Food brokers can help small food businesses grow, but working with a broker may come at a cost. Whether it’s their ability to get your product on store shelves or the monthly commission rates and fees you will have to pay, there are both negative and positive aspects of working with a broker. Before you decide to enlist a broker, it’s important to weigh how the pros and cons can affect your business.
Pros
1) Brokers allow you to focus on other aspects of your business
The biggest reason small business choose to work with food brokers is to free up time. Running a business is a full-time job, and expanding a business can be overwhelming for many manufacturers. Both production and selling are significant factors of running a business and require equal attention. Hiring a broker to take care of sales allows business owners to focus their time elsewhere.
Brokers can also act as business advisors. They have a close working relationship with stores and can provide valuable feedback from retailers and customers, including how products are selling, the reaction of consumers to new and existing items, and current market trends, both locally and nationally. Utilizing this information can help you fine-tune aspects of your business that might not be working, and expand the elements that are.
2) Brokers are more cost-effective than hiring a sales team
Although it can be costly to hire a broker, it may save you money in the long run. Whether you are meeting with stores yourself or hiring your own sales representatives, the costs associated with pitching new products can add up. Traveling to different stores uses up fuel and time, and can put a financial burden on your business.
Hiring sales representatives for your brand can come with some high costs as well. Not only will you be taking on new employee salaries, but you will also be responsible for travel expenses for these employees. Depending on the size of the territory, overnight travel may be necessary, resulting in hotel, fuel, and food costs.
Even though using a broker or your own sales team isn’t necessary to expand the area of your business, they are the best options. Analyzing your goals and the current size of your business can help you decide which one is best for you.
3) Brokers have connections
Brokers are already established in the industry and have connections that most food businesses do not. Even smaller brokers already have relationships with buyers and managers that give them a boost when presenting new items. Whether it’s smaller local markets or large chain stores, brokers know who to talk to about getting your product into the store. Some large stores will not even meet directly with food business owners or manufacturers, in which case a broker may be your only way into the store.
The established relationships brokers have can also help save time and money. Just like it may be more cost effective to hire a broker rather than assembling your own sales team, it can be more time effective too. Networking with buyers and store managers takes up large amounts of time, and it can take years to build the same type of relationships, and trust brokers already have.
4) Brokers do more than sell
It may seem like the only job of a broker is to get your product onto the shelf, but they do much more than that. While brokers do employ sales representatives to sell in products, they can also help to grow your business through other methods. Many brokers will work with stores to market the product and coordinate demos, especially during events and promotional sales. They not only help establish your presence in the store, but they also increase your overall marketing, making it easier for consumers to become familiar with your brand.
Brokers also work with stores to make sure your products stay on the shelf. When buyers are conducting category reviews and looking at which brands to cut, having a broker presence can offer protection. If your product is on the chopping block, they can negotiate promotions and deals to keep your product in the store. Additionally, they can provide information on sales and store feedback, which is a tremendous help to the business side of your brand.
Cons
1) Brokers represent multiple brands — not just yours
The larger the broker, the higher the chances are that they’re representing other brands with products similar to yours. Brokers can represent hundreds to thousands of individual products, which can make it more difficult for smaller items to stand out and get the same level of promotion. In fact, brokers may often prioritize larger brands with higher sales over smaller ones to keep profits high.
Brokers are subject to the same shelf and space restrictions in stores that direct sellers are. Let’s say a broker represents two brands. Both brands sell potato chips, and both have new competing items. One brand is larger and more established, while the other is a small up and coming company. If a store only has one spot available for a new product, the broker may promote the larger company, since it already has a proven track record for sales. This decision isn’t based on the quality of the products but is a business decision. And remember, food brokerages are a business.
2) Brokers come with high monthly costs
Food brokers may save your business time, but they come at a price. Depending on the broker, they will charge a commission fee of anywhere from 5–10% (or higher). On top of this, some brokers may charge a monthly fee or retainer amount to ensure they are making a profit.
There are also intro discounts to consider. To get your product into a store, brokers will want to offer buyers an incentive. It can be a buy one get one free for new products or an overall initial order discount for new stores. These discounts might look good to stores but can hurt your small business if you are not ready for this type of investment.
That said, it’s important to remember that brokers make money by selling your products. They have an excellent incentive to get your product into stores and will work to make sure that happens. Although the initial costs of hiring a broker may seem high, in the long run, brokers will help to increase the overall volume of products sold, expanding your profit margins. Even if your business does not appear ready to take on the costs of a broker, they can be a possible consideration for the future.
3) Brokers might not share your same values
When presenting your products, brokers convey your brand’s message to buyers. Having someone else selling your product isn’t always the same as selling it yourself. As the creator of your product, you are the expert. You know the source of the ingredients, what goes into the manufacturing process, and the details about the end product such as price point, demand, etc. But beyond that, you know the story and values that go into your product. The passion you have for your company is something that is hard for brokers to capture during a sales pitch.
Working with a broker may mean giving up that personal touch that comes with presenting your products yourself. In some cases, small specialty stores are more interested in working with the owner of the company than with a broker. Knowing your sales goals and what types of stores you want to see your product in can help you decide whether or not this a broker is the best choice for your company.
4) Brokers may require exclusivity
Most brokers will want exclusive rights to represent your products in a geographic location, keeping them from competing against each other and presenting the same products to the same store. If you have two brokers trying to sell your product to the same Whole Foods region, this can create a negative image for your company. Stores may view your brand as inexperienced and unprofessional and may be unwilling to stock your products, broker or not.
Even though you are giving the brokers the selling rights only (not the actual rights to your product), this can still be uncomfortable for many small businesses. If you are used to having control over your product, giving up this control may not be something you aren’t ready for.
If you are still interested in getting support for your business without using a broker, Pod Foods may be the perfect solution. Pod Foods allows small brands to be discovered by hundreds of stores, while offering support, such as in-store demos and social media promotions.
