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The Barcode Podcast is presented by Titanium CPG Insurance. Titanium protects forward-thinking consumer brands with a range of commercial insurance products and risk management services designed specifically for natural and organic food and beverage companies. Learn more at titaniumcpg.com

In an omnichannel world, almost every brand will work with a major wholesale distributor at some point. On this episode, we’re sharing a recording from a live event we held earlier this year featuring Suman Lawrence of United Natural Foods, the US’ largest natural grocery distributor. Suman runs the UNFI Next program for the Southwest region of the country, so she specializes in on-boarding early-stage brands and mentoring them toward success.

Your distribution partnerships are among the most important in your business; and there is a lot of information packed into this episode, but Suman shares some really great, specific advice on how you can get this relationship off on the right foot.  

CLICK HERE TO VIEW FULL TRANSCRIPT

Ben:                            So we’re really, really thankful that, that Suman joined us all the way from North Texas, Dallas. Uh, and, um, so we’re going to talk a little bit about distribution, although we’re, the, the conversation may go in a few different directions because she has not only and ever worked in, uh, distribution, she’s worked in a variety of roles across really the, the food and, and, and grocery ecosystem. And I think that that diversity of experience, it is, it is one of her big advantages and, and, uh, allows her to have a lot of empathy for you (laughs) because she’s been where you are.

                                    And she has seen, uh, she sat on multiple sides of the table. It is not just two sides of the table, but a lot. So she has, uh, kind of grew up in, uh, grew up in the UK.

                                    Born, born in India, uh, grew up in the UK. And, and then, uh, moved, moved to Dallas or Texas at some point along the way.

                                    And, uh, and, and, and has worked for, uh, companies and brands that you have, have heard of on the retail side, such as Central Market and United Supermarkets. And, uh, also worked on the brand side at Hail Merry and she has, uh, she understands a lot of those, those things. So, some of you, we, we, you’ve probably have heard the term UNFI Next wi- a couple of people have, have brought this up. We’re going to, uh, uh, I’m going to ask, uh, just at the beginning and we’ll, we’ll dig into some other details, but, uh, Suman, tell us like what, what is UNFI Next and what’s your role with it in?

Suman:                      So UNFI Next is a small division of the supplier management team. Um, so it’s about three years old. And we started because we, um, found that a sma- a lot of small emerging brands were having, um, difficulty acclimating to distribution with the, the, the national team. National team are all category driven, so one person is gonna do all snacks. We are territory driven, so we have each, there’s six of us in the company and we each have a region that we manage and we try and onboard smaller suppliers. And I’m-

Ben:                            So, so, you’re the southwest region.

Suman:                      So, I’m the south [crosstalk 00:02:21].

Ben:                            The south region, which, which, what states does that include?

Suman:                      So, think of Oklahoma, Texas, all the way to North Carolina and South, so that I cover all those states.

Ben:                            And how, how do you cover all those states?

Audience:                  (laughs).

Suman:                      Um, so-

Ben:                            You’re on the phone a lot I suspect?

Suman:                      I am, I am on the phone a lot, but you know, I network with accelerator groups, broker groups, um, network with, um, CPG companies. Um, we go to shows, uh, word and mouth from other suppliers who’ve had a good experience. We work with retailers. Uh, Whole Foods sends us many our way. Um, so that’s how we network. We don’t get out as much as I would like to. We work with commercial kitchens, anything that’s gonna get our name out there. Um, and then we, um, get a vetting process where people fill in a questionnaire. We kind of look at it to see what stage that company is at. We’ll have, uh, a call with them and then decide whether it’s something we wanna move forward with or not.

                                    Um, so one… Some of the things that Next is looking for, emerging brand, is not national, um, is not at UNFI. Um, and it can be an emerging brand. You may be- been business in six, seven years or eight years, but you’re coming into a different channel of business, right? So maybe you’re concentrating on food service. Suddenly you now wanna go into the natural industry. Um, and then we kind of see if you’re gonna be, you have the groundwork to be successful down the road because our goal is to onboard you, mentor you, grow you, graduate you. And so with, hopefully in two years you’ll graduate to the national team.

                                    We manage 50 to 60 suppliers with the goal of graduating every year and then onboarding every year. And so national team can manage 200 suppliers and that could be multiple brands under that one supplier. So, they don’t have the time that they would like to, to dedicate to each supplier. So they just, they can’t deal with a lot of suppliers that need a lot of information, don’t know what deduction is, who should they go to if they can’t fill their PO’s. So we do a lot of that. We do a lot of talking, a lot of handholding, a lot of explaining so that they can, by the time two years comes around they’re ready. They’re grown up basically and can stand on their own feet.

Ben:                            So speaking of explaining, one of the things that I, that we tried to do here at Barcode is to not assume, like, a baseline level of knowledge about anything. And so UNFI is United Natural Foods Incorporated, correct, which is, uh, a tiny little mom-and-pop organization. No, it’s not. It’s, uh, te- te- tell us like how like wha- wha- what is UNFI?

Suman:                      So United Natural Foods, um, it started as a little mom-and-pop sort of a mounted people, but basically in the ’70s, and then slowly, slowly started acquiring different distribution companies across the country and then became United Natural Foods. Um, so United Natural Foods prior to Supervalu acquisition that just happened couple of months, no, it probably been a good six months now. We use- we were about an eight billion dollar company. We had about 10,000 employees. Um, now we’re-

Ben:                            Ab- ab- about like you, right?

Audience:                  (laughs).

Ben:                            Similar?

Suman:                      Yeah, so double, um, and so, uh, about 18 distribution centers across the country. In the past we’d be known as the natural organic distributor, but in, in, we’ve slowly, slowly become natural organic, fresh foods, perishables, uh, specialty now going into the conventional side two of this so that the CEO’s motto (6:07) is, you know, “We wanna fill the store. Use one distributor, fill the store.” So that’s what, it’s slowly aiming at.

