The players in the food business game: Part 2
Knowing who does what is important to getting your food product on the shelf.
In part 1 of this series, players in the food industry from concept to packaging were described for a new food vendor. There are many more players to add to the list! Once you have a food manufacturer, an ingredient supplier and sub-manufacturers in place, you also have to figure out where you will store your packaged products while they await shipment. This is sometimes called third-part logistics or 3PL.
To sell food in the United States, you must store your products at an FDA-registered facility. Most small brands can’t afford their own warehouse, so they rent space from an FDA approved site. Larger shipments can then be coordinated with trucking companies who will not deal with small suppliers. A third-party logistical warehouse will help you keep track of your inventory, and coordinate shipments on your behalf, so you don’t have to be there every time a truck is needed to deliver your product somewhere.
So let’s talk about shippers, those trucks or carriers just mentioned. At the beginning, when your production is small, you may drop off product yourself or send via FedEx or UPS. As you grow and sell more, you will need to use a carrier in order to manage your time and expenses. You may even need to coordinate shipments to send your product across the country. There are many shipping brokers who can help you with this step, and your warehouse may have preferred carriers they like to use.
Aside from the you and your retailer, the distributors are the most important player in this game. The distributors, typically, take ownership of the product from the manufacturer, store in their own warehouses and then sell and deliver to the retailers. For this service, most distributors earn money by marking up your product when they resell it to the retailer (typically 25-35 percent). Though you can expand your business by shipping directly to retailers yourself, it becomes extremely difficult as you get into larger chains. When an inventory clerk at a retailer realizes they sold out of several products, it is much easier for them to place an order at one of their 50 distributors than to call each of the 5,000 brands they carry. It is important to find distributors who work with similar-sized brands and are committed to helping you grow. Watch for part 3 of this series for more players in the food industry.
The MSU Product Center, in partnership with Michigan State University Extension, provides business counseling for product development, packaging and marketing strategies that will help Michigan entrepreneurs commercialize high-value, consumer–responsive food, value-added agriculture, and natural resource products. For more information, visit the MSU Product Center website or call 517-432-8750.