The phone rang about 8 times and then a harassed voice said ‘Hello?’ I had my pitch script ready. “Hi, my name is Eleanor, I’m calling from Eden Ice Cider Company up in West Charleston Vermont. I’m coming through your area next week and am hoping I can set a time to stop by for just a few minutes and give you a taste. Is there a time on Tuesday or Wednesday that would work for you?” “Uhhh, where are you from? Vermont? Okay. Umm Tuesday at 2PM – I can only give you 10 minutes.”
Thank God for the Vermont Fresh Network. It was started back in 1996 to connect restaurants and institutions directly with local farmers who were shut out of the food distribution network. They practically invented the concept of farm-to-table. My sales strategy was basically to look up the website of every restaurant on their list, check their wine and dessert lists and see if they had any sweet dessert wines listed. I identified about 20 restaurants and 10 stores and started calling. You could tell that had we not been from Vermont, these very busy folks would not have made time for us. As it was, we were able to set up one trip down the West side of the state, and one trip down the East side, and see a total of 27 buyers. Off we went to sell our little stock. At the end of 3 weeks, we had visited everyone and 26 of the 27 had purchased! Very exciting indeed.
Then there came the call at 3PM on a Thursday from The Equinox Resort in Manchester – “We need three more cases for an event this weekend. Can you bring them tomorrow?” Of course I said yes. We couldn’t be difficult to deal with for this large account, it was bad enough they couldn’t just add it on to an order with one of their usual distributors. I dropped everything on the schedule the next day and set off – down Route 91 to Rockingham, up Route 103 to Chester, and then Route 30 across to Manchester. 6 1/2 hours later I was back at the farm. You don’t need me to draw a cute chart to show that the economics of that don’t work!
It seemed so simple. It’s pretty easy to sell 150 gallons of ice cider, or 500 gallons of hard cider just going to the local farmer’s market and self-distributing in an immediate radius, but unless the cider is one a part of a diversified farm, or a sideline for people who otherwise have day jobs, $5,000 take home pay for the year does not make a real business. How could we increase sales without increasing expenses more (see earlier post “Breaking Bad or Breaking Even“)?
THIS is the question that a lot of small food and drink businesses don’t spend enough time on up front, including my own. Everyone focuses on the production economics, and they fail to look hard at the sales economics. Here’s how to start.
There are five typical channels through which you can sell your brand – in person markets, on-premise at your site, direct shipping to consumers not near your site, self-distribution to stores and restaurants, and sales to distributors. For each one of them, you need to estimate the likely sales volume, the price you will receive, and the likely expenses you will incur in that channel to support those sales. Your variable production cost is generally the same, assuming you are selling the same bottles through the different channels. So you can calculate the contribution that each channel makes to your overhead and profit. Also make note of which sales expenses are fixed versus variable. You have the same break-even issues in sales channels that you do in production.
So here’s the sales dilemma that underdogs face. I’ll go into more detail on each one of these channels in future posts, and they can be fine-tuned for sure, but this is the big picture:
– Farms are located where land is cheap, and people are scarce. Without population density and location traffic, the farm store and self-distribution options tend to be low volume.
– Direct shipping is hugely complicated by individual state laws, regulations, licensing and reporting requirements
– Farmers markets are generally profitable, but limited in growth potential
– Distributors are the lowest margin option, but hold the largest potential for growth, however the expenses required to support distribution relationships are higher than one might think, and achieving sell through for a niche product at a higher price point with low brand awareness requires a marketing budget and capability that is beyond most of us.
Ideally you would be able to fine-tune your sales channels to achieve a decent contribution to overhead and profit, say 22%. The problem is that the easy high profit channels are small and you don’t get enough from them to cover fixed costs and achieve your sustainable scale. The more you grow, the more you have to rely on low contribution channels which means you have to grow more than you would in higher contribution channels. This puts the pressure on to keep increasing scale, which means selling even more, and around you go again.
Catching 22%, it’s the rural-life version of Joseph Heller’s satirical double-bind. Clearly we underdogs are crazy, we just can’t admit it.