Ben:                            Right. So, so it’s a very large, it’s the largest of the natural foods distributors.

Suman:                      Yeah.

Ben:                            And with, uh, with, with a national, uh, footprint-

Suman:                      Yeah.

Ben:                            Uh, the Supervalu acquisition that she’s referring to was a, uh, they, they bought a chain of grocery stores that also was, uh, distributor-

Suman:                      Yeah. Wholesaler.

Ben:                            … uh, as well.

Suman:                      Right.

Ben:                            So, uh, so, so they, uh, they bolted that on. There was a lot of employees there and that’s what you’re referring to.

Suman:                      And then the reason it was a, it was a surprise to many, but one of the reasons behind Supervalu acquisition is because they had conventional and they had areas of the store that we couldn’t supply. And so it was a good, um, marriage because now that fill, for every section of the store can now sort of become reality.

Ben:                            Right. The- Okay. So, so, so Suman is, uh, she’s managing these emerging brands who are, uh, you know, like many of you, you’re, you’re trying to get going. So, so what, what she said before, you’re not are, you know, one prerequisite is you can’t already have been in UNFI, and working with a national, uh, supplier relationship manager, at, at-

Suman:                      Right.

Ben:                            … at that point.

Suman:                      You, you, you can only have one supplier relationship manager, whether it’s a supplier relationship manager, which is the national team, or it’s a STM supply development manager.

Ben:                            Right. So every distributor has their own, like any company you have, they have their, their own nomenclature. And so it at UNFI, you’re going to work with either a supplier development manager, like you or, a supplier relationship manager if you are in a particular category. Right?

                                    So, what, what are some of the things, you know, like just to s- even to save you some time, what are some of the things that you find yourself saying again and again to brands who go, “Hey Suman, why, why didn’t you take my, uh, why, why didn’t you accept my application into the program? What, what was I missing? Why, why, why didn’t I get the call?”

Suman:                      Um, so, so next, um, so next we look at the, the product, right? We look at the category the product is in, and then we look at, is the category trending or back to trend, right? So we’re not gonna say yes to a product where there’s a decline. Um, for an example, there was a sports drink that came to me recently. Um, and it looked interesting and, but then I reached out to our category management team that looks at movement across the country, looks at trends, looks at Spins and I, and I said, “Hey, what do you think of this one?” And they go, “Hey, um, hydration drinks are on the ne- going negative.”

                                    Um, they don’t have any attributes that are still selling well. And so that, so those some of the reasons. It could be price point. It could be your, it could be your experience in the retail environment. You’re brand new. You’ve only been around for six months and you, you’re in 10 stores. I’m gonna say, “No, you’re not ready for distribution. Come back in s- a year. And here’s some of the things I’d like you to do before you come back to me.” Your price point could be too high.

                                    You’re not competitive. Um, you don’t have a structure or a plan for the next year or two. What channel do you want to go after? You know, they go, “We wanna be national in six months.” And I’m like, “No, this is not gonna work.” Concentrate, what channel do you want to go? Do you wanna go attack food service? Do you wanna attack natural? What do you want to concentrate on and how are you gonna start doing it?

                                    Um, another reason, which is quite common is people think the distributor is gonna do all your selling. We’re not going to do all your Selling. That’s the first thing I tell anyone. What’s your sales team look like? What’s your outreach? Have you got a broker community? Um, because if you think getting into distribution is the end and that you’re gonna start making money or you’re gonna start getting velocity is, that’s just the beginning of it all. And so that’s really important to understand.

Ben:                            That’s really crucial advice because you, you do see, uh, on one level you should celebrate, “Hey, I got into UNFI-“

Suman:                      Yes.

Ben:                            … or I got into a given retailer, and you should take a moment, give each other a high five. But then really that’s where the whole thing starts, is making sure that you are prepared to support it and, and do whatever it takes to sell a lot of that product through UNFI and through their retail partners.

Suman:                      Unless there’s many factors. Um, that, and I’ve had many su- I’ve just, just started with a supplier that I’ve been talking to for a full year and they’re finally ready. So a full year they finally got it together, which was exciting. And so now we’re starting the paperwork, but it can take time, you know. I would say the majority of my suppliers, unless they have key accounts that want them to come through you UNFI, it’s a good six to nine months before we actually start looking at paperwork because there’s some homework to be done.

                                    They haven’t thought of their pricing. They haven’t thought of what, how freight affects their pricing, what their wholesale m- is gonna look like. Um, what the suggested retail is gonna look like? How the pricing to customers are gonna vary depending on which customer they go after? How much promotion they may have to gi- do? So those are so many factors that you don’t know until you start talking to people and then they say, “Oh, what about this? Have you thought about this? Have you thought about that?” So um…

Ben:                            Right, that’s good. And so I, I wanna break that down just a little bit for you guys. So typically you will, uh, when you work with a distributor like UNFI, they will, you, you’ll fill out a, a very elaborate set of Excel spreadsheets, right? And, and get used to it. That’s, that’s a mark of success.

                                    If you’re getting more spreadsheets, goal is filled out a lot of spreadsheets. Uh, the, uh, like you, you want to fill out spreadsheets, although it can be painful at times, but ultimately what you’re trying to do is, uh, like they’re going to ask you for two prices, uh, the f- the first one is FOB or Freight on Board and one is delivered.

                                    So tell us a little bit about how, how does a company decide, what’s the price? Even kind of dig into that a little bit. How do I decide what the price is to UNFI? And what are the other considerations that I, that I need to, to make around that for retailers, et cetera?

Suman:                      Right. So you guys ho- hopefully before you, s- well, as you’re developing your product, you’re looking at your competition, right? If there is competition in that category, you’re looking at where the competition is, what suggested retails they’ve got on the shelf and everything. So you want to look at that and then figure out wha- if you can be it within that ballpark and then go backwards in a sense. So let’s just say $4.99 is your ideal spot, you feel that you could sell the products at. Um, then you have to think about, okay, for 499 at the, on the, on the shelf gotta take minus the retail margin, and make sure you’re-

Ben:                            Wh- which, is different for every category, right?

