By: Zach Grannis
Michael Besancon began his career at Whole Foods Market in 1994, joining as Director of Purchasing for the Southern Pacific Region. Seventeen years later Besancon retired as Senior Global Vice-President of Purchasing, Distribution and Communications. “Having worked in our line of business from soup to nuts, Michael is absolutely one of the most knowledgeable natural and organic foods pioneers,” said Walter Robb, co-CEO of Whole Foods Market.
In 2012 he founded Besancon Group which serves as a strategic partner for businesses and non-profit organizations pursuing the development of organic products and environmentally sustainable business practices.
Michael was kind enough to sit down with CircleUp and share the ins and outs of successfully selling into Whole Foods. From taking a brand from a single store to national distribution to avoiding the most common mistakes young brands make, Besancon covers an awesome amount of ground—sharing invaluable insights and context along the way.
Zach Grannis Can you speak to the process of getting into one location or launching into test stores in the initial stage of brand distribution; how you approach that specifically for Whole Foods and any broader, key takeaways for retail?
Michael Besancon Whole Foods has an interesting program they call “the local forager.” That’s a person who works in conjunction with the stores or the liaison between stores and the purchasing department at the regional office. For companies who are presenting their local forager and presenting to a single store or several stores in the metro market.
Getting in touch with the forager is a major step. The other is you just walk in and take the product to the department that you think it belongs in and speak to the team leader in that department. Then it’s up to them to decide to forage you to the purchaser or forage you to a buyer and so on.
ZG What is the turnaround time for a purchaser’s decision in terms of taking on that product?
MB That depends on the purchaser and the stores, because Whole Foods is so decentralized, there’s no fixed timeline on that at all. There is a timeline reset and that timeline should be available online at the regional website, which is helpful in deciding when to present a product. If they’re going to cut the snacks in January, you want to start that process probably 90 to 120 days before the targeted shelf redo.
ZG Understood. Very helpful. Say the product is accepted, and it’s doing well in its test stores. How do you go about moving and expanding into more of a regional distribution beyond the test market?
MB At that point, what you want to do is go to the regional buyers. If you’ve got success, if you’ve got movement, they’re probably already aware of the product and you shouldn’t have a difficult time. But it can be a long, drawn out process.
That’s why I’m saying this should be in 120 days early, because they’re extremely busy. There are a gazillion people asking for meetings.
ZG That make sense. Are there any nuances or intricacies with respect to a specific region? For instance, if you’re a particular type of product or you have a certain type of positioning, should you be focused on one region versus another in terms of the roll out timing?
MB The problem there is the nuances are as intricate as there are the number of buyers. A great deal of it has to do with what the buyer is looking for, how they’re moved by your product, and what focus they have on expanding categories. You can’t target it; Again, because of the de-centralization.
What a buyer will grab in the Mid-Atlantic gets rejected in the North Atlantic or SoPac and NorCal. No telling.
Over the years, I’ve watched products have great success in one region and not make it into another region. Just depends on competing local products and then the bias of the buyer.
ZG Moving on to the actual placement within the store: We spoke about walking the product up to the department that you’d envision your product in, but isn’t it Whole Foods that ultimately decides exactly where the placement of that product goes?
MB In the past, it was extremely fluid. If you took a product to grocery and they turned you down, you could take it to specialty, and if specialty turned you down, then you could take it to bakery depending on what the product was. That’s all changing. The flexibility is being dramatically reduced because of a new hosting system for purchasing which creates a fixed hierarchy of products for all regions, all stores.
You’re going to see a major shift of product. If you’ve got existing product where you’re trying to place product, if you thought it belonged in specialty or that’s where it did in the past, it’s very likely going to grocery in the future. It’s very difficult.
Then when you come to the issues of where it’s going to be placed, that’s 100% the decision of the store. The buyers can make suggestions, but there’s very little you can do other than at-store level. To get where you want to be in what aisle and what section is totally up to the buyer and the store and to those team leaders.
ZG How does WFM balance loyalty to longtime existing brands with its search for the newest, most innovative brands? Is there a particular mix they like to achieve in terms of having a certain portion of new products in every aisle? How do they approach taking on new brands — and what should a new brand be cognizant of in terms of WFM’s goal to maintain a certain level of newness in each store?
MB There’s no fixed formula in the company, or at the regional purchasing, or even in the store. The loyalty aspect of it is: if you have a great product and you’ve got great movement, the likelihood is that they’re going to be loyal to you.
The downside of that is if the sales are okay, but not great, and somebody comes along with something very exciting in the same category, a product that has characteristics that your product doesn’t have. If you’re not organic, you’re going to be vulnerable to an organic replacement for your product; If you’re organic and you’re not fair trade, you’re going to be vulnerable to a product that’s fair trade and organic.
