Determining the right distribution channels
Hello, my name is Carl Matice, and I’m the founder and owner of Altus Chocolate, formerly known as Cao Artisan Chocolates. We import beans from around the world, and we roast and grind our own chocolate, and have a chocolate lounge here in Lynchburg, VA. I’m going to be talking about distribution and some of the different channels you can use for distribution. My goal is to express some of the positives and some of the challenges in each of those distribution methods that we use in our business. There’s five methods that we use. There are more methods, but these are the five that we use: retail, e-commerce, corporate non-profit sales, wholesale, and using distributors.
We’re going to start with retail, and talk about some of the benefits and downsides. Some of the benefits of retail are that you have high margins. Your sales are going to be a lot more profitable to you because there’s not other people taking a cut out of your sales. You also have a direct connection with your customers so you can actually interact with your customers and share your brand and your identity. Help them to understand your products. So that connection with the customer relates into a lot more sales of your product. The downside is that there’s a lot more overhead. You have to keep a building, pay the utilities, pay for employees, pay for marketing, and all those kind of things in order to get people into your store. So it can be a lot more expensive but you also get a lot more of the profits to keep for yourself.
The second method is one that’s very popular lately and that’s e-commerce. This one is excellent in the sense that there’s not a lot of overhead – it’s not expensive to do e-commerce. You really have the expense of debulking the website and then hosting the website. It’s easy to get into, it’s a good way to start. You also have a huge reach. You have a very large reach – you can reach anyone in the world really, depending on what you want to do. The downside or the difficulties come in when you’re trying to compete with other websites. There’s millions of websites out there and even within your market there may be thousands of people who are doing similar things to what you’re doing. You have to figure out how to differentiate yourself and be very creative to make your product unique somehow so that people come to your website to buy your product. So that can be a challenge and it requires a lot of creativity on your part in order to make that successful. Also, you need to have a very clear message on your website because the customers can’t feel and see your product. It’s not right there in front of them so they don’t know the quality except for how you communicate it. They don’t know the uniqueness except how you communicate it. You need to be very clear in what makes your product unique, how it’s different from other products in the market, and what they’re getting when they get your product. Generally, people who come to your website will not have a dialogue with you – they’re not going to be communicating with you. All those questions that would come up in a retail store experience will not come up. They’re going to move onto another website if you don’t deal with those things. Also, you can run into shipping issues. There are all kinds of problems with wrong addresses and damaged goods in shipping. Just all those things are things to take into account if you’re thinking of starting an ecommerce aspect of your business.
The third section is corporate gifts and nonprofit gifts. This is a natural growth point for a lot of businesses. You can go to local large businesses or local large non-profits and help them by providing client gifts or employee gifts for them. One of our clients we send all of their birthday gifts throughout the year to their customers. We have also worked with some non-profits in the area to do some fundraising, raffles, things like that, in order to help them raise money and it helps get our name out and sell products as well. Partnering with local businesses and local non-profits can help to create a different kind of a revenue, where you’re selling directly to a larger business. The benefits are that you get larger sales, generally, and they’re planned ahead. They’re thinking about an event and so they want stuff for that event. They tell you ahead of time so that you can plan and make everything you need for that event. The downside is that a lot of times, those businesses from year to year will want to change what they’re doing. You might not get as many return customers, because while they used chocolate this year, they might want to use wine next year. They’re going to be changing those things up fairly frequently. It can be difficult to get repeat customers for those products. It can be difficult to connect with the right people in those business to know who might be interested in those sales. Sometimes those larger businesses or non-profits have many layers of people who are answering the phone or getting back to your phone calls, so you don’t always get directly to the people that you talk to.
Fourth is the wholesale market. This is a popular growth direction, especially if you’re manufacturing a product. That is that you’re getting your product into other people’s stores. There’s low overhead – you don’t have to pay for all of those things that you have in a retail store with employees and location and utilities and all of those things. You’re giving your product to someone else and they’re selling it and they’re paying all the overhead. Also it gets into new markets – markets that you might not have even had a chance to get into. They already have those people as an audience so they’re able to sell your stuff for you where you would never be able to get it. The downside is they need enough markup in order to be able to sell their product. They’re going to need a portion of that retail amount that is their profit. Generally it’s a 60-40 split, so where you were in a retail situation making 100% of the profit, now you’re only making 60% of the gross amount, and they’re making 40% of the gross amount, so your profits have shrunk, but you have less costs so it’s a balance thing of if it’s worth it for your particular product. If you have large enough margins, it can be a very lucrative way of expanding your business. One more thing you want to keep in mind in getting wholesale customers is that you get a good match. If the products that they carry are less quality than the products that you make, it will cheapen your brand. It will make you by association look like your products are cheap. If the products around your products are a higher quality than yours, then probably there will be a lot of complaints about the quality of your items that you wouldn’t get if you were better matched. It’s really important that when you make those connections with a wholesale client, that they’re a good match, they’re people who have other products like yours, and that their customers are expecting a quality that you can provide in your product. Also, one thing to keep in mind is that when a wholesaler is selling your products, they’re not going to have the intentionality in communicating your culture and your brand to their customers. They’re going to put your stuff on the shelf next to other brands, so it’ll really be up to your packaging and your signage to communicate the message you want to get across about your product.