Suman:                      Yes.

Ben:                            … every retailer, every category-

Suman:                      And the category.

Ben:                            … is a little bit different. And then, okay, so then-

Suman:                      Uh, so then, so then you come to the pricing, hopefully that the retail is going to buy it through a distributor. And then you have to go backwards and look at what does the distributor need? What does the distributor buy-in? And what is the margin the distributors is going to put on that category? So is it going to be 26%, 28%, 30%, you know, so there’s couple of different categories. There’s grocery, which is dry ambient, usually your, your cheapest margin. There’s chilled, there’s frozen. There’s supplements. There’s body care, um, and then there’s bulk.

                                    So, those are sort of the main categories that we look at. Um, chilled and frozen are going to be your highest margin because we have to bring it in chilled store it chilled, deliver it chilled.

Ben:                            And all of that costs money.

Suman:                      And that costs money. And it’s also the tightest space in any warehouse, frozen and chilled. And chilled, I will tell you, is the most innovative category, also. You find so many products in chilled and there’s only so much space in, in a retail store for chilled products. So it’s very competitive. Um, so you have to do-

Ben:                            Why, why, why is that? Why, why, why is there so much innovation in chilled?

Suman:                      Huh. Because maybe, it’s because they think it’s fresh. It’s, the taste is more vibrant. Um, people grab and goes and thi- I mean, there’s so many, you know, so-

Ben:                            It’s o- often the perimeter of the store-

Suman:                      Yeah.

Ben:                            … which, which helps.

Suman:                      It’s, it’s fresh.

Ben:                            Yeah, you-

Suman:                      Yeah. And so, you know, it’s got categories like dairy, yogurts, um, fresh juices, um, all the things that people will come buy often.

Ben:                            And you see that a lot too with a, a, a lot of the natural brands, uh, begin adding fewer and fewer preservatives-

Suman:                      Right.

Ben:                            … and so therefore, you, you in order to [crosstalk 00:14:44].

Suman:                      You got the bars, yeah. Um, so you know, there’s now bone broth. Um, so there’s so many things, homers and all that is all chilled. And so that’s what people want because people gravitate to buy that often and, uh, use so yeah. So all, so you have to think… So now we’re now, so you’ve now gone through two different margin scenarios and then you’ve come to this price point where you think, “Okay, I need to be in that ballpark, in order for the margin for the distributor to have their margin.”

                                    And then they need to be selling it at a certain price point in order for the retailer to have their margin. And in order for my SRP to be this. And so there’s, you know, there’s a flexibility of so many percentage because each retailer may be buying it at a different price from the distributor because of the volume that they, we do, they do with us, you know. Hopefully it is not gonna get the same pricing as a little mom-and-pop, um, store.

Ben:                            That’s a really important point.

Suman:                      Yeah. That’s a very-

Ben:                            So if you, yeah, if you assume that the mom-and-pop store that’s, that’s getting from, you know, getting their products from UNFI or any other distributor is getting the same deal as a Whole Foods or, uh, another large account, that’s not the case. So that, that means that it can be a little tight-

Suman:                      Right. Uh-

Ben:                            … for some of those smaller retailers.

Suman:                      So I’d sa- so there’s really three variables when you look at pricing and they make, can make it hard for you. So there’s a freight is the variable. So meaning if we’re gonna pick up from you, um, are we gonna-

Ben:                            Tha- that’s the FOB.

Suman:                      FOB. F- um, I think it’s called Free on Board, I think it’s what-

Ben:                            Yep.

Suman:                      It’s sta- FOB. So if we come and pick up from you, are you gonna, and we deliver it to the warehouse, are you gonna help us with the freight? Or are we gonna inclu- uh, do the freight in-house? If we do the freight in-house meaning we don’t get any support from the supplier for the freight, and um, we will add the freight to your cost of goods and then it, that will be your landed price at the warehouse.

                                    So let’s just say a dollar FOB, 10 cents freight, the landed costs at your warehouse is gonna be a dollar 10. Then we add the category margin and that becomes your wholesale price.

Ben:                            And this is a really important point because many of you who have filled out like Whole Foods paperwork for instance, you’ll see in that Whole Foods’ paperwork, it says, typically, uh, “UNFI cost plus eight percent.” That does not include the freight. Uh, right? So, so if, if you, if you did that backwards math and you said, “Okay, I’ve, I’ve taken care of everything.” But you didn’t allo- you didn’t, uh, anticipate or allocate any, any dollars for the freight cost.

Suman:                      Yeah.

Ben:                            And you could get into trouble there.

Suman:                      You can. And if your product is heavy, that freight can do a lot. So, uh, uh, for example, a case of water, freight can be five dollars because, uh, a, a case of water can weigh 28 pounds. And if freight is calculated by pound so it does a lot of, you know, and so then that’s gonna affect your wholesale price and then it’s gonna affect the suggested retail price.

Ben:                            And in, in general freight costs, we’re at a particular crunch now for a variety of different reasons that we won’t get into around, uh, supply of trucks and truckers-

Suman:                      Yes.

Ben:                            … and all this sort of stuff. Freight prices are going up. They rarely go down.

Suman:                      Yes.

Ben:                            Tru- truth be told.

Suman:                      So, so you can either do FOB, but if you think the freight is too much, then you’ll have to look at delivered and then do you deliver the products to our warehouses? And then you’d have to take care of delivery as you grow to every single warehouse and so-

Ben:                            So for most of you, if you were delivering locally, that would be to Lancaster, Texas for UNFI.

Suman:                      Yeah. And so in delivery, there’s an additional charge. You have to make an appointment, unloading fees, and a lumper fee, third party. We do not allow any of the carriers to unload anything. So those are all things that you have to make sure you take into consideration when working on your pricing.