There’s a constant push to increase the differentiation on each product. Whether it’s gluten-free, fair trade, vegan, vegetarian, whatever — if you stay with the same product offering, at some point you become vulnerable.
ZG What information should a brand be ready to share with buyers to prove that their brand is worth carrying? Is there information from a financial perspective, at a corporate level that they should be prepared to share?
MB The biggest issue, and what you have to be completely transparent about, is the nature of the ingredients, the product, and the sourcing — down to an ingredient sourced in China. Things like that. That must be completely transparent.
You’re not going to be asked for financials typically. Someone may, but you’re not going to be asked about your financial condition other than what I would say to you if you wanted to go region wide. I may ask you, “Do you have the financial capability to do that?” But, you don’t have to share ownership, your finance, or your funding. As a purchaser, I would ask you whether or not you have the wherewithal to deliver on that.
ZG Then in terms of the actual negotiation of payment and perhaps length of, or extent of, or frequency of the order: are those negotiations flexible at all or are they pretty boilerplate and established per category, per product? Can you speak to the actual negotiation of the purchase orders themselves?
MB Everything is negotiable. The issue is: how bad do they want your product, what do they see for the future of your product, how excited are they about it. If you can negotiate all of the terms, there are things that you’re going to be asked for; you’re going to be asked for exclusives. Anywhere from 30 days to a year.
I don’t recommend personally going over 90 days on an exclusive because it really cramps you and can hold you back in growing your brand, particularly if the movement and the placement of Whole Foods is not what it should be, which is always a problem.
Otherwise, you can negotiate it all. You negotiate the terms. You can tell them what your target sale price, retail price is. That doesn’t mean they’re going to adhere to do that either up or down. They’re going to do whatever they think makes the greatest sense in their mix.
ZG Right. No right or wrong answer here, but what do you feel are the best leverage points for a small brand? What’s worth fighting for? Are there particular points that at a small brand you would focus on more so than others?
MB The first one I would negotiate and work really hard to reduce the length of the exclusivity. That would be the first one because of the stifling effect that it has on your growth outside of Whole Foods. Particularly if you’re getting a metro area and there are only five stores, or 10 stores. You don’t want to tie your hands too tightly.
Other than that, you’re looking at payment terms. You’re going to have to discount to get paid within 45 days. It’s the 1% to 30 that type of thing. It all depends on your margin and how much margin you have; where you think you can spend money to get on the shelf.
ZG How transparent is that margin up and down the supply chain between distributors, retailers, and the brand themselves? Is this something that’s fairly known between the parties, or is it kept close to each brand?
MB You can tell what their margin is once you see their retail price and you know your distributor price. You have total transparency on what they’re making. Unless you’re doing private-label and offering a product in conjunction with a branded product, then they want to see an open book and they want to know what you’re going to make.
What you’re making on your product is not really their business. They can ask and it’s up to you to talk about it or not talk about it, but it really isn’t something other than private-label that they focus on. There’s always an exception. There’s a buyer that may say, “Your retail is way out of line. How much are you making?” That may be an educational process that would be good for you. You would want to make sure that you are not putting up roadblocks in regard to answering that question.
ZG That makes sense. I guess once the negotiation has been set, the product’s on the shelf, you’re starting to receive portal data around sell-through. What should a brand be looking for when reviewing that data? Are there ways that you can alter that performance once the product is already on the shelf? How would you be looking at it from a brand perspective? What key takeaways would you want to have from that data?
MB There are two major things that you can do to accelerate the sales and the obvious one is, you put it on promotion, which questions your retail price to begin with. The next is, if it’s a product that lends itself to being demoed. That’s a key issue, and you will probably be asked to do that upfront.
You’ll go in with an introductory promotion, and then you’ll also be asked for additional ads throughout the year as well as the demoing, if it’s appropriate.
ZG How is demoing traditionally set up? Is it something that each brand offers or is requested — and how frequently?
MB It really, again, depends on the product and the buyer. Demos are necessary and they’re beneficial. The logistics on demos for the stores are extremely difficult. We haven’t talked about it yet, but that’s where a broker comes in. Or if you have a sales, yourself or other sales people in the field have got to make sure that there’s product, that they’ve actually placed the order for the scheduled demo.
I can’t tell you how many times the demo person arrives and there’s no product to demo or no location for it because the communication broke down. For you, the key is to make sure that you are in communication with the store. Once there has been an agreement for the demo, you’ve got to be in communication with that store personally or through a broker to make sure that the product has landed and that you’ve set up with the marketing person in the store for that demo. Otherwise, you are at risk of walking in and being told that there’s no product or no space.
ZG Understood. This is a great segue into speaking about how brokers fall into the equation of expanding distribution: Could you speak to the lessons learned and best practices when working with brokers?
