying “I want to be your distributor” 

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Leslie
Founder and President
Charmed Life Products LLC
Grill Charms™… The MUST HAVE grilling accessory that is revolutionizing the American Cook-out AND The perfect gift for any occasion!
Grill Charms
                                                                                                    

Hi Leslie - me again ;0)

I don`t know `the skinny` just yet, but here is a very interesting article with alot of information about distributors:

http://www.entrepreneur.com/growyourbusiness/howtoguides/art icle80784.html

It seems as though distributors work almost the same as a sales representative would, but without the sales end of it, and on much larger scale. They may also take on addition responsibilities, such as warehousing, invoicing, ect - basically acting as a go between, for you and your retailers. Here`s another definition of distributor:

1. Distributors. Also known as wholesalers, brokers or jobbers, distributors buy in quantity from several manufacturers and warehouse the goods for sale to retailers. Although their prices are higher than a manufacturer`s, they can supply retailers with small orders from a variety of manufacturers. (Some manufacturers refuse to fill small orders.) A lower freight bill and quick delivery time from a nearby distributor often compensates for the higher per-item cost.

 

Hopefully that will help!

 

 

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Melissa Yamello
Owner/Designer
Storybook Studio
www.storybookstudio.net

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Distributors are the intermediaries. You would want to use them if they can get to customers that you cannot get to for lack of time, resources or inability to properly serve the account.

For example, you may ship in pallets but some customers may want cartons. Your business may not be geared to support small orders but the distributor can.

The typical margin scenario that you suggested is consistent with my experience in hardware, food and automotive channels. The more margin you offer to the distributors, the more they will push your product over the other lines that they typically carry.

When you get a call from someone seeking to be a distributor, ask some questions:
- how long have you been in business
- what lines do you carry
- what is your customer base
- what percentage of your business is with each of those customers
- do you have a sales force - how many employees
- sales force on commission or salary
- do you have your own trucks/warehouse/accounting/EDI/marketing/etc

These are a good start to filter out the folks that want to add you to get some deals but cannot execute your programs.



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A good idea is a good idea NOW![sup]TM[/sup]

ethnicomm inc. | sales | marketing | web | strategy consulting

A distributor also optimizes transaction speed. Dole Foods does not want to ship to every single grocery store. They want to ship their pineapples to 50 places instead of 50,000. Distributors then use their network to handle point-to-point distribution.

Imagine a white sheet of paper. Put a picture of a pineapple in the center. Now surround the pineapple with thousand and thousands of dots representing stores and connect those dots to the pineapple. This would be a very inefficient network graph as it requires one transaction per store. Since there is friction associated with each transaction, margins are decreased. Since there are a lot of transactions, the margins can decrease a lot. Sometimes exponentially, but usually linearly.

Now imagine that same white paper with the pineapple in the center. Surround the pineapple with a hundred dots, each representing a distributor. There are only 100 transactions here, instead of 50,000. That is a much more efficient network. Thus less profit is dissipated because of the decreased transaction scale. This is called transaction granularity. Too much granularity is very inefficient unless the friction of each transaction is very very very low.

The great thing about distributors is that they often have the ear of retail buyers. So a distributor looking at your product might have access to retail buyers - retail buyers who probably wouldn`t even return your calls. They have their weekly conversation and the distributor mentions this new gadget... the retailer says "great, i`ll take ten". The distributor has a similar conversation with the next buyer and pretty soon there is an order for 1000 gadgets. You sell your gadgets to the distributor. The distributor adds their own mark up and sells them to the retailer. The retailer adds a markup and sells them to consumers.

I hope this helps. I can recommend a few books on transaction granularity and measuring network efficiency if you`re interested.

CookieMonster hit the nail on the head. The greatest value of a distributor is their list of contacts who already are doing business with them.

Your goal is to sell a product to a consumer. That doesn`t mean you have to do it all yourself. It`s no different than deciding not to open a store just to sell your product. It wouldn`t be cost effective. For you to make the rounds of gourmet stores selling just your product would not be cost effective either. The distributor is already in the store on a regular basis. Adding your product to their offerings gives them something more to offer. At the same time it expands your reach beyond what you could do on your own. A good distributor is worth every penny or percent you pay.