Ben:                            Which is also an important point too, if you ever find yourself in this situation, uh, because I, I, I did once, uh, I’d never heard of a lumper before I got into this business-

Suman:                      (laughs).

Ben:                            … until I found myself at a dock-

Suman:                      Right.

Ben:                            … trying to do this sort of thing and they only take cash. Uh, so, uh, like you, you, you often, uh, you, like you have to, you ha- just, just, just do your homework beforehand.

Suman:                      Yeah.

Ben:                            Um, yeah.

Suman:                      Yeah. They n- n- fo- new suppliers is usually cash. Um, once you’ve got into a routine and you, they, you can do credit or if you’ve got a good carrier, they can do it on your behalf and then they’ll charge you back. So, but, um, so those are just some very basic things, but those little things will really affect your pricing. The other thing that I see a lot of suppliers do is they base their pricing on one retailer. Let’s just say it’s Whole Foods. They’ve gone backwards and they go, “Oh, Whole Foods, uh-“

Ben:                            (laughs).

Suman:                      … landed plus eight percent, I’m gonna do all my pricing. So then what happens is those small mom-and-pops or the other retailers that don’t get as much of a discount, they’re too ex- it’s too expensive for them. They can’t compete. Um, so when I was saying there’s a couple of variables, your freight is gonna be a variable, margin internally is gonna be a variable in the sense that, um, our pricing to the retail is gonna be a variable. The more volume a retailer does, the better the pricing from UNFI.

                                    And then the third variable that’s gonna be is the margin that the retailer takes. So ho- they could have a great pricing from UNFI, but maybe they take a 14 margin or another retailer can have a decent pricing from UNFI, but they only take a 13 margin. So all those things, you know, kind of try and understand the, the retailers you’re targeting and what kind of pricing they lo- are looking at, and then try and see if you can come to a middle ground. So maybe you’re a little cheaper for the bigger customers, but you’re not outrageously high for the smaller customers.

Ben:                            And that’s, so when, when we talk about pricing, talk a little bit about the difference. So if your product is effectively the same as everything else on the shelf, um, how would you price that versus if you’re the only, you’re the most innovative, exciting thing out there and you have premium ingredients and, and everything is, uh, is organic and biodynamic and all the other things. What are you, uh, is there any, um, is there any wiggle room for additional-

Suman:                      Yeah. Yeah, so, so, do, so consumers are, so, depending the market you’re looking for, so the natural consumers, the organic consumer lifestyle is, I would say they, they do look at attributes, right? They look at attributes, they look at ingredients. And so you do have wiggle room in that, you know, if you’re saying you’re Non-GMO verified or you are organic or you’re sustainable, um, biodi- dynamic or something, then they understand there’s a cost involved in doing that business.

                                    And so they are willing to pay a bit more. Um, however, if you’re in a brand new category, um, that is so innovative, there’s a lot of education that has to be gone into it. So you can’t have a price point that’s not even gonna get somebody interested because you think, “I’m the first in this category and I can do it at this price.” You still have to be in a reasonable price that with a bit of education, they’re willing to buy it or try and buy, buy it.

Ben:                            And they’re always outliers to all of these things. Right? So uh, I think the first time I saw, uh, Blueprint Juice on the, on juice cleanse on the shelf, it was like $97. You’re like, “Wow, that’s a high, high price for juice.”

Suman:                      Right. [crosstalk 00:22:16].

Ben:                            But it’s, uh, so, so there, there is a little bit of, uh, wiggle room depending on how innovative you are, but you can’t be, so you, you, you can’t say that my, my protein bar is $20, uh, each at retail. That’s probably not, not going to drive trial, so-

Suman:                      Right. Right.

Ben:                            Right. So what, what have you seen, uh, just tell us some best practices and or, uh, stories of where someone worked with UNFI or maybe it’s another distributor with great success, like somebody who maybe they weren’t huge in the beginning, but they, they, they really, uh, did, they did what they needed to do to grow the business in the right way so that they, so that both businesses were successful.

Suman:                      Um, so there is, uh, there is, uh, nice supply I did, I used to cover the Rocky Mountain territory before they, realigned us. And so there was a nice, um, chilled product that, that they, um, they ask a ton of questions. (laughs). They ask so many questions and they were very, very methodical. Like they were saying, “Okay, you know, tell me about this scenario.” And they would literally work out the different scenarios. Uh, have their target retailers that they’d like to go after. And then they just say, “Okay, if we got into one region of Whole Foods and we estimate, you know, this category does so many. “

                                    And so they really slowly, slowly did it, but they did their homework and they ramped up accordingly. Um, and so they now are national and they’ve done really well and so they’ve graduated, but they, they didn’t, they … And they said no to quite a few accounts too. They said, “No, we’re not ready for that region. We wanna concentrate on this region first and really saturate it.”

Ben:                            Talk more about that because that’s a common pitfall for emerging brands-

Suman:                      Yes.

Ben:                            … is you, you say, “Oh, uh, Safeway Albertsons wants to take me national and I’ve, uh, I just started six months ago. Isn’t this great news?”

Suman:                      Yes. So I am very cautious, um, for brands to get into a lot of distribution. I’m very, I’d rather you concentrate on one, one area, unless of course, you know, you come onboard with national Whole Foods or something or Natural Grocers roads yeah, but so every time you go into distribution, there’s a cost involved, right?

                                    There’s a cost of bringing the inventory into the warehouse. there’s activation fees. There’s promotion fees. Um, and there’s, there’s your inventory itself and you have to support that DC by certain turns, cases, every case. So for us, you know, a grocery item has to s- has to do an average of five case per item per distribution center. Two-

Ben:                            How, how often?

