BRAND SECRETS AND STRATEGIES

PODCAST #96

Hello and thank you for joining us today. This is the Brand Secrets and Strategies Podcast #96

Welcome to the Brand Secrets and Strategies podcast where the focus is on empowering brands and raising the bar.

I’m your host Dan Lohman. This weekly show is dedicated to getting your brand on the shelf and keeping it there.

Get ready to learn actionable insights and strategic solutions to grow your brand and save you valuable time and money.

LETS ROLL UP OUR SLEEVES AND GET STARTED!

Dan: Welcome, I want to thank you for listening to the brand secrets and strategies podcast. If you like the podcast, share it with a friend, subscribe, and leave a review. This is where we discuss proven strategies to help you get your product or more retailer shelves and into the hands of more shoppers.

Today's story is about some of the many challenges that young brands face. While today's story turned into more of a coaching call, you can get a good feel for a lot of the struggles that brands face, most every brand. In fact, I'll bet a lot of this resonates with you. Today's story is about the credit solutions to help deal with these strategies to help you grow your brand and help you compete more effectively. Let's face it, retail's expensive, and unfortunately small brands are at an unfair disadvantage. The strategies that I'm sharing with you today are the strategies that a lot of the larger brands leverage.

In fact, they're the foundation of what I call true category management. True category management are the advanced strategies that go well beyond a canned top line report. These are the strategies that help you stand out on a crowded shelf that help you become a category leader.

A category leader is any brand willing and able to help the retailer drive sustainable sales within their category. A category leader is any brand that's able to partner with a retailer to help them understand who the consumer is that shops your products. Savvy retailers will reward category leaders by helping them merchandise and sell their products. I have countless stories where retailers actually reached out to me and gave me incremental merchandising and promotion opportunities because they knew that I could take good care of them, and they knew that they could count on me to avoid any out of stocks and to maximize each and every selling opportunity. My guest today is Charles with LesserEvil snacks who talks about a lot of the challenges that he faces on a regular basis. You're going to find this podcast episode especially helpful. Now, here's Charles with LesserEvil. Charles, thank you for coming on today. Can we start by you telling us a little bit about yourself and your journey to LesserEvil?

Charles: So, I was born in Canada. I was born in Montreal, I grew up in Toronto, and did my undergrad in Canada. Then I ended up being transferred to Chicago and then I was transferred to New York. I worked in finance for almost 20 years. After the crisis in 2008 hit, I think it planted the seed that I potentially wanted to try something else. A few years later, I kinda got my opportunity. A friend of a friend's father was selling the first iteration of LesserEvil, actually the second iteration of LesserEvil. And I had always been a big foodie and I was itching to get out. For some weird reason it caught me in the right state of mind and I quit my job. And here I am today.

Dan: Interesting. So when you say you quit your job, how were things going for you in the finance industry? And the reason I wanted to go back to that because that's a very different skillset. So what did you learn there that you could apply to your job at LesserEvil?

Charles: That's a really good question. I was a trader by background, I think when you grow up with that background you're used to making a ton of mistakes. What makes a fairly decent trader is someone that has a very short memory and that can pivot fairly frequently. And I think with the advantage that gave me in food was that I didn't get attached to any one idea, especially when I start when I started. I think most people when they start food brands, they get highly emotional in terms of the products that they launch. And sometimes it's hard to see the forest through the trees. They get attached and tend to hold on to products longer than they should. I think with LesserEvil, what played to my benefit was I was able to quickly get out of the first three or four projects or products that I launched until I found the right one. I made a ton of mistakes at the beginning, but I just kept on moving. I think retailers saw that when I brought innovation, they were willing to give me a chance because I was always really quick to admit my failures and keep bringing fresh items to the category.

Dan: That's so helpful. And I'm so glad you said that because this is the kind of information that brands need to be able to hear. And the reason I say that is because they need to understand that this is a process, and you're not going to get it right all the time. So I love the fact that you're talking about that. Can you give any examples of some of the failures and what do you learn from specific failure? Thanks.

