Distribution in the USA

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Distribution in the USA

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TRADER JOE's (215 stores) = US$2.5 billion. RETAIL ENVIRONMENT. RETAIL ENVIRONMENT ... Wild Oats,Trader Joes, Crate n Barrel. TYPICALLY:- Do not import ... – PowerPoint PPT presentation

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Title: Distribution in the USA

1
Distribution in the USA

Kylie Hargreaves
Senior Trade Commissioner
Austrade, Los Angeles
September 2004

2
FINDING THE RIGHT PATH

The US Market
Distribution Options
Choosing the Right Channel
Staying Committed
Getting Help

3
THE USA IS THE WORLD'S LARGEST MARKET
Land Mass 9.3 million sq kms Population 290
million GDP US 10,500 billion
(3growth) GDP Per Capita US 39, 922 of
States 50 District of Colombia of
Supermarkets 41,932 of Toy Stores 17, 866
of airports 14, 801
Land Mass 7.7 million sq kms Population 20
million GDP US 530 billion
(3.5growth) GDP Per Capita US 26, 537 of
States 6 3 Territories of Supermarkets
3,775 of Toy Stores 763 of airports
444
4
SO THERE IS A MARKET FOR YOUR PRODUCT BUT..

THE WORLDS BIGGEST MARKET ALSO MEANS
COMPETITIVE
FRAGMENTED
COMPLICATED

5
CHOOSING A CHANNEL TO MARKET

EVERY DISTRIBUTION OPTION IMAGINABLE EXISTS IN
THE US

Importers
Fulfilment Houses
Distributors
Retailers
Selling Agencies
Wholesalers
Consumers
6

EXPECT TO DOUBLE YOUR LANDED PRICE BEFORE YOU GET
TO THE CONSUMER IF YOU USE TRADITIONAL MODELS

Lands US10.00
Importer
Margin of 30 150
Distributor
Buys US14.00
Margin of 25 80
Wholesaler
Buys US19.60 Sell 1000 units _at_ 5
2 10 of sales
Retailer
Mark-Up 100 250
Buys US20.60
Sells _at_ 150 mark-up - US30.90
7

SO THINK CREATIVELY!
E-Commerce - websites B2C or B2B, Ebay,
Auctions/Portals
Home Shopping Catalogues, Infomercials, TV
Shopping Networks
Direct to Retail some US retail stores will
buy direct
Private Label
Fulfilment Warehousing combines
importer/wholesaler role
Licensing IP sale, Manufacturing Under
License, Franchising
Set up a local office local presence, 1 800
number etc
Share set-up costs with a complimentary
Australian
Joint Venture or Subsidiary

8
WITH SO MANY OPTIONS, HOW DO YOU FIND THE RIGHT
CHANNEL?

CHOOSING THE RIGHT DISTRIBUTION CHANNEL WILL
DEPEND ON
SEVERAL KEY FACTORS
What do your target consumers look like?
Where do they live?
Where and how do they buy similar products?
What price position is your product taking?
What storage and warehousing requirements does
your product or buyer have?

What level of management time, money and
commitment can you give to the US market?
What level of control do you need over the
pricing, brand promotion of your product
How flexible can you be in terms of delivery
timeframes, scaling supply up or changing your
product and packaging.
What level of promotional or after-sales support
does your product require?

10
(No Transcript)
11
SOME EXAMPLES

E- SALES - REMOTE, WELL USED TECHNIQUE IN THE USA
Lower entry cost via website / direct mail
Can be done from Australia or a Fulfilment House,
easy to test the market
Immediate wide distribution
Low mark ups
Easier delivery using logistical service
provider, however
Difficult to build a brand through this approach
alone
Payment issues Guarantee/Returns need to be
addressed

CATALOGUES - AGAIN WELL USED TECHNIQUE IN THE USA
Lower entry cost via Fulfilment House
Immediate wide distribution established
relevant client base
Marketing Costs covered by the Catalogue Company
Lower mark ups
Payment tends to be dependant on sales (may have
consignment terms)
May have vendor requirements such as UPC, Proof
of Insurance, Carton/Packaging specification