Suman:                      A week, sorry, a week. And it’s an average of 13 weeks rolling. So we, you know, um, chilled and frozen more like seven cases. That’s the minimum you need to do to be, stay active. It doesn’t guarantee that you’ll stay active. If ADC has a, um, space capacity, they’re gonna start looking at the bottom five percent and start cutting. Even if you’re doing well, you know, for a next supply on like that’s really good. (laughs).

                                    “Sorry. Don’t have space, gone,” (laughs). So you really have to get moving. So what, so don’t stretch yourself too thin because you’re gonna need money. You’re basically gonna need money to promote your product in that one DC, you’re gonna need money to support free fills, discounts, whatever, to get your product on the shelf.

                                    You’re gonna need money to do marketing. Um, so if you stretch yourself too thin, you’ll find that your deductions are outweighing your income. And that’s really important. It’s, it’s, it’s great. Oh, and then the other thing, find out when you do s- go to retailer, find out, what do they expect of you? Meaning what is their placement policy? Is it slotting, is it one free case? What is it? First find that out. What is their, um, expectations on promotion in a year? What do they expect from you there?

                                    And then also find out what their, I always tell my supplies, “Find out what the reclaim policy is.” Do they have a f- guarantee reclaim policy with UNFI? Or do they have a two percent spoils allowance? Because if your product doesn’t sell, they’ll just send it back for a credit at UNFI and it’ll come back to you.

Ben:                            So let’s pause a second. Let me decode a few of those pieces. So free fill is when you go into … Some retailers, typically there’s like two, two big buckets. Uh, retailers are taking a risk on you, even, uh, the distributor is taking a risk in taking on your new thing, your new brand, your new product, your new whatever. And so, uh, part of the way they de-risked that is that they will ask for a free case. For instance, let’s say a free case per store per SKU, uh, to, to get on the shelf. Now again, you have to do the math and make sure you can afford that because that can be a big expenditure.

Ben:                            Slotting fees are the other, are other fees that, uh, it’s a general term that you use, that’s used often in grocery for any fee that a retailer charges a brand to get onto the shelf. So that could be, it could take a lot of different forms. It actually could be related to like, “Oh, you have to advertise in this circular.” You have to do, uh, a number of different things. But if you don’t do what we say, uh, and maybe that costs you $25,000-

Suman:                      Yeah.

Ben:                            … maybe it costs you whatever, you’re not playing ball. So you have to understand that, uh, like, like, so, Suman’s point is, you have to ask those questions up front to say, “What are your expectations of us in order to go into this account?” Because they’re not just doing it for free.

Suman:                      No. And if you don’t ask, they’ll think you, you know. You, they’ll assume you know. Right? And slotting fee can be $1,000 a SKU, right? An item. But then ask, “Okay, how long does that guarantee me, you know, spot in that door.” Is it three months, six months, a year? How long does it, you know, so just ask a lot of questions because the more you understand, the more you can prepare and budget and do all the analysis you need to do. If you don’t, if you don’t ask, it’s gonna come as a surprise when you get this massive deduction (laughs).

Ben:                            Right. So we’re gonna get to that one-

Suman:                      (laughs).

Audience:                  (laughs).

Suman:                      They’re paper thin, (laughs).

Ben:                            … in a second or two. Uh, re- reclamation, two other words before we get to deduction, reclamation and spoilage. So, uh, reclamation, what is that?

Suman:                      Full reclaim-

Ben:                            Okay.

Suman:                      … meaning you ge- you’re pretty much guaranteeing your products before-

Ben:                            So, you, what you’re saying to the dist- retailer and distributor is, “If my product doesn’t sell within the time frame that I’ve, uh, allocated in my paperwork and you know, maybe there is [crosstalk 00:29:48].”

Suman:                      Or the, or the shelf life, it goes out of date.

Ben:                            Yeah. Out of date means, again, whatever that, that, that best buy date that you put on there, they’re actually sticking to that and they’re checking it. And if it gets within, uh, you know, UNFI wants to have, how, how many, if let’s say you had, uh, 180 days of sh- shelf life, how many, how many days does your-

Suman:                      Grocery 30 minimum.

Ben:                            Yeah. Thir- 30 minimum.

Suman:                      Right.

Ben:                            But uh, but you typically UNFI wants it, 75%-

Suman:                      35% of your shelf life.

Ben:                            … of that time, uh, so if you produce, uh, you know, whatever product A and, and it sits in your warehouse or your, uh, your, your cooler and, and it’s going bad gradually, even if that’s a very long time or a short time, UNFI will not take it, will not check it into their warehouse unless they have 75%, uh, of the full shelf life.

Suman:                      Of your production shelf life. Yeah.

Ben:                            Of the production shelf life. So that means you can’t be producing necessarily for something that’s, uh, going to s- potentially spoil relatively quickly. You can’t produce like, “Oh, I’ll just produce, uh, and, and keep it all here in, uh, a fridge.

Suman:                      Yeah. And we, uh, I do have that conversation. I usually, you know, if they’re saying, “Oh, we’re the co-packers and we can produce lots more co- ” you know, a lot of times when people say, “Oh, distribution,” and I look at these questionnaires and, and I say, “What is your minimum quantity?” “Seven pallets, (laughs) 10 pallets.” And I’m like, “Oh, half a pallet, probably what I’m gonna buy at the beginning.”

                                    So, you know, don’t think just because you got into a distributor is gonna be a massive amount of products that you’re gonna start selling. Hopefully you will. But you know, um-

Ben:                            You want to ramp that up because-

Suman:                      Yes.

Ben:                            … that seven pallets might cost you several thousand dollars-

Suman:                      Right, and it-

Ben:                            … and if it goes bad, that’s on you.

Suman:                      Yeah, it’s gonna come back ’cause there’s a six month guarantee for all new suppliers at the very beginning anyway so-

Ben:                            So full reclamation, and then spoilage or spoilage allowance. Talk about what that means.