Since you mentioned standard markups I thought I`d recommend a great book someone else on SUN told me about called The Strategy and Tactics of Pricing. A must read.


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Thanks guys!!  It’s all becoming a little clearer.  So a distributor actually purchases my product as a price lower than what I am offering to my retailers but at larger volumes right? 

Storybook, thank you for the link, I’ve got tons of reading to do from Entrepreneur. Com

Ethniconn, great questions, I will most certainly ask and CookieMonster, you have made it very clear and it make complete sense.  ( I think it is just hard for me at this stage to imagine being in such high demand that I can’t fulfill all the orders, but that’s a mindset I need to get VERY comfortable with because that’s where this train is heading!)  You are absolutely right!  (It is so funny you should use the Dole example, I lived in Hawaii for 6 years and I can still remember the smell of the factory on the way to Honolulu)  I actually toured the plant on a school field trip… memories)

Steve, thanks for the book, I’ll see if my library is cool enough to have it!  I just want to be clear that a distributor actually buys your product in bulk then what he does with it, is his business right?  By this logic, is there ever really a drawback?  It’s a sale right?  And a pretty big one at that usually?  (I KNOW full well that I’m showing my naivety with these questions, but I’m playing devil’s advocate because I want the real scoop and I know you guys will tell me)  Do distributors want exclusivity?  If they do, then most certainly I can see how selling to the wrong one would be bad because you have locked out anyone else from distributing your product, but if not, what’s the downside?   Okay, I’m not using the right term.  A bad distributor is bad yes because they represent your product, what I mean is “small”.  I don’t think this gal has tons of business and I think she’s more of a 1 or 2 person operation, but if she’s “good” and just isn’t’ a big dog, what would be a reason to not give her a shot?  (Assuming she has a good business, customer service, etc…)  Enlighten me more oh great ones!!!!

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Leslie
Founder and President
Charmed Life Products LLC
Grill Charms™… The MUST HAVE grilling accessory that is revolutionizing the American Cook-out AND The perfect gift for any occasion!
Grill Charms
                                                                                                    

The Strategy & Tactics of Pricing is a great book. I recommend it from time to time. Not a light tome but worth reading.

Anyway. There aren`t any real simple answers to your most recent questions. Yes, distributors sometimes want exclusivity. Sometimes if they buy a product from you, it`s their business. Sometimes they might force you to accept unsold inventory. There are many variables.

Sales minimums are also variables. There are probably as many approaches as there are companies. I do know that retailers tend to have individual contracts with distributors with different terms. So... I can`t really give you more specifics.  

I kinda figured there were no simple answers, but I was hopeful  I`m learning that the term "distributor" means so many things depending on who your talking to.  I`m thinking that no two people or companies that call themselves "distributors" will have the same or even close to the same terms or even services.   (some hold inventory, some don`t, some are involved in "sales" but most aren`t)  YIKES!   As with every other aspect of this biz, I`m going to learn and read all I can, and just jump in with both feet! 

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Leslie
Founder and President
Charmed Life Products LLC
Grill Charms™… The MUST HAVE grilling accessory that is revolutionizing the American Cook-out AND The perfect gift for any occasion!
Grill Charms
                                                                                                    

Leslie, you are doing great! And it sounds like you got a lot of good info, on this topic.

One of the more interesting things I saw, last summer driving around looking for fishing places, was a place called a "Logistics Center."

I know what`s logistics, so I looked up more info. I believe it`s related to the concept of "distributor," in that it`s a way to be more focused on parts of the process. Remember that you have a product, you give it in exchange, and you track the process.

Distribution come into play at the "give in exchange" point. If you`re behind a counter and sell me 1 candy bar, even though you wouldn`t normally think of it this way, you`re "distributing" your product over the counter into my hands.

CookieMonster makes the basic point. In a larger market world, the process of getting your product into the hands of a customer becomes more complex. To that end, you can use this company that`s asking you about distribution.

I think it`s probably legitimate. The problem for you will be to determine what are your wholesale prices, and how would you contract with the distributing people. Try to stay away from a "sole distributorship" contract, though. If they turn out to be lazy, you`d be prevented from using some other distribution line.