MB My advice is is that I owned a brokerage firm in the 80s and so I’m real clear on the broker issues. You really need a good broker if you want to be successful. One of the first questions they’ll ask you when you’re presenting the product is, “Do you have a broker?”
The broker is the one upfront pass, talking to the forager and doing a test store or two in the metro area. You are more likely to get an appointment at the regional office with a broker who has regular, scheduled appointments than if you’re trying to do it on your own. It’s key.
The brokerage community provides a service and if it wasn’t essential, believe me, they would have cut that out long ago because of the additional cost, both to the vendor and to the store, or to the company. No one loves to pay the five plus percent, but they still exist; and the fact that they still exist while there have been movements to eliminate them indicates that they’re really essential in the process.
ZG Great. We’ve had some specific questions around UNFI, and, obviously, being an important part of distribution with Whole Foods and other natural specialty channel players. Specifically, a situation where perhaps you were accepted into a test region of Whole Foods, contingent upon the fact that you’d be distributed through UNFI — but then approaching UNFI, for example, you didn’t have enough doors to make it meaningful enough for them to take on that business. Is that kind of catch-22 common in the industry? Where you need one partner in the puzzle and you can’t achieve that partner until you have a certain amount of scale? What are ways around that, to gain your distribution even if you need a partner and can do it on your own at first?
MB It’s really common for the store or the region to approve a product and then UNFI declines to pick it up. That can be overcome by the degree of excitement of the buyer and the buyer can force that issue, but they have to be prudent in doing that, because you only get to be wrong so many times before UNFI is not going to listen to you anymore.
There’s a premium on the space, on the flats and the warehouse. I think that in the early stage, a broker can help you with a smaller distributor that is hungry. In every metro area, there are distributors outside of UNFI.
Usually, the buyer will agree to that. They would prefer it to be UNFI. The stores would prefer to be UNFI because it reduces labor in placing the orders and dealing with issues. Many, many products I’ve seen come in to the stores through smaller or secondary distributors. Tony’s is one. GFI is another here on the West Coast.
There’s any number of them and it’s not absolute that you have to go through UNFI. And really, in the beginning, to not get bounced out of UNFI because you don’t have the movement over 90 days, you’re better off starting with a smaller distributor. What that does is it will increase your cost and/or will increase your retail cost because they’re working on a much higher distribution margin than UNFI is.
ZG That’s helpful to know. What are your thoughts on initial entry? For a small brand that potentially sees a better entry point to start (and perhaps an independent channel of small stores) and wants to self-distribute at first? Do you see that as being a thoughtful strategy prior to entering into larger retailer, trying to get a broker and a distributor and get in into a larger distribution? Or, do you think that approaching large retail first is something that can also be a successful strategy?
MB It depends on what your funding is. If you’ve got the money and you are reasonably confident that whatever tasks, focus groups, and whatever you’ve done, that your product is going to sell — then by all means, go after the big guys.
We work with some folks up in Oregon. It started out with a product and I think they’re in 10 or 15 stores now, self distributed. It takes a lot of energy, but they’re building their brand organically and they have a greater control of developing relationships with the stores that really are essential. So much of the business still in this industry is relationship based.
If you are strapped for fun — and even if you’re not and you’re just in the test — get it on the shelf phase, then self-distribution or other small distributors. There’s also sort of a wholesale Amazon, it’s how I describe it in San Francisco. Buyer’s best friend, which gets you into stores based on their internet platform and then you can either ship it or drive it, however you do it in that manner, to get your test going. Actually, that’s very valuable when you have some sales data to go with it.
ZG Are there any strategies that a brand can employ when trying to develop those relationships, thus being such a key aspect to growing your brand? Are there best practices around anything you can do after you’ve obtained the distribution, to maintain a positive relationship with each account?
MB At a metro level, the ideal scenario is to frequent the stores — yourself and/or your broker — o answer questions, to deal with damaged merchandising, all of the things that happen to a product. If there’s a phase that goes with the product, it has major value in getting the product off the ground.
If you are remote, you’re not in the metro area, you’re trying to go in multiples — then you either need designated in-house sales, or you need a broker. You’ve got to just stay on top of the shelf and make sure that shelf tag hasn’t disappeared. If one of the kids coming to the store decided to eat your shelf tag, you’re not getting reordered. If you’re not going there on a regular basis or you don’t have someone going in and checking your product on a regular basis (like a broker, and or a distributor who does the broker function at the same time), you’re not getting reordered.
I’ve watched products disappear over the years just because a shelf tag went away, and then they put something else in its place because there’s constant pressure and competition for those shelf space units.