Suman:                      So spoilage allowance is, um, I, I’ll say it’s like an escrow account in a sense. Um, so a spoilage is, uh, a certain percentage that you decide you’re gonna offer the distributor. It could be one percent, two percent, let’s just take two percent, which is quite common. So every invoice that you have, there’s gonna be a li- separate line that has two percent spoil allowance.

                                    So let’s say the, uh, invoice was $100. We’re gonna pay you only $98 because two, two dollars is gonna go into that spoil allowance bucket and that spoil allowance will keep accruing. Anytime there is a spoils that happens for for, because it goes out of date or something. Let’s say two cases goes out of date, we look into that bucket and we say, “Is there enough money to cover that spoils?” It does? You’ll never hear from us. However, at the end of the year when there’s a spoils allowance, if there is excess funds left, you do not get it back.

Audience:                  (Laughs).

Suman:                      You-

Ben:                            Yeah. He- he-

Suman:                      So, (laughs) you don’t get it back.

Ben:                            Heads they win, tails you lose.

Suman:                      Yeah.

Ben:                            Uh, So-

Suman:                      But, but, uh, many people will use a spoils allowance because they feel com- they feel comfortable knowing a certain percentage is going every, every time towards this bucket. And you know, we can definitely look at your spoils. If you are giving us two percent, but on average your spoils is only one percent, I’m, I’m honest, I’ll say, “You know what? Go down to one percent and let’s watch it.”

                                    You know, but if you’re, if you’re going, if you’re giving two percent but your spoils is becoming three percent, four percent, then we need to look at why, what’s going on? Did we buy too much inventory? Did you lose customers? Did you say we’ve got more customers than you really had? What is the cause of this? You know, so, so there’s many factors, but you have to decide what works for you. Do you want full reclaim which you’ll get deducted when it actually happens? Or do you wanna give a little bit of money every time?

Ben:                            Right. So did that make sense? You’re go- you, you have to make a choice when you’re filling-

Suman:                      Yeah.

Ben:                            … out distributor paperwork and you will check a box and, you’re gonna, you’re like, “Oh, I’m just checking.” It’s, it’s like signing the Apple terms and conditions, you’re like, “Sure. Whatever.” You’re like. It’s, uh, and so you’re gonna check a box and it’s either they’re deducting two percent every time or it’s all on you and you have to, you have to make that call. Uh, [crosstalk 00:33:54].

Suman:                      Well, and, and you know, hopefully you’re, you’re working well with your SDM. You’re working well with your buyer. You know, and I’m, at the first couple of months, I try and have week, uh, monthly calls with my s- my new suppliers and we check like, we look at inventory, we look at movement, we look at your accounts payable.

Ben:                            Which is awesome, by the way, because when you grow up to be a big brand, you don’t necessarily get-

Suman:                      No-

Ben:                            … to that level of financial-

Suman:                      And then, then the calls go every bimonthly sort of thing. But, but I want you to know, right, we were not the best distributed to share information. Um, a lot of information is available, but it’s at a cost, right? There’s, there’s costs involved in reporting and everything. So for me, um, I try and help the small supply, you know, I help you guys because the last thing I want is your inventory to be sitting in the warehouse. That does nobody any good at all.

                                    Um, buyers also are, are judged on inventory turns, you know, lost sales. So they also have to watch their inventory too. But we know we, Next team tries as much as we can to help you. Um…

Ben:                            So, another very important word that you brought up is deductions.

Suman:                      Ooh.

Ben:                            And this is where like if it, it like where, where, where brands and, and distributors get a little bit, uh, sideways with each other is often around the, the subject of deductions.

Suman:                      Yeah.

Ben:                            So tell us what, what are deductions? And how one avoids deductions?

Suman:                      So there are multiple facets to deductions, so they can be simple deductions, but-

Ben:                            So first of all, a deduction is something you’re going to get, uh, uh, uh, prin- printout, uh-

Suman:                      Right. So the ded- the first one you’ll see, well, deductions normally will, so you’ll get a check statement, right? You’ll get a check statement. And on the check statement you’ll have your total, but above it you’ll probably see if there were any deductions, certain numbers, um, that were deducted. And hopefully behind that check statement is the backup for all the deductions. So simple deductions can be, um, turnover orders, like three cases you’ve given, right, to for new stores.

                                    So that’ll come as a deduction. Um, if you’ve done any marketing. Um, so let’s just say you did one publication that’ll come as a deduction, um-

Ben:                            One publication through UNFI?

Suman:                      Through UNFI.

Ben:                            Right.

Suman:                      Uh, even if you did an ad, um, so it’s, you did an ad through a retailer and they wanted to build it through UNFI, it’ll come as a deduction because we’re, we’re ba- we’re the bank for that retailer. The retailers got money from us, now we have to collect it.

                                    Um, deductions can also be shrink, re- rec- reclaim. So if products didn’t sell and you had 10 cases left, that’ll be a deduction. Um, what else can you have as, oh, there’s so many deductions-

Ben:                            Uh, if you’re short in order?

Suman:                      If you’re short in order and you didn’t notify us. So, so that one people say is very unfair. But let me explain the reason behind that. So you have a truck that’s gonna come pick up your products, right? The truck has got it, it, it tries to maximize the capacity of that truck, right? The maximum capacity it can possibly have at the weight. And so your product is 1000 pounds.

                                    The truck is coming to pick up 1000 pounds of your product because that’s the space it’s allocated and it comes and only picks up 400 pounds. Now it’s lost 600 pounds of products that it could have picked up from an- another supplier. And so you’re gonna get charged. If you did not notify your buyer in time and that they could notify the truck, um, you’re gonna get charged the freight charge for that because if you lost-

Ben:                            As if you had shifted?

Suman:                      Yeah, because we’ve lost that ability to go pick up from someone else that could have given us that maximization.

Ben:                            So you got no sales and you still have to pay to ship the air.

Suman:                      Yes.

Audience:                  (laughs).