FULFILLMENT HOUSE / CONTRACT WAREHOUSE
You retain ownership of the products
Typically a combined role importer/logistics,
as well as accounts after-sales support
Lower cost logistical structure for Australian
companies
Payment tends to be dependant on volume of sales,
retainer or per business service transaction
Pick,pack and ship per your instruction
Can sell to other wholesalers, distributors or
consumers, as required

SALES AGENTS, MANUFACTURERS REPS or BROKERS
Act as a Sales Force finding new accounts and
trying to expand sales to existing accounts
Act across different geographic and market
segments
Do not purchase product, take ownership or
warehouse product
Will often provide market insight and advice
which can be valuable in your marketing
strategies
Tend to carry a range of complimentary products
from other suppliers
Will need strong support, training marketing
collateral from you and regular incentivisation
to stay top of mind
Payment is usually on commission but some
retainers are common

WHOLESALERS (around 400 000 in US)
Sell primarily to other wholesalers, distributors
or retailers not to consumers
Purchase only in large quantities
Provide full-service- purchase, warehouse,
break-down, sell, transport and extend credit /
accounts etc
Often include rack jobbers companies whose
role it is to keep shelves stacked in high-volume
outlets
Retailers may require you deal with their
wholesaler

LARGE VOLUME DISTRIBUTORS
Purchases goods from a US location (eg.
Importer)
Often have their own sales force,although many
simply manage inventories/logistics for their
large corporate accounts (eg. Macys)
Have authority over prices, terms and promotion
in their territories
Could be national or regional - sometimes this
is legally required (wine)
Supply via the distributor is often demanded by
the retailer
Wider distribution coverage at lower cost

OPENING AN OFFICE IN THE USA
Provides maximum control over market strategy,
sales force, brand etc
Communicates a local presence which can be a
strong competitive advantage
Takes commitment and resources (200K - 500K
per year)
Deal with legal, tax, immigration and funding
issues

18
OTHER ISSUES TO CONSIDER

REGULATIONS
RETAIL ENVIRONMENT
PRICING ISSUES
LEGAL PROTECTION

Thinking about the sorts of questions posed today
will quickly help you identify 1 2 potential
distribution options for targeting.

19
REGULATORY ENVIRONMENT

FEDERAL REGULATIONS AFFECTING CHANNEL OPTIONS eg.
Food Drug Administration Regulations (FDA
Agent, Importer of Record)
Environmental Protection (Hazmat etc)
Buy America Act (US Corp required)
Import Licenses
STATE REGULATIONS eg.
Prohibited Items (eg kangaroo in California)
Controlled items (eg. Liquor in Utah)
Consumer Safety Requirements (eg. Lead Content
in Toys)
INDUSTRIAL STANDARDS eg.
- Building Codes
Electrical Standards

20
RETAIL ENVIRONMENT
SUPPLY CAPABILITY
A MONTHS ORDER COULD EQUAL AN AUSTRALIAN
SUPPLIERS ANNUAL PRODUCTION Eg. BRISTOL FARMS
(13 stores) each store has a turn over of
between US20 50 million CRATE n BARREL (115
stores, 15 million catalogues) US865
million BLOOMINGDALES (30 Dept stores) US1.7
billion TRADER JOEs (215 stores) US2.5
billion
21
RETAIL ENVIRONMENT

SMALL RETAILERS ( 1 15 stores)
Egs. Fred Segal, Henri Bendel, Sax 5th Ave
TYPICALLY-
Do not import directly
Domestic freight is prepaid by the supplier,
then billed back to the retailer on the invoice.
Key documentation required is a packing slip
and/or invoice.
Shipping instructions may include a specified
freight company for larger shipments or
Assume UPS (United Parcel Service) for smaller
shipments and direct-to-store shipments.
Other issues Returns, CODs
Ship passed cancel date - the order may or may
not be cancelled.

