How To Attend Grocery Trade Shows In The Covid-19 Era
Grocery industry trade shows are picking up steam again as Covid-19 restrictions ease. These huge events, such as the upcoming Natural Products Expo West, are opportunities for brands, investors and retailers to network, negotiate, and check out the latest trends.
Grocery trade expos attract a wide variety of attendees focused on buying, selling, marketing and investing in the food industry. The shows are organized to enable brands to display their wares for investors, brokers, wholesalers and, most of all, retailers. Grocery retail accounts for about $1.4 trillion in annual sales. Grocery is composed of a number of different channels of trade, most of whom send buyers and other staff to these shows. These include supermarkets (i.e. national chains like KrogerKR or Safeway or regional players like Wegman’s and HEB), mass market channel (WalmartWMT, TargetTGT, Amazon), club stores (Costco and BJ’s), natural/specialty (Whole Foods, Sprouts, most cooperatives), dollar stores and discounters (Aldi, Dollar GeneralDG), pure-play Ecommerce (Fresh Direct, Thrive Market), drug stores (WalgreensWBA, CVS) and convenience (7-11, Wawa’s, bodegas).
There are over 280,000 food retail doors in the U.S. But around half of that sales volume is monopolized by the top four grocery chains. Walmart alone captures more than 50 percent of grocery share in over 200 markets. And despite the business models and formats that distinguish these channels, there is now less difference in their product assortment than ever due to the increased consolidation in wholesale, CPG, co-manufacturing and processing. For a brand that is exhibiting at a trade show, it is important to distinguish themselves and know which channels matter most to their business.
Retailers also account for the $200 Billion a year private label industry. An archipelago of manufacturers and wholesalers make those store brand items that are now ubiquitous, from Simple Truth to 365 and Kirkland. And while the private label industry has its own trade show, there is plenty of crossover with grocery expos. Private label teams scout shows for new suppliers or product trends.
Retail buyers tend to be the center of attention at trade shows because they wield the power of the purchase order. Each retailer has its own phalanx of buyers, also known as category managers, and its own schedule for reviewing products and putting them on shelf. Brands and their employees need to know what category their products belong to, when each individual retailer is reviewing and taking meetings, what the launch windows are and whether or not they can afford to get on shelf and stay competitive.
Retailers each have their own set of expenses that brands need to be prepared for if they want to launch and thrive at a given chain. These revenue streams can be onerous to small brands, so it is important for brands to know what their capital needs are before having these conversations. Product introduction fees called slotting fees or free fill can range from a few hundred dollars to hundreds of thousands of dollars depending on the retailer, the store count and number of SKU’s.
In my time at Whole Foods, my team scaled back slotting fees for local and emerging brands, or we redirected those funds into lower costs called EDLC. These days, slotting revenue accounts for millions of dollars in margin padding for retailers and is tough for most brands to negotiate down. Since many retailers use third party, for-profit wholesalers, brands will also need to know what wholesale expenses they will incur. These include payment terms that require 60 or 90 days of guaranteed inventory, to promotional chargebacks, shrink billbacks and warehouse fees that skim significant revenue from brands and assure the profitability of wholesalers. Retailers will also charge promotional and advertising fees, in addition to requiring that brands fund the markdown expenses when items go on sale, all of which accounts for trade spend or trade allowances.
These trade expenses are a huge piece of the retail business and are what brands use to acquire and retain customers with retailers. Trade spend adds up to $225 Billion a year, or over 20% of retail sales volume. Most retailer trade programs will cost 15-20% of a brand’s annual sales, while mass merchants like Amazon will extract over 30% in trade.
It is important for the employees of emerging brand to have their eyes wide open about these transactional requirements. Plus, there is no guarantee that retailers will keep product on shelf long enough to recoup these costs. One brand I work with estimated that it would take over 36 months of average sales to amortize the investment of launching at one nationwide retailer. Yet category reviews happen once or twice a year and new product performance is reviewed after just 6 or 9 months. Plus, such smaller brands are up against a handful of Big CPG companies that account for more than 75% of sales in dozens of categories. CPG oligopolies have deep pockets to spend on trade allowances, virtually guaranteeing they will continue to stay on top.
These business practices are now under FTC investigation, as regulators are trying to figure out if they have contributed to supply chain woes and price inflation. Many common retail merchandising strategies would not be legal if the Robinson-Patman Act were actually being enforced. Passed in 1936, this law bars retail chains from using scale to leverage better deals from suppliers. It is supposed to prevent retail giants from extracting steep discounts to undersell competitors and expand market share. However, the grocery industry has never been more consolidated. If startup and emerging brand employees worked collectively to get better antitrust enforcement, they could level the playing field and have better chances of success.
This is because the grocery industry is brutally competitive for emerging brands and the people that work for them. More than 3000 new beverage brands enter the U.S. market every year and the failure rate is over 90%. Only 3% of all beverage brands reach a $10 Million revenue “proof of concept” threshold. In 2019, NielsenNLSN reported over 30,000 new grocery products are launched every year, which is about the total number of sku’s the average grocery department stocks. Only about 6,000, or 20%, increased their sales over the first 2 years on shelf and just 10% sustained their sales. Dr. James Richardson has cited research that over 80% of premium food and beverage brands fail to make it past $1 Million in annual sales. The failure rate for new product introductions is close to 80%; smaller companies and startups are closer to 90%, while well-capitalized, incumbent CPG companies had less than a 25% failure rate for new products. When it comes to the odds being in your favor, the Hunger Games has nothing on being a start-up in the grocery industry. But that doesn’t stop many from trying.
These hurdles for emerging brands are even more stark when they are owned and managed by diverse founders. Over 84% of food companies are owned and run by white people. Consolidation and suburbanization have made Black-owned grocery stores few and far between. In recent years, the food industry has started to reckon with these disparities. New initiatives to support equity and diversity in the industry are becoming more visible at trade shows, such as Project Potluck, New American Table and OSC2’s JEDI Initiative.
These are some of the challenges that exhibitors at trade shows are trying to navigate and overcome. It is why their employees are working so hard at those booths. It is why empathy and compassion go a long way in the food industry.
And while attending trade shows can feel like being at the center of the universe, it’s really just the tip of the iceberg. The real work of the food industry happens in stores, at wholesalers and manufacturers, at co-packers, over the road with truckers and behind the farmgate. The food industry rank and file is diverse and globalized, from unionized cereal manufacturing workers to Oaxacan migrant farmworkers to poultry processing workers from the Marshall Islands. But nearly 8 out of 10 of these food industry jobs are among the lowest paid jobs in the country. A recent survey estimated that over 75% of grocery employees were food insecure and 14% had experienced homelessness in the past year. When you look at wage rates and cost of living expenses, it is fair to assume that the vast majority of stock clerks and cashiers can’t make ends meet, despite handling food all day. This is why solidarity matters.
And despite the return of trade shows, the pandemic is still raging. While we are told that 1500 deaths a day is an acceptable level of carnage for a return to normalcy, many food industry workers lost colleagues and loved ones to Covid-19. And many are immune-suppressed or have high risk factors. Trade show attendees can prevent turning these shows into super-spreader events by exercising some caution and consideration for their colleagues, including masking up indoors. Be safe out there.