Suman:                      Yeah. So, I mean s- the biggest thing I could tell you, read your paperwork, read it three times, four times, five times because it’s all s- it’s all written in the paperwork. Um, that, that packet is pretty overwhelming. But if you really read it, I had one supplier in my life that me- since I’ve been working in this job, uh, three years now, she literally came to the meeting and she had highlighted every (laughs) single thing she had a question and she’d printed everything out.

                                    But I commended her because she literally asked so many questions because if you don’t read it and you’re so happy to get into distribution and you just glaze over everything, then a lot of the things that happen to you afterwards, deduction, this fee or that fe- it’s because you’ve missed it. It’s, it’s been …

                                    It was there, written in the thing. And if you don’t understand, ask, ask, ask, ask. And a lot of the deductions are all, if you haven’t done a EDLP, Every Day Low Price with the retailer or if you haven’t done a marketing or if you haven’t done a promotion or you haven’t given that free case, those deductions wouldn’t happen. So the deductions a lot of time are because you gave permission for those deductions to happen.

Ben:                            So then one, one last question, then we’re gonna go to our, uh, start with our, our Slack questions. Um, Ois, Off-Invoice.

Suman:                      Yes.

Ben:                            Uh, what is the expectation from UNFI that, uh, a brand participates in OIs?

Suman:                      So the, the, the, uh, the known standard is four OIs a year, so every quarter, uh, retail, uh, supplier is for-

Ben:                            For how many weeks?

Suman:                      Um, it’s a four-week promotion-

Ben:                            Okay.

Suman:                      … but it’s probably a five-week buying period.

Ben:                            Okay. So that means that for uh, for four, four to five weeks, uh, that you’ve said when to UNFI to your, your supplier manager, uh, okay. For these four periods during the year, I’m going to give UNFI discount of how much?

Suman:                      Standard is 15%.

Ben:                            15%. Uh, and, and so, and, and is that optional? You’re like, “No thanks. I’ll, I’ll just pass on that.”

Suman:                      Uh, well, so with Next, you do have some flexibility, right?

Ben:                            I learned something.

Suman:                      (laughs). So next we can say to you, um, so a couple of things that every supplier is expected to do, whether they’re national or they’re, um, through Next, is a, a 90-day introductory promotion. So for 90 days your product is gonna be on sale or on, on a discount because we wanna launch your product to the retailers, right? So that’s already in theory, three months of promotion that you’ve already provided us. So, I usually will say, depending what time of the year you onboard-

Ben:                            Let, let me interject. You need to put that in your calculations by the way-

Suman:                      Yes.

Ben:                            … like you’re on sale for a quarter of the year. 

Suman:                      But, but that sounds very scary, but it really depends on the volume you’re doing. So three months, li- could be one PO, that’s all it could be. I mean, it really depends, but if you’re doing well, it could be three PO, Purchase Orders. So, so that’s, so that’s, I mean, it’s hard to tell you what that’s really gonna look like until we look at what, how you’re moving.

Ben:                            Right. So, just know going into, I, I think it’s one of those things like being aware is, is really, uh, like to, like, Suman’s point, like read the, read the documentation, like go over it line by line, ask your, your supplier manager, but then also just understand the mechanics of how all this stuff works because that way you won’t be surprised when you’re like, “Oh, well I, I didn’t know that I needed to promote off-invoice or that there was going to be any deduction. I assumed if I sold uh, I thought I sold $100,000 worth of stuff and then I get a check and it’s for $85,000. And like what, where did the 15,000 and go? I don’t know.”

Suman:                      Yeah.

Ben:                            Right?

Suman:                      Yeah, uh-

Ben:                            That, that, that’s uh, that’s a bad surprise. We don’t want those bad surprises.

Suman:                      Yeah.

Ben:                            Okay. So, uh, le- let’s see. So, uh, Erin Assad, uh, how to avoid billing discrepancies. For example, uh, we shipped four pallets of product, but UNFI said they only received three. That’s, this is very common. This is not isolated to them at all. How, how do you, how do you, uh, talk with, like, how do you interface with, uh, with your distributor around that?

Suman:                      Um, so is this someone who was going to California?

Audience:                  Oh, this isn’t a real thing. This is-

Ben:                            Okay.

Suman:                      Oh, okay.

Audience:                  No. This is a real thing.

Ben:                            (laughs).

Suman:                      (laughs).

Audience:                  (laughs).

Suman:                      So it says it’s couple of things that could have happened, right? So if you’re just one DC, so let’s say you’re Austin based and you’re going to the Lancaster DC, which is a Texas, DC, South Dallas. The chances of we come pick up four pallets from you. The chances of that getting lost, is, is slim, right? Because it’s just going to that DC. However, if you’re in multiple DCs, what will happen is we’ll pick up from your location, take it to Lancaster, um, and let’s say you’re in, for them it’s, it’s Moreno Valley and Lancaster. So we’ll take both POs pur- purchase orders, the pallets back to Lancaster. And then the Moreno Valley will go on another truck to Moreno Valley.

Ben:                            It’s called cross docking.

Suman:                      Cross dock. And sometimes it can be two or three different warehouses, maybe two warehouses. And sometimes a pallet can be left behind. Um, normally we’ll will get [inaudible 00:43:19] but for you guy- I mean every time make sure your bill of lading specifically says the number of pallets, it’s signed. Anytime there is a discrepancy, hopefully the buyers, um, the warehouse has reached out to you. They’re supposed to. Um, if not, the buyer can definitely see because every time it enters a DC, it’s logged. Right? So we can tell, you know, I can tell how 225 cases that looks like a pallet that’s lost. It’s stuck in a warehouse. It didn’t make the truck to Moreno Valley. And normally it will get found maybe four or five days later.

                                    But anytime that’s happened to any of my suppliers, I’ve reached out to the su- I’d looked at the… So I can do a report that says receiving report and I’ll see if it came in later. It was received in later. Or I’ll reach out to the buyer and say, “Hey buyer, this one got paid 225 cases less. Do you know what happened?” And he goes, “Oh yeah. It came in and it’s been received in.” So the, it might, it’ll come on the next check.