Charles: So the initial products that LesserEvil were better for you products than the traditional snacks, so lower fat potato steak, and a popcorn that was lower sugar, was made with maltitol which is a sugar alcohol. They weren't really good, good for you snacks. So right away when I got into it, it's like reduced fat Lays. It wasn't moving the needle, and then unless you're going to spend a fortune on it, and compete against the big guys in my category. It just wasn't special enough. So the first products I launched I remember, I had to act really quickly when we bought the company because we were getting discontinued everywhere. Was a pop chip made with black bean and chia, and it was a pretty good product.

We came up with some really interesting flavors. One was feta and black olive, and we had this dill pickle one and stuff. We immediately got some love from some key retailers on that. So much to the extent that I launched a line of popcorn called chia pop, which actually still exists. I saw that in this alternative channel just because I want to have certain products for some channels and other products for other channels. Then I launched a line of bites called Super Bites that were made with white bean, quinoa, lentil, and chia. You can tell that I was living the chia lifestyle. It wasn't until we launched the bootable line of popcorn that was made with the raw oils and Himalayan salt, and it was air pooped and it was organic, where really thought through to me. When the brand resonated with me, I think when an item resonates well with you, it typically resonates well with customers because they can feel the authenticity behind it. And I just felt like I had finally found my winner after three or four ones that didn't necessarily go badly but just weren't what I was looking for.

Dan: Great. I appreciate you sharing that. Well, that's interesting that you're sharing this. You said that you have different products for different channels. Now what does that mean?

Charles: Okay. So when we opened up our own facility, so we've got different challenges than a manufacturer who co-packs. When we opened up our own facility, we were still a pretty small player and we needed to figure out how to keep the plant as close to capacity to pay the bills as we could. Right? So, we at the beginning would launch products and sell to basically everyone. This is going to be touchy. But some retailers didn't like some of the channels we were necessarily selling the product into because they were different price points. Some retailers have a much higher price point and like being there, and they do not like it if they see it in channels that they deem to be discount channels because they feel like they're diluting the brand and potentially providing an alternative place to buy products that they sell, if that makes any sense.

Dan: Sure. Yeah, no I understand completely. But in terms of the overall feel of the brand, I assume that that was pretty consistent throughout. It's just that you had a different product in one channel versus another channel. So what do you mean by other channels that the retailers were not happy with? And by the way, a lot of brands develop products for additional channels, alternate channels. For example, the discount channel, etc.

Charles: When you look at non necessarily nonfood selling channels.

Dan: And they got upset with that? They don't compete in that channel. So why was that a concern?

Charles: Typically, if you look at the way you do business in grocery, natural, or alternative channels. You've got trade spend, that you have to spend in grocery and natural. There are retailers that want to just take goods at cost, and not make you spend that money with them. So they expect you to deduct the amount of trade spend from their price, which seems perfectly fair, right? In one channel if I don't have to spend money on merchandising and going on sale and stuff like that, I should be able to pass those savings through to that retailer. So the business model makes total sense, but sometimes I think the natural food shopper will go into some of these channels and will buy snacks and chocolate and stuff like that.

Shoppers are getting pretty smart, and they're getting pretty savvy at going into retailers where they feel like they get the best deals. And you're only going to see more of that. It's like the proliferation of the internet. You'll go online now. You see something in a store, you'll quickly check on your phone and if Amazon has it cheaper or thrive market has it cheaper than the retailer that you're in, you won't buy it. You'll just order it on your phone and you won't add it to your cart.

Dan: Interesting. I mean what you're saying is what we went through years ago when Walmart became such a big deal because Walmart was dictating price. And everyone started a race to the bottom. So that's something I'd like to talk about a little bit more. When you're working with these retailers and yeah, sometimes it makes sense to load all the promotional cost up front, if and only if that retailer can perform at a super, super, super high level. But to your point, a lot of the trade spending is wasted. Actually, I spoke about this at a show this past weekend. About how does a brand maximize their trade marketing ROI, and not become effectively an ATM machine for a retailer. So what strategies do you use when you go to market, when you work with different retailers?

Charles: That's a really good question. I mean, I think everybody wants to understand the puzzle. The puzzle is a pretty hard one to figure out. And I think the more convoluted sometimes the puzzle is, some of these retailers make it the more money they can extract from you. So you want to basically play with retailers that are extremely transparent, as much as you can. You want to give them as much as your money as you can. So I typically when I'm spending money, all I care about is off shelf display. I do not spend a lot of money on ads unless the retailer ties an add to some sort of off shelf display. I typically like TPRs as long as the TPRs are fairly transparent. There's a lot of retailers now that are only expressing a fraction of what you're willing to deduct.

So it used to be the retailers would compress margin when you were offering them sale. Then it became penny for penny promotions, which actually increases the retailer's margin structure when you're on sale. And now some retailers are not even offering penny for penny. They'll only reflect 75 or 80 percent of the money you're spending with those retailers. So you've got to be really cognizant of what you're getting bang for your buck with a lot of these promotions. I mean, ads themselves are very hard to quantify. They say they go out to 4 million people, but you have no idea how many eyeballs you're really attracting. So it's a very soft spend. I try to stay away as much as they can from softer spending,

Dan: And that note a lot of people, yeah they brag about how many impressions that they make. Well the reality is, you can't transact impressions at the bank. Your banker's not going to say, "That's really impressive that you got this many people to look at your whatever." Where I'm going with that is to your point, it doesn't mean anything. And so I'm disappointed to hear, and I have heard stories like this before, that retailers are not passing along the entire promotion, but yet trying to pocket it and keep it. Again, they're trying to use you, in my opinion, as an ATM. And let me back up. The sole purpose of trade marketing is to get your product into the hands of a new shopper. Period. That's it. I know that there are a lot of other things you have to do along the way, but that's the focus of it. And so when retailers nickel and dime you, and try to force you to pay the pricing game, that actually dilutes their brand. Because the reality is that if you can get customers to buy your products in the absence of being promoted, that's how you drive profitable category sales.

Charles: We can talk about category deflation versus category inflation. You would think that most retailers would want category inflation because they're making a margin off a certain price, and the lower the price that they drive, the less margin obviously they're getting. All of the things you were saying make perfect sense. You want customers to come in and pay full price if you can.

Dan: Yeah. And on an average day, if I can get you to come in and pay full price for your product on a regular basis and not have to be known as a discount store. I mean there are retailers out there that have a high low strategy or an everyday low price strategy.

Charles: Yeah. So let's talk a little bit about EDLPs. This is a really good conversation. I'd be curious to think, you have some really good retailers that are high low because they drive customers in with some ridiculous sales. And they get collateral purchases from really aggressive promotions. And then you have really good retailers that are EDLP retailers that customers come in because they know they're going to get a consistently low price on everything. I don't know which model, I know who my favorite retailers are. They tend to be EDLP customers, but there are a lot of people love shopping for the sale. Love shopping for great items, and finding new things and when stuff's on sale. I think it all depends on the customer's psyche.

Dan: Well, let me start by saying this. First of all, the pricing game. No one's going to win the pricing game. There's always someone bigger with a bigger bank account that's going gonna win the pricing game. Think about it. If Walmart didn't have the ability to drive price down the way they did, there would be a lot more mainstream retailers. There would be a lot more retailers that would be independence. But because of their efficiencies, their ability hate them or like them, love them or like them, their strength is their ability to put a product on the shelf cheaper than anyone else. And that's a lesson that we can all learn. So when you consider that, other retailers still have their hand out or still were asking for the same promotions at the same deal. So this is what you're talking about, where they're stuck in that mindset.

"Well this is a way we do things because this is the way we've always done anything and we're not creative enough." Sorry. "We're not creative enough to really come up with a strategy. So let's talk about this." The reality is that price is not the only driver at shelf. If it was, then decadent and luxury items would be trending down, people wouldn't spend the money for them. If it was some of the stuff we've been talking about, they would have no reason for being. I mean, think about it. Why would I waste my time, and I mean that sarcastically, to go into a natural food store if I can buy that same product somewhere else. The reason I go into that natural food store is because they offer more than just a low price. They offer service, they offer products that I can't get anywhere else.

