Ecommerce vs Brick and Mortar Retail vs Omni Channel Experience.
This is a question I get from a lot of new entrepreneurs. Do I go straight ecomm, or go right to brick and mortar retail? The consumer-packaged goods landscape has changed quickly in the last 10 years. Ecommerce was still pretty new when I started NibMor Chocolate, so honestly, it wasn’t a huge priority to us. We started getting sales by going into stores, which is not the easiest way to start. With that said, we knew that ecommerce would eventually become a real thing (all the data pointed us to that conclusion), so we did what we could in tandem. However, it was not a true Omni channel experience. What do I mean by Omni channel? That is when you are basically splitting your resources in both brick and mortar retail and ecommerce.
What we had to do back then was literally either just walk into a store and see who we could talk to (this is still a really effective method when it comes to one off stores or small chains) or get a meeting with a head buyer. When it came to getting a meeting with a head buyer, that was and still can be a little tricky. Often times you will need a broker and that broker can take 3-5% of your total NET sales. A broker is a group of individuals who work as your external sales team. They don’t just work for you, they work for multiple brands. It’s important to take some considerations when hiring a broker, but we’ll cover that in another blog (so much to look forward to!). Brokers can be great when used effectively but they do require some management which can hinder your business if you have a really small team. However, brokers can be the sole reason you get in front of certain buyers and their importance should not be underestimated. At NibMor, and with many other brands I have worked with, we have always used brokers for various strategic retail accounts.
Another consideration in dealing with brick and mortar retail is simply the cost of doing business. Most retail stores will require you to do some advertising and promotions (as will distributors). As a business, you have to be prepared to deal with these costs as they can add up extremely quickly. For instance, some chains, like Whole Foods, will require something called a ‘Free Fill’. A free fill is when you provide each location you are approved for with one free case of each SKU (or product) that is approved for those stores. So, let’s take NibMor as an example. We were originally approved in Whole Foods in one region which had about 60 stores. We were approved for 4 different chocolate bars. We had to provide one case (or 12 bars) of each of those 4 SKU’s for free to each of the 60 stores. That can really add up! In addition, brick and mortar retail, especially in grocery, is famous for asking you to promote your product up to 4 times a year for up to 30% off retail. The company has to absorb that cost. If we look to data, in general, we know that promos are not as effective over time as advertising because every time you run a promotion or discount as a company you are essentially borrowing from tomorrow’s sales and will see an overall decrease as customers stock up, etc. A special consideration, across the board (because some ecomm will also require you to promote) is how can you forecast and keep your sales from declining after promotional periods.
Let’s switch to ecommerce, because that can seem like it is the answer to all the hurdles I just outlined above. It has its own issues. First off, ecommerce does not allow you to get in front of people when they are actually shopping. Meaning, people go in to stores to shop for things they need (and don’t need), and they aren’t necessarily always getting online or on their mobile device to make a purchase, so you may be missing them if you are only locked into this channel. Data shows that consumers typically need several points of exposure to pick up your product without trying it (another plus for brick and mortar because you can initiate sampling programs where people can try it before they buy it and they can see your product sitting on a shelf next to brands they do buy which gives it a familiarity). That can be tough for most businesses because the customer isn’t sure if they will like the product, if it will fit, etc… You have to remove the objections through easy payment options, free shipping, taking back product customers don’t like at your expense, etc. Those costs, like free fills, promos and advertising in brick and mortar retail can add up quickly. Often times in ecommerce advertising is the way to go and for a new brand, that can get very expensive. With that said, I’m a bigger fan of running ads instead of big promos on your website or other ecomm platforms for the same reasons I listed above in regular retail. I’ve seen brands run big fire sales or garage sales that inflate their sales for that time period but are ultimately a detriment to sales overall (again, you are borrowing tomorrow’s sales with today’s promotions so what are you going to do to continue to see growth outside of promos?).
I do however, love the idea of a brand starting on ecomm before going in to brick and mortar (this is way better to do now then it was 10 years ago). It helps prove out your concept with lower overheads, encourages word of mouth sales (which is still the #1 way to get consumers to buy your products). And although it has its issues, I believe it’s the way to go in starting a new business (and in fact what we are doing with paper greats). Word of caution to brands that have been around and are trying to leverage out ecommerce: data shows that it can be difficult to back track and go from being heavily saturated in brick and mortar to go to a full ecomm model. If this is what you are considering, do your research. We’ll talk more about that in another blog for sure.
That’s a good segue into Omni-channel. I love Omni-channel all around. It helps you as a company and brand to hedge your bets and get overall better exposure to your audience. It’s the combination of using both ecommerce and brick and mortar. When I’m dealing with new companies/brands I like to set them up on ecomm and then pursue some local brick and mortar or the local programs with larger retailers. This gives them immediate exposure to their local market (consumers like being made aware of brands being produced locally or entrepreneurs who are working within their community) as well as visibility online to a much broader market. I’m also a big fan of isolating online communities whether it be geographic or by specific demographic within a geographic region online. (More on that later.) By initiating this strategy as a new company, you’ll get a good handle on what is working and what’s not very quickly.
When you are making a decision to go with either ecomm or brick and mortar retail, do your research. Understand the costs, pros and cons that go with each strategy and fully commit for a length of time. I’ve seen entrepreneurs and business owners go at their strategy for 3-6 months and expect results that magnify their businesses at an unreasonable rate (remember that brick and mortar, especially has long lead times). Then I watch them move to another strategy to only be left flat or worse for the ware. Commit to a channel and strategy (Omni is available!) and stick with it for at least 12-18 months to see the results. Then you can course correct or add a strategy according to the data and the success or failure of what you’ve already done.