The fifth method is using distributors. This is something that’s relatively new to us – it’s a natural growth pattern for some larger companies, but distributors are important because they get you into markets you’d never even think about. Because what they do is they’re the middleman between larger wholesale clients and manufacturers. So they will do that matchmaking for you where it’s sometimes hard to get into a larger wholesaler. They have the connections, they know the inside people, and they’re able to sell to those companies. The downside is that they also require a significant portion of the gross amount of sales. So you already are taking out a chunk for the retailer, and now they’re taking out a chunk, and it only leaves you with a certain amount. So you have to make sure that you have enough margins in your product to where you can make a typical split – a 30% for the manufacturer, 10% for shipping costs, 30% for the distributor, and 30% of a markup for retail. You have to think that through ahead of time – do we have enough markup in our product to still make it profitable for the small amount I’m going to get? Is it going to be worthwhile to work through a distributor? Alos, you’re going to be further remote from your customers. You’re not even communicating with the company that’s selling. You’re communicating with a company that’s communicating with a company that’s selling your product. You really want make sure that your packaging is right on, looks great, and it really communicates your message to where a customer can pick up your packaging and just from seeing your packaging can really understand what you want them to understand about your product. The other thing is that also follow-up with your distributors to see where they’re putting your product just to make sure they don’t put your products in the wrong locations. Same problems we were talking about in wholesale sales is still true with distributors. Make sure they’re looking at the quality of your products and the quality of the stores they’re selling to and they’re matching well. Otherwise you end up with the same problems of cheapening your brand.
There’s lots of other distribution methods, such as multi-level marketing, phone sales, door to door, catalogues, things like that, but those aren’t things that we necessarily deal with. Each of those things is similar – you have to evaluate the same things. How close you can connect with your customer, what types of margins will be in that method, and can you afford to do it and is it worthwhile. So just to sum up – these are the 5 distribution methods we use: retail, e-commerce, corporate and non-profit sales, wholesale, and distributors. I hope these were helpful for you and that you’ll be able to use these for your business in the future. Thank you.
About Carl Matice
Carl Matice is the founder of Altus Chocolate, formerly Cao Artisan Chocolates. Cao Artisan Chocolates first began as a journey of love and life with a young couple, Carl & Mary. Searching for a love-enriching marital hobby, Mary stumbled upon the movie ‘Chocolat’ at a girls’ night out. Inspired by the whimsical film and the idea of making chocolate in small batches from the cocoa bean, she proposed the idea to Carl, who was instantly intrigued with the idea of craft chocolate making.
After purchasing a Mexican molcajete, a large granite mortar & pestle, they hand ground their first batch of chocolate with a pound of raw cacao beans. After carefully roasting the beans in their home oven, the couple sat outside their home cracking the beans with their fingers to remove the thin paper husk from the bean, like the ancient Aztec’s & Olemecs did centuries before them. Curious neighbors walking by became intrigued with the couple’s pursuit requesting, of course, to taste the finished product!
Grinding took somewhere between 16-20 hours taking turns (and days) to get the cacao and sugar into a somewhat smooth chocolately substance. (Sheer exhaustion blocks out their ability to remember exactly how long it took)
Eager to taste the results, they were amazed by the delicate flavors and lack of bitterness of their first batch of chocolate. Bewildered, they set out on a passionate pursuit to learn about high-grade, single origin cacao and discovered an incredible, much lost, world of high-grade cacao and complex flavors dependent on the terroir, or soil and growing conditions! Enthusiastic friends and family began requesting (perhaps demanding) more and more of their chocolate. In 2012, Carl & Mary launched Cao Artisan Chocolates to
share their passion for exceptional chocolates with others and were met with overwhelming community support.
The factory and lounge, run by the couple, is a fulfillment of their hobby inspiration, being themed after ‘Chocolat’ with a European chocolate house flair, cozy seating, deep community involvement, and a commitment to promoting the welfare of others through the shop. It is a place for wonder, exploration, and exceptional indulgent delights!
|Date Added||June 29, 2016|
Carl Matice concisely outlines the benefits and what considerations entrepreneurs should make when picking which distribution channels they should use. In particular, he discusses: