How to Attend Grocery Shows in the Age of Covid-19
Grocery industry trade shows are gaining momentum as Covid-19 restrictions ease. These big events, such as the upcoming Natural Products Expo West, are opportunities for brands, investors and retailers to network, negotiate and learn about the latest trends.
Grocery shows attract a wide variety of attendees focused on buying, selling, marketing and investing in the food industry. Trade shows are organized to allow brands to present their products to investors, brokers, wholesalers and especially retailers. Retail grocery accounts for approximately $1.4 trillion in annual sales. The grocery store is made up of a number of different commerce channels, most of which send shoppers and other staff to these shows. These include supermarkets (i.e. national chains like Kroger
There are over 280,000 food retail outlets in the United States, but about half of that sales volume is monopolized by the top 4 grocery chains. Walmart alone has more than 50% of the grocery store share in more than 200 markets. And despite the business models and formats that set these channels apart, there is now less of a difference in their product mix than ever before due to increased consolidation of wholesale, CPG, co-manufacturing and converting. . For a brand exhibiting at a trade show, it is important to stand out and know which channels matter most to its business.
Retailers also represent the $200 billion a year private label industry. An archipelago of manufacturers and wholesalers make these 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’s a lot of crossover with grocery shows. Private label teams scan trade shows for new suppliers or product trends.
Retail buyers tend to be the center of attention at trade shows as they wield the power of the purchase order. Each retailer has its own phalanx of buyers, also called category managers, and its own schedule for reviewing products and putting them on the shelves. Brands and their employees need to know what category their products belong to, when each retailer reviews and takes meetings, what the launch windows are, and whether or not they can afford to get on the shelves and stay competitive.
Retailers each have their own set of expenses that brands need to be prepared for if they want to get started and thrive in any given channel. These revenue streams can be onerous for smaller brands, so it’s important for brands to know what their capital needs are before having these conversations. Product introduction fees known as placement fees or free fill can range from a few hundred dollars to hundreds of thousands of dollars depending on the retailer, number of stores, and number of SKUs.
During my time at Whole Foods, my team reduced listing fees for local and emerging brands, or we redirected those funds to lower costs called EDLC. These days, slotting revenue represents millions of dollars in margin for retailers and it’s hard for most brands to bargain down. Since many retailers use for-profit third-party wholesalers, brands will also need to know what wholesale expenses they will be incurring. These include payment terms that require 60 or 90 days of guaranteed inventory, promotional chargebacks, reduced chargebacks, and warehouse fees that skim significant revenue from brands and keep wholesalers profitable. Retailers will also charge promotion and advertising fees, in addition to requiring brands to fund markdown expenses when items go on sale, representing business expenses or trade allowances.
These business expenses are a huge part of retail and are what brands use to acquire and retain customers at retailers. Retail spending totals $225 billion a year, or more than 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 upwards of 30% from trade.
It’s important for employees of an emerging brand to have their eyes wide open to these transactional requirements. Additionally, there is no guarantee that retailers will keep the product on the shelf long enough to recoup these costs. A brand I work with estimated that it would take over 36 months of average sales to recoup the launch investment at a national retailer. Still, category reviews happen once or twice a year and new product performance is reviewed after only 6 or 9 months. Additionally, these smaller brands are up against a handful of large CPG companies that account for more than 75% of sales in dozens of categories. The CPG oligopolies have deep pockets to spend on trade allocations, virtually guaranteeing that they will continue to stay on top.
These business practices are now under investigation by the FTC as regulators try to determine whether they contributed to supply chain problems and price inflation. Many common retail merchandising strategies would not be legal if the Robinson-Patman Act were indeed enforced. Passed in 1936, this law prohibits retail chains from using scale to take advantage of better deals from vendors. It is supposed to prevent retail giants from obtaining deep discounts to undersell their competitors and increase their market share. However, the grocery industry has never been more consolidated. If employees of startups and emerging brands worked collectively to achieve better antitrust enforcement, they could level the playing field and have a better chance of success.
Indeed, the grocery industry is brutally competitive for emerging brands and the people who work for them. More than 3,000 new beverage brands enter the US market each year and the failure rate is over 90%. Only 3% of all beverage brands meet a $10 million “proof of concept” threshold. In 2019, Nielsen
These obstacles for emerging brands are even more difficult when they are owned and managed by various founders. Over 84% of food businesses are white owned and run. Consolidation and suburbanization made black-owned grocery stores few and far between. In recent years, the food industry has begun to take these disparities into account. New initiatives to support equity and diversity in the industry are increasingly visible at trade shows, such as Project Potluck, New American Table and OSC2’s JEDI Initiative.
These are some of the challenges that trade show exhibitors are trying to address and overcome. This is why their employees work so hard at these kiosks. This is why empathy and compassion go a long way in the food industry.
And while attending trade shows can feel like the center of the universe, that’s really just the tip of the iceberg. The real work of the food industry takes place in stores, at wholesalers and manufacturers, at co-packers, on the road with truckers and behind the farm. The food industry base is diverse and global, from unionized grain manufacturing workers to migrant farm workers from Oaxaca to poultry processing workers from the Marshall Islands. But almost 8 out of 10 jobs in the food industry are among the lowest paying jobs in the country. A recent survey estimated that more than 75% of grocery store workers were food insecure and 14% had been homeless in the past year. When looking at pay rates and the cost of living, it’s fair to assume that the vast majority of stock clerks and cashiers can’t make ends meet, even though they’re handling food all day. This is why solidarity is important.
And despite the return of trade shows, the pandemic is still raging. While we are told that 1,500 deaths a day is an acceptable level of carnage for a return to normalcy, many food industry workers have lost colleagues and loved ones to Covid-19. And many are immunocompromised or have high risk factors. Trade show attendees can avoid turning these shows into mass media events by exercising caution and consideration for their colleagues, including masking up inside. Be safe there.