MEDIUM SIZED RETAILERS ( 15 200 stores)
Eg. Wild Oats,Trader Joes, Crate n Barrel
TYPICALLY-
Do not import directly (although this is
changing Trader Joes)
Domestic freight is paid by the retailer who
also designates the Freight company
Key documentation required is a packing slip,
bill of landing and invoice.
Other issues carton or pallet guidelines EDI
capabilities
Ship passed cancel date - the order may be
cancelled or fees may be automatically deducted
from payment

LARGE RETAILERS ( 200 stores)
Bloomindales, Nordstrom, Robinson May, Bath
Body Works,
TYPICALLY-
Generally prefer not to import direct
Domestic freight is paid by the retailer who
also designates the Freight company
Key documentation required via EDI systems
(packing slip, bill of landing and invoice).
Other Requirements Specific shipping guidelines
including packaging/labeling, carton or pallet
sizes
Failure to meet Delivery Requirements order may
be cancelled, supplier pays for back ordered
items, fees may be automatically deducted from
payment

MASSIVE RETAILERS
Eg. WalMart, Safeway, Bath Body Works, Costco
TYPICALLY-
May import direct to reduce margins
Domestic freight is paid by the retailer who
also designates the Freight company
Key documentation required via EDI systems
(packing slip, bill of landing and invoice).
Other Requirements Specific shipping guidelines
including packaging/labeling, carton or pallet
sizes
Failure to meet Delivery Requirements order may
be cancelled, supplier pays for back ordered
items, fees may be automatically deducted from
payment

25
PRICING ISSUES

WHEN WORKING OUT YOUR DISTRIBUTION PRICING MODELS
REMEMBER TO
Price in US
If you can, quote FOB US DOMESTIC TERMS
BE AWARE FOB has a different meaning in the
US (inland carrier).
If you cant quote US style, quote CIF or CFR
Other elements you need to consider in your
pricing models include-
Translation costs US English, measurements,
paper size (8.5 x 11)
Vendor Requirements UPC (bar codes), EDI
Capability, carton sizes etc
Customs Duties Customs Brokers Fees
Transportation from port of entry to importers
warehouse or inland carrier
Margins/mark-ups along the distribution chain
Commissions or incentives for sales reps
Slotting Fees
Insurance Costs
AS WELL AS THE LEGAL COST OF DOING BUSINESS IN
THE US

26
THE RIGHT PROTECTION

LEGAL ADVICE IN THE US IS A NORMAL COST OF
BUSINESS
Trademark or Patent Protection protecting your
brand or IP
Due Diligence on potential partners background
checks
Product Liability Advice Insurance - the
liability of a manufacturer or other entity in
the chain of distribution for personal injury,
property damage or economic loss caused by the
sale or use of a product
Contract Advice JVs, MUL, Fulfilment
Warehousing but also Sales Reps Distributor
agreements

27
CONTRACT ADVICE

Some of the key things to consider in a
distribution or sales agreement are
Territory
Exclusive or non exclusive distributorship
Non-competition clause
Minimum purchase or sales obligations of
distributor
Promotional support to be provided
Commissions
Prior approval for advertising or promo materials
Terms of sale, prices, discounts, price changes,
payments etc
Product liability and insurance
Terms of contract termination, performance
clauses etc
AUSTRALIAN ADVICE IS NOT ADEQUATE

28
CULTURAL TIPS

AMERICANS ARE OFTEN VERY DIS-SIMILAR TO
AUSTRALIANS
Business is king work out the details of the
deal first, worry about the people second.
Time is money so dont waste my money, be well
prepared samples, packaging and sales sheets.
Know your ROI calculations, pricing and
logistics.
Being Direct is a Virtue ask for what you
want, say what you mean, do as you say, and just
get on with it. May come across as egocentric,
demanding and less consensus oriented than
others.
Who are you better than? Know your competitive
advantage over specific US suppliers, as well as
your domestic or international track record.
Dont be Negative Australian tendencies to be
sarcastic, down-play their achievements or
sugar-coat messages can often clash with the
American can do attitude and tendency to absorb
information at face-value.
Be persistent pestering is expected, stay in
trade fairs, visit regularly, call often but
dont expect a response until 7 12 contacts
later.