Unique Pretzels: The Twists and Turns of Joining a Members-Only Retailer
Salty snacks made up approximately 22% of North American snack food sales (which totalled $124 billion) in 2014. If there’s one person who understands the importance of getting crunchy, salty deliciousness into consumer’s mouths, it’s VP/COO of Unique Pretzels, Justin Spannuth.
As a growing brand, there are a ton of good ways to expose your product to a wider market. For Unique Pretzels, the key to finding snackers was getting a foot in the door with Members-Only Club Chains.
Justin gave us the rundown on his experience from upstart to large-scale.
Start small, think big.
Knowing when to expand into Club chains is a mix of art and math. You have to be prepared for large orders and very precise supply chain requirements. As per Justin, “We just started getting into the Club stores. We were at max capacity in 2012, and it took two years to put on a 75000 sq. ft. expansion. But now we have more volume and we’ve got our feet under us again. We’re approaching the club market because we can finally handle the volume.”
Club chains know their customers and exactly what they want. Be prepared to be poked and prodded to ensure that your brand fits their customer’s requirements. You’ll be asked things like “is this enough value for the customer?” or “how many times a month will a customer come back and buy this?”
It all depends on volume.
“To sell at chains like Costco, it’s a volume game” says Justin, “you’ll see a lot of co-packing products; products people aren’t making themselves. You’ll also see major brands who are producing themselves, but they can handle the volume.”
Costco sees their product assortment in threes. The first spot is the leading brand in the market, the #2 spot is for the Kirkland brand and the third spot tends to be a “surprise and delight” for the customer. If you’re the ‘surprise and delight’ brand, you’ll need to be ready to ship like the big boys. Pallets and pallets of product.
You gotta spend money to make money.
“Typically, [smaller brands may experience] a lower margin and not getting the same price per ounce that they would normally get. That’s how those stores work – off of lower margins,” Justin explains. While a standard grocery store will take closer to 30% margin certain Clubs, like Costco, have a ceiling on how much margin they will take and the rest of their revenue is made from Club memberships. Pricing your product is the tricky part – you have to make sure that the quantity and price you give Costco doesn’t make your other retailers angry but also provide enough value that Costco will want to carry your product. Justin adds, ”That’s how you get such good deals there [as a consumer] – they don’t have a huge variety, but you get large quantities and a better price.”
Consumer Club packs generate the most conversation in any brand. The cost for a Club pack is more expensive than just launching it at a normal retailer. In Justin’s experience, “There are start-up costs; you have to have a different package, a different display and those [aspects of design] combined with inventory, all cost thousands of dollars (50-70 thousand dollars) depending on how many stores you’ll be stocked in.”
You have to invest in a ready-display-pallet, and any adjustments the Club wants you to make in packaging. Most companies will tell you though, the return on investment is very high – once you have a Club pack that works, the volume you’ll sell will offset the investment in a matter of months.
There may be growing pains at first, but stick it out!
Justin goes on to say, “2 years ago, we couldn’t approach a [store like] Costco because we couldn’t produce enough product. We’ve been in business for a long time – we were a small regional brand up until 12 years ago. When I came into the company, I decided we needed to do more; we have a great product and we’ve always had one of the best pretzels in the market. We rebranded, expanded and brought on new distribution.
We don’t have investor backing to be able to throw millions of dollars in the air and decide [to] grow across the country right away. We sell to chains based on our sales data and what we’re able to do in territory with competition. The end result is that we want to be everywhere that we can! We certainly want to become an international brand.”
Breaking down profit share.
Pricing is a key fundamental when you’re considering going into the Club environment. According to Justin, “You need to produce your product and be able to sell at a competitive price. You can bill higher for a product if you have quality that allows you to. It all depends on what you’re selling, where your price needs to be and how much it costs you to make your product. All those things put together will tell you how much profit you’re making.”
While the volume that a Club will bring to your business is always attractive, you must be sure that your base unit price is appropriate and competitive in a regular retail environment. This helps you set your retail/unit price which allows you to figure out what your Club chain price is. Justin adds, “You need to weigh the decision of volume… if you sell a lot of volume to a club at a lesser profit/margin, you may be able to get [a lower cost] for all of your products which will in turn increase your profit/margin at all other retailers. You definitely want to entertain the value of making less money.”