Ben:                            Yeah. So your records and, and actually, uh, making sure that every shipment that, uh, goes out, you have a signed bill of lading, you have, you have documentation, evidence is very, very important. And, and because this is a peer based community, I should point out that, that RJ and, and Joe, uh, uh, back out here, they know a little bit about this.

                                    So, uh, like if you, if you wanted to ask like, like some of the ins and outs of how you, how you, uh, make sure that, uh, what, what you hoped got onto a truck, actually got onto the truck and, uh, hopefully made it where you thought it was going and that sort of thing. There’s, you, you know, like anything else is having, having watertight processes is, is a big, a bit part of it.

Suman:                      Another thing we judge is, you can’t, so you always wanna make sure the PO number is always on your pallets. And if you’ve got four pallets, uh, do that extra step and say one of one, one of four, two of four, three of four, four or four, so that you know that they kind of know that PO has four pallets going to it, or something.

Ben:                            Okay. Next question. Besides my supplier relationship manager and buyer, who should I focus on developing a relationship with inside UNFI?

Suman:                      Uh, accounts payable (laughs).

Ben:                            (laughs).

Audience:                  (laughs).

Ben:                            It’s true.

Audience:                  (laughs).

Ben:                            Um, that’s good stuff like, mic drop, uh, the, okay. So next question (laughs) from Dustin. Uh, what, what reports can, should I be reviewing on a monthly basis to make sure I’m growing and stay, uh, healthy in my distributor relationship?

Suman:                      Um, so if you’re in just one DC at the beginning, I would say you can do a quarterly supplier breakout report so that, that’s a report that’s sent to you. Um, it will show you by DC, by item, by retailer, what you’re moving out from our wareho- warehouse to that retailer.

                                    Now there are some retailers that will not allow us to report on their behalf and so they, they come under one line that says confidential. So, um, hopefully it is a great example. They do not allow us to report, so they’re under confidential, but then Whole Foods you can go into their supplier portal and look at their [crosstalk 00:46:22].

Ben:                            Yeah. So, so the, the hack there is that you have, you-

Suman:                      But there’s, but there is quite a few retailers that do not allow us. And so-

Ben:                            And, and that’s an important thing. So you, you, it’s, it’s important for you as a brand to know that when you talk with someone from UNFI and they talk about their customers, they’re not talking about you. Uh, they’re talking about the retailers-

Suman:                      Yeah.

Ben:                            … that they work with. And so, they don’t necessarily have to share anything that they don’t want to share, uh, about their customers with you. You, you, you are a partner or a supplier to them into their customers. And I think it’s important to understand that dynamic, uh, because, like, you’re part of their business, but you’re not the main necessarily not-

Suman:                      We do not. So I have many suppliers coming to me saying, “Hey, can you tell me what the pricing is for this customer?” We don’t share that. Rather, you can go ask the retailer to share it with you or you can as- if they give permission to the account managers, they can share it with you. But-

Audience:                  Maybe if ask in person.

Suman:                      So, I will, so, let’s just say, uh, a retailer, uh, I mean a supplier is uh, is presenting to Wegmans for example. They’ll say, “Hey Suman, what’s Wegman’s costs from UNFI?” For your product.

Ben:                            Because it’s so, so, so your, your product, let’s say retails in Texas at four dollars and then all of a sudden it shows up on the shelf at Wegmans and it’s six dollars and you’re like, “What, what’s up? What happened?” Yeah.

Suman:                      Or, even when they want to make the presentation-

Ben:                            Right.

Suman:                      … they want to, you know, say so, so, but we, we don’t, we can’t share that with you. So we, you have to ask the retailer for that pricing or you can ask, if the retailer gives the account manager permission, which is pretty rare, I think, um, they can share it with you, but we have to get that permission before we can share it.

Ben:                            Okay. So next, next, uh, actually we’re gonna, we’re gonna, uh, this will be our last question for right now. Um, can 90-day introductory promo, uh, that, uh, promo requirement be split among various promo structures? So like 15% off, buy one get one dollar, like [crosstalk 00:48:19].

Suman:                      No. It’s, it’s off-invoice.

Ben:                            It’s all off-invoice. So, yeah. So, so that at 90-day-

Suman:                      So, so I’ll tell you the reason behind the 90-day promo is nor- normally it’s like five months ahead. So we work fi- we, it’s publications. It’s publications on literally hard publications. And then also, um, on the customer portal that you’re on promotion. It’s called new introductory promotion. So the first, the first publication is a new and now publication. Second month it’s the, um, it’s the DC specific monthly special promotion. Uh, and then the third month it’s the DC specific monthly special promotion.

                                    Um, and so that’s why we ask for those promotions. It’s kind of to try and get som- the retailers to look at you as a new item and try you as a new item on deal. And so yeah, it’s three months of publications, hopefully giving you visibility to why you, um, UNFI introduces 600 items every month. So what’s gonna make you stand out? If you’re not in a publication, you’ve got into UNFI, how will people find you?

Ben:                            Yeah. So, so that’s the way that, so UNFI works with, you know, Billy Bob’s Natural Foods in Bartlesville, Oklahoma or something like that. And they’re actually phy- physically printing a catalog and, uh, and, and Billy Bob is sitting there, an- you know, he’s, uh, between the customers. Yeah.

Suman:                      I know. So when I know when I was a United Supermarkets, I never had time to look at everything. So, but I did love those publications because the publications had one page ads. It had, you know, little bit of story maybe on a product. And I used to find a lot of new products through that way. Um, they’re also available on the customer portal. Um, so, uh, uh, people can digitally download it and something. There’s lots, so, you just have to find ways to be seen.

Ben:                            Thanks for coming. And, um, we’ll see you next time. Let’s thank Suman.

Suman:                      Thank you. Thank you.

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