ZG Segueing to the backend of the growth cycle in terms of entering other channels such as traditional grocery. What are the considerations that a brand should make (from the perspective of taking on accounts that are not as well aligned with their brand positioning)? How does that impact the relationship with retailers like Whole Foods and how might it affect the perception from consumers?
MB Early on in the process, you should be cautious about going in to desk counters. You want to be really careful with that, because if you do that you’re going to destroy your price point in the bigger stores, whether it’s Sprouts or Whole Foods.
They are both, along with most companies in the national/organic side, super sensitive to going outside the channel. Before you go outside the channel, you need to have exhausted your efforts to make placement within the natural/organic channel.
Then you have some leeway because you’ve got the movement, but again, you have to be cautious, because a Costco, Trader Joe’s, or a Walmart — one can cost you a lot of money. Another is, they can destroy your price point. Again, if your movement isn’t great, I mean outstanding rocket and they can’t do without you, your product can get discontinued because of going outside the channel.
ZG Right. I think it’s very clear around the price point difference between channels like club, but in terms of it costing you more, is that specifically related to slotting fees and other trade spend that’s forced in those areas, or what is the cost really driven by?
MB If you’re going into the mass grocery, there is less of a problem, less sensitivity with the super naturals. Their greatest sensitivity is to the club stores, to the big discounters, but you’ve got to calculate. You got to make sure you have the money to cover the slotting fees, to cover the ads if you’re going into a Safeway, you’ve got to have the financial backing to do it.
I’ve watched many companies grow too fast and run out of money because they couldn’t fill the pipeline, and pay the slotting, and meet the expectations for discounts, and demo,s and so on. For me, it’s a function always of what you burn, how much money you have to burn.
If you’re being prudent, then I suggest you do it organically. Build your case, because if you have a product that’s doing exceptionally well at Whole Foods, or Sprouts, or any of the other super naturals, then you actually have some leverage to reduce your cost going into the mass grocery. You will have that with the big discounters as well when the time comes, because they’re looking always at the image and comparison with Whole Foods or with Sprouts.
It’s a strategic decision at each point, where you’re going to go, what the risk is and what the repercussions are. There have been many products discontinued from Whole Foods because they went in to Trader Joe’s or whatever and destroyed the price point. Again, less sensitivity on the mass, it’s totally dependent upon your funding.
ZG Understood. Do some of those same funding-level considerations need to be made while in this specialty, natural/organic channel itself? With Whole Foods for example, freefills are sometimes a requirement for companies. Are there any other required investments that should be expected upfront?
MB Again, I’m a fan both from a purchasing side as well as from a vendor side of growing your brand organically and not going beyond your reach. I think it’s really key that you make sure that you can meet the expectations.
One of the nightmares is when you have a national launch. You’ve spent a ton of money because you’ve given one to three cases free to every store in the nation, not all of whom are going to place it on the shelf, not all of whom are going to execute the reduced retail that might go with that. You end up with all this product on the shelf and there’s no turn.
I had a friend many years ago who had a really exciting product. He had a major launch, filled the pipeline and the sales weren’t there. If you’re in the mass, you get asked to pick it up and take it back, or you didn’t get paid for it to begin with. At Whole Foods that’s not likely to happen, but if you’re not getting any other orders then you have a problem with UNFI, who says your movement isn’t great enough, and UNFI may in fact ask you to pick up your stock.
There’s a caution. People come to me — whether it was in the 20 years I was with Whole Foods or since I’ve retired. “Can you get us to a meeting in Austin?” You don’t want a meeting in Austin yet; you want a proof of concept. Build it and then make sure. The best thing to do in my estimation (and the surest thing to do unless you’re Hain Celestial) is to go region by region and expand in an organic manner.
There are so many things that can go wrong with the national launch unless you’ve got a lot of money to back you up. That’s not where you want to be.
ZG That’s great advice. Any final takeaways around how to foster that organic growth and really differentiate yourself as a young brand, both on the shelf and in terms of your service level to your vendors and customers in your business?
Michael Besancon Just what I’ve said thus far, that you want to develop the relationships. It takes personal time to do that, either on the part of a broker, or on yourself, or a sales team. Get solid sales underneath you that you can then take out and use to get in to other stores. People have a tendency to want to go too fast and that’s the most common mistake.
Zach Grannis Perfect. I think it’s clear from this call that it comes down to being thoughtful about your growth, and focusing on those relationships and your business. Hopefully, that’s something that is top of mind for the brands looking to grow in the natural and organic channel.
ABOUT THE AUTHOR:
Zach has spent his professional career advising brands that operate across all the major sub-verticals of consumer. Prior to joining CircleUp, Zach worked as an associate in Piper Jaffray’s consumer investment banking group where he focused on providing various capital raising and M&A advisory services for both private and public companies.