A lot of Australian food and beverage exporters are focussing on trying to find brokers and distributors at the expense of developing direct relationships with the retailers themselves.

In the US – as in any other export market – you must strive to have relationships with your customer’s customers. Our firm, a Brisbane-based food and agribusiness consultancy, has found that some food exporters are taking the wrong approach to establishing their US supply chain.

Imported products are sold to US retailers either through brokers, who sell the product on behalf of the importer for a pre-negotiated commission, or through distributors, who actually take possession of the product. American grocery and specialty food retailers prefer to purchase imported product from food brokers and distributors. This preference is due mainly to the fact that they feel that they do not have the sophistication to import products themselves.

American retailers generally do not buy direct. According to Austrade Vancouver food and beverage marketing manager, Henry Fowlds, this is due to the fact that they have limited warehouse space and are interested only in stocking items that will have high volumes.

“Though the chains are seeking ways to increase variety by relying on importers to supply them with high margin, low turnover niche products, the market is still very much volume driven”, said Mr Fowlds.

As the American food retailing industry has undergone consolidation in recent years, so too has the domestic distribution network. The American system, though friendly to “independent” retailers, is controlled by surprisingly few major specialty food wholesalers and distributors.

Distributors in the US function almost exclusively as though they are the distribution and logistics arms of the suppliers operation. They generally do not actively sell products; rather they deliver the goods to the retail accounts that have agreed to list your items. Once the listing is obtained, either the supplier or the supplier’s broker contact the distributor and they in turn deliver it to each store.

Once an account has agreed to list the item the distributor will make it available to all within their distribution system, thereby increasing sales volumes through smaller operators.

Much like the grocers, the food wholesaling industry is identifying opportunities for efficiencies by consolidating and forming larger operations. In some cases the distributors do have the ability to actually import the items directly, but these opportunities are reducing as the firms get larger and their volume requirements increase.

King Island Dairy is one such Australian company that has established their US supply chain through a distributor network that not only takes title to their product, but also acts as a sales force on-the-ground.

The leading manufacturer, marketer and distributor of specialty cheese products to the Australian market, King Island Dairy has been active in the US for over three years, selling its cheese products through leading specialty retailers including Whole Foods Market, and New York City's Dean and DeLuca and Balducci's stores.

According to Steve Berman, new business and export development manager with King Island Dairy, not all products lend themselves to food brokers. "We work with distributors who understand cheese consumers and the cold chain. King Island has a unique story to tell the American market and our distributors are able to effectively communicate that message to our customers."

In the American food distribution matrix, the role of a broker is important. Food brokers are responsible for the majority of products, edible or not, that end up on grocers' shelves.

For food exporters who are looking to do long-term, sustainable business in the US it is recommended to utilise the services of a broker who knows the competition and will investigate the best way to introduce new products to the market.

To begin with, Australian food exporters must make calls at both the retail and wholesale levels to discuss prices, discounts, advertising, listings, shipping and warehousing. A broker can help navigate this maze effectively by acting as a sales representative to all classes of trade.

Unlike a distributor, brokers do not buy, deliver or take title of any goods. With their knowledge of the territory, the buyer's chain or store, and their ability to authorise deals, make calls and offer a high level of service, brokers are generally regarded by the buyer as more credible than a direct sales force.

Essentially, food brokers act as agents for the food manufacturer and represent the interests of the manufacturer in the local market. They monitor the distribution of the product, co-ordinate sales and promotional campaigns and have the skills to help a manufacturer develop a regional marketing program. They push the products, negotiate purchasing agreements and ensure that everything is in stock, properly displayed and accurately priced.

Consolidation of the brokerage industry in recent years has meant that it is hard to find an agent who does not already represent a competing brand. In product categories characterised by competitive brands, the brokerage play is intense.

“If you are the number four or beyond brand, for example, the big three brokers will probably not want to take on your product because of conflicts of interest”, said Rob Eustace of Capilano Honey. The Australian honey category leader is already widely listed in Canadian supermarkets and is eyeing off the US whilst waiting to recover from the supply-crippling drought. “On the flip side, the consolidation also ties the hands of manufacturers of the three top-selling brands in any category because they have nowhere else to go.”

For smaller food manufacturers, selling product in the US generally involves appointment of independent brokers on a regional basis. According to Energy Products managing director, Tony Heeson, most brokers won't give small manufacturers the time of day. “You have to be able to guarantee huge sales and broad consumer appeal for them to take on your product line.”

The Byron Bay-based company manufactures Wallaby Bars, produced in various all-natural flavours featuring fruits, nuts and yoghurts. The company distributes through two specialty food wholesalers and is opening up new retail niche markets in California with the assistance of an independent broker.

With the right assistance and product presentation, smaller food exporters can find suitable broker and distributor representation in the US.

New exporters should focus more on segmenting the market into “bite-sized chunks” and gaining the interest of targetted retailers, ahead of seeking broker and distribution partners.

You must also be involved in the negotiations and discussions between your customer and his customer, all the way to the consumer point-of-sale. It is entirely reasonable to want to accompany your US broker in meetings with retailers or to call on existing or new accounts by yourself.

If you have a trusting collaborative chain partnership focused on satisfying consumers, your customer will have nothing to hide.

In the next edition – Keys to Export Success in the United States.

Rob Doolan works for Pinnacle Management, Food and Agribusiness Consultants, and can be contacted on 61-7-3217 6466 or rdoolan@pinnaclemanagement.com.au