They offer support, they help educate me about new products. I get to see things that are different that I wouldn't get to see online. And I get to try products right away. So that should be the mindset of every retailer. This thing about, well we've got to talk about price because price is the only driver. That is a fallacy. That is a mistake. When you fight to the bottom, that's how you lose. And that's how you as a retailer and as a brand find yourself going out of business, because you can't keep up with that. It's a perpetual treadmill that goes nowhere. So what I'd recommend is trying to figure out our focus on what is the value that you bring to the retailer. So what I'm getting at is that you are not just a single package on the shelf, which is the way that most of these retailers are talking about look at you. Instead, the value of your product isn't necessarily what's in the bag. It's the customer that-

Charles: It's the bringing in of the new customers are looking for products like yours. They can't find them anywhere else.

Dan: Exactly. And then to go one step further, your customer's going to spend more money on a healthy, natural, organic product than another brand's customer.

Charles: There are great retailers out there that do exactly what you're talking about.

Dan: Well, and that's what they should be doing. That's what everyone needs to be focused on because this day and age of well I've got to get my margin. I can think of a lot of examples of brands that have played the game. So okay, here's one. Cereal. Maybe many years ago, cereal companies used to fight to the bottom. And what happened was they got so used to promoting, their products really went up in price. But they got so used to promoting at the same time the same frequency, that shoppers got really smart. And all of a sudden they would only go in and by products that were on sale. So they would not buy them when they weren't on sale.

Charles: This is a really good point. So in my category, this is happening with potato chips.

Dan: Go ahead.

Charles: Potato chips have become and extremely commoditized category. We launched a potato chip probably a year and a half ago, two years ago. And just to feel out the category. And we noticed right away that there's two or three big natural chip players and you know who they are. I don't need to mention them. But they don't sell now unless they're on sale for two for four. And they rotate month by month by month taking turns. "Okay. I'll promote for two for four this month. You can promote next month." It's a vicious cycle. If you're someone new coming into the category with some bells and whistles, it doesn't matter. People are so used to not paying full price for potato chips, they're never going to do it again. And I think that is cereal. That's what happened to cereal is now happening in that segment.

Dan: Yeah. And they've created a huge issue. It's not the brand's fault necessarily as much as it is the retailers fault. In other words, both are responsible for creating this dichotomy. And so what the retailers have done with the brands' help is they've pulled the dollars out of the category, they have commoditize that part of their store. And the sad reality is I can buy chips anywhere. I don't need to buy chips in one store versus another store. And when you've got a mindset where you're only paying the price game and you commoditize any of the products on your shelf, any of the brands in your store, then there's no point of differentiation.

Charles: So going back to the thing about there are some retailers that play a different price scheme than other retailers and making sure that your items aren't necessarily in some of those retailers makes some sense given your logic.

Dan: Yeah, absolutely. Price is something that's supposed to generate excitement, period. That's it. We're not supposed to be focused on, well let's make this easier for the consumer to buy it. That's the wrong mindset. The reality is we want to give the consumer extremely high value. And if we can justify the prices that we have, then that should be the conversation. Again, not always trading down, and down, and down. I mean if we wanted to, this is a lot of the reason why the generic phenomenon caught on back in the seventies. The whole idea behind it was we could buy seconds from the major manufacturers and get them at a super, super low price. Well the reality is the seconds aren't always as good as the first. And so you get what you're paying for.

So let me back up a little bit. You've got a premium product, and your premium product attracts a premium customer. And because your premium product, attracts a premium customer that buys other premium products in the store, that needs to be the focus. And so to go back to this strategy we're talking about, if you can use price and promotions, and things like that to drive excitement in your store, to drive brand awareness and increase consumer trials, meaning getting a consumer to try something that they wouldn't have tried anywhere else. That's the benefit. That's the holy grail. That's what this is supposed to be. But when you try to use price as a weapon to compete against another retailer in a market, that's not sustainable.

Charles: Well sometimes it's not you that's dictating that, it's the stores that are dictating that.

Dan: Right. And that's the mistake. And so how do you get out of this treadmill? You've got to have a heart to heart with a retailer, and you've got to have a conversation with them and say, "You know what, I want to help you drive sales in your store and I want to help you do" ... Retailers want two things. Let me back up even more. Retailers generically don't sell anything. They don't make anything. They sell other people's stuff. What I'm getting at is that retailers make money by the real estate that they have in terms of their shelf space. So what retailers do is they make money by the shelf space, the real estate that they sell that your product occupies. So retailers want two things, that's it. They want more traffic in their store, and they want a reasonable profit. And with that goal in mind, the only way they can achieve it is by having the right assortment on the shelf, by getting consumers to come in the store through excitement, promotions, etc., building brand awareness, and by having products that sell across the entire category. Themes, organic, etc. so that we try to maximize every sale. That's the reason why a lot of retailers have the other products at the checkout line. The impulse, trying to get more out of every sale, right?

So anyhow, with that mindset, what you need to do is you need to reeducate these retailers on why that makes sense. And there are times when you've got to say no to promotions. And there are times when you need to be able to go to the retailer and say, "You know what, this just doesn't make sense for me. I cannot afford to do this and do all the other stuff you want to do." The notion that they're taking money out of their promotion and pocketing it. The store, yes it needs to be a profit center. But the question is would they rather profit by getting more customers in the store buying more products, or not? One example is Walmart sells for some products for exactly what they pay for them. And the reason they do that called a loss leader is to drive consumers in their stores. So I used to work for Kimberly Clark, and so Walmart would sell diapers, super, super cheap.

Charles: Same thing happens in food stores. I mean bananas and avocados are typically put right up at the front of the store, and they sell bananas at cost, sometimes below cost because that is one of those items that people look at and, "I saw Trader Joe's had bananas at 69 cents. This store has it at 72 cents. Trader Joe's must be cheaper."

Dan: And that perception is a challenge. Kind of bouncing around a little bit, but yeah. You want to have your customers perceive that you have good value and a good selection. That's absolutely true. But they shouldn't try to nickel and dime everything else on the shelf. So in that vein, what I would recommend is that they would have the top selling items within the categories at a comparable everyday price to the retailers that they view as our competitors, and then try to get their margin off the products that are unique and different, like LesserEvil. And so anyhow, where I'm going with this is that there's a lot of opportunities for brands and retailers to work together to think differently. But unless the brands can help the retailers understand this different strategy, the strategy that's going to help them survive and help them thrive today, tomorrow, and beyond, then they're going to be stuck on this hamster wheel. And they're never going to get off of it. And the sad thing is, is that because there's no point of differentiation at that retailer beyond price, that any retailer can come into the market and put them out of business, really easily. Because they're so focused on trying to drive price, that they're ignoring the thing that they have more that is the most important to them. And that is their customer.

The reality is the only thing a retailer really owns is their customer. And if you can nurture the customer and give them the value that they want and the products that they want at a reasonable price and develop loyalty, at the end of the day, that's how these small brands thrive and survive in the fate of any competition.

Charles: I'd be curious to get your thoughts on private label.

Dan: Private label is a unique animal. There are a lot of retailers that think that private label's, the be all end all. I think private label absolutely has a place on the shelf, but it should not be the focus, the primary focus. And so let me back up a little bit here. I walked into a private label show and someone without even knowing who I was or what I did, ran up to me and said that, "I can make whatever you've got cheaper than anyone else." And so private label products generically speaking, are a copy of what else is on the shelf. And that's kind of sad. So in other words, here you are. You're putting all the money into it. You're doing all the R&D, you're the one paying for the promotions, etc. Then a private label company comes in and says, "Here's a product at a much lower price," but now the retailer has to be responsible for the margin and all the bad product and everything else whereas you take care of that.

So there's a really serious competitive disadvantage. But the reason that retailers should offer a private level is to offer an alternative for the cost conscious consumer. The retailers that offer a private label before they have a branded product, I think it's a mistake and here's why. The value of a private label product means nothing if there's not something to compare it to. And that's why brands need to, another reason why brands need to exist. So if there's a lot of value in your product and you've built a consumer following and you've got some sales of loss with that, with the branded product, with the trending, the different branded products on their shelf. Now you bring a private label product in. Well that augments the sales a little bit. That actually helps to drive sales within the category in terms of new consumers. But the reality is private label's used to pulling dollars out of the category. So this a balancing act you've got to be really careful with.

So some retailers use private label is a bait and switch. What I'm getting at is that they have higher prices on products on an everyday basis, the branded products. But then they lower those branded products to drive consumers in the store. And when they promote the branded product, they've got their private label product right next to it at a substantial discount. My opinion, that's how you drive more sales, more dollars out of the category. So I think this is a huge mistake. So getting back to your initial question, private label has its place. It absolutely needs to be on retailer shelves. It should not be in every single category, every single ... You shouldn't have a private label for everything that's out there. But yet a nice flavor, a private label to offer your customers a point of differentiation. But the point at the end of the day is that consumers do not go to the retailer to buy private label. Have you ever heard a consumer say, "Well I'm going to drive across town to try their private label product"? No. They go across town to try the branded product that you've promoted via social media via other avenues that hopefully to build awareness and drive customers into that store. Does that help?

Charles: Yeah, that helps out huge. Makes me feel like I should keep moving. Yeah. Sometimes it can be somewhat disheartening when you see. We had one one retailer that I won't mention where we, it was one of our bigger customers. We acquiesced and we did a private label brand for them. And what they did was they drove a huge gap between our branded product and our private label product. And it ended up hurting our branded product and I'm pretty substantial way.

Dan: And then what happened? Did you actually pull out of the store with your branded product, or what happened?

Charles: No, no. They realized what they did was potentially earning the brand, and have since adjusted prices a little bit because I see because I complained a little bit about it.

Dan: Well, and that's the mindset. Here we are, we're fighting to the bottom. And the reality is that we want to offer value. Again, The most important thing any retailer has is their customer. And by the way, the most important thing that you have is your customer. And the reality is that if you can work together to drive your customers into the store and you can provide the benefit to your customers at their store, then that's really where this needs to be focused on it. So when you're talking about trade marketing, the practices that you're focused on, the ones that you've been talking about are the old school trade marketing philosophies that really went away with the dinosaurs. And the reality is that there are a lot of different retailers. As you mentioned earlier, is that consumers have a myriad of choices. And if I can't find the product that I want at your store, then I can simply go elsewhere. And so when you're trying to add value to the retailer, what do you do Charles to help the retailer understand that you're bringing in value, not just another commoditized product on the shelf that they could sell at a discount?

Charles: Yeah. So in that light, I typically go in and tell retailers that I don't don't need to drive sales on sale. I basically promote in the 15 to 20 percent category, whereas most people in that category are promoting 40 to 50 percent of the time. And I still sell extremely well and my average ring is 25 percent higher. And the retailers should really care about that for the reasons that we've been going over in this podcast.

Dan: Exactly. And I'm glad that you shared that. So thank you. Because again, it's an educational process because we've got to retrain the retailers to think about what's important. And so as you're putting together-

Charles: Well let's stop here because it's not just the retailers we need to train. It's the distributor too. Because the distributors, if you promote frequently ... Let's say you promote for six times throughout the year, they will not purchase when you're on full price. They will bridge by only when you're on sale, just like the consumer. If you're on sale at your local stop and shop 50 or 60 percent of the time, people will come in, see that you're on sale, buy it, and then come in the next week and say, "You know what, they're going to be on sale in a week from now. I'll wait and I'll buy three bags when they're on sale." It's just human nature whether you're a retailer or a distributor.

Dan: I hate hearing that, and I hear it a lot of times. And so my answer to that is that is not the way business should be done. It frustrates me to know and to hear some of the games that get played. And so let's talk about that. When I started doing this, we had distributors that deliver to every single store. We went into every single store and called [inaudible 00:33:43] same as they were in natural. My point is that what you see in natural today is exactly what we had 20, 30 years ago. So the question is why aren't there as many distributors in mainstream? Reason is because the inefficiencies. Because a little retailer called Walmart came along and forced retailers to be more efficient, and consolidate. That's what started that. And because of that, it was all about how can we get the product on the shelf at a lower cost? And that meant that we had to stop playing all those games that you're talking about where distributors would forward by and then divert the product, diverting meaning that they would buy a whole bunch of product and then be able to sell it at a higher price, higher margin when it's not on sale, even to a different retailer.

This used to be a huge, huge problem. As brands started really paying attention to this back in my earlier days, we started focusing on retailers that diverted product. By the way, the retailers had their own distributor networks. We were very aware of that and we would call the retailers and the distributors out and say this is not what we agreed to, this is not what we intended. And the goal was that we needed to force the retailers and the distributors to honor their contracts. That's really what it is. It's about having a contract. And so one of the things that happen out of that is a lot of the different brands got together and started putting leverage on the distributors and retailers that were doing that. And tried to weed that out. And so we became very aware of it. And then we built our programs arounds scan through.

Charles: Yeah, around MCB.

Dan: Yeah. And so the whole idea behind that is that, and you alluded to this before. The worst thing that any brand can do is pay for a program without any accountability of the brand of the retailer distributor. And so what does that mean? That means that if a distributor to you and says, "I need you to put together a promotion. We're going to put it in our flyer and we're going to send it out to all the retailers, and this is what it's going to cost." The reality is that if not every store honors that product, that promotion, then you're wasting money. Because you're not putting your best foot forward. You're not building trials, you're not helping those retailers, the specific stores drive sales. And so that is the most inefficient way for any brand to spend money. And then on top of that, there's really no way to know how well your product is performing in those stores.

So you're blind to that. And that's another challenge that I'm faced with a lot. And so what I'm getting at there is that the distributors make more money if they sell more product. That make sense, right? Commission based on sales. But then they charge you for a report that tells you where your product isn't in distribution or is in distribution. And yet if they were to just say, "Here are the stores that we need you to close the gaps in," they'd make more money. So that mindset just doesn't make sense. Again, they've got their hand out, they're nickel and diming you for things that they should be helping with. And again, that has a lot to do with why the distributor network in terms of mainstream retailers is gone, because of the inefficiencies. So when you focus on what we're talking about here, Walmart's goal is to put the product on the shelf cheaper than anyone else.

Okay? Love them or hate them, that's what they do really, really well. Now, other retailers are trying to figure out a way where they can lower their cost of goods to get them on the shelf cheaper. And as a result, that's really I think forced retailers to consolidate and start thinking more strategically about the customer as opposed to just commoditizing the customer, the products. Does that make sense?

Charles: Yeah it makes total sense. How do you stop the vicious circle?

Dan: Well it's about education. And the reality is that at some point someday, the retailers are going to figure out a way to get the product and shelves cheaper than the way they're doing it today. I mean I understand it's very difficult when you've got such a fractured network of independent retailers. But if you're competing and gets Kroger, Walmart, any of the big retailers, you've got to be able to figure out a way to compete effectively. And the most effective way to do that in my opinion is for the brand, the distributor, and the retailers to partner together to try to drive the waste out of the system, to try to provide the best value to the customer.

Because the simple reality is if this problem isn't solved by the brand, the retailer, and distributor, then at some point some innovative company's going to come in and figure out a way to do it. Think about all the different changes that we've seen in the industry thus far. If someone could figure out a way to drop ship product to a retailer and avoid the middle man, that would be a tremendous-

Charles: There are people who do that. I know of an oil supplier who ships product to Whole Foods, every single store in the country.

Dan: Well, and honestly that would be the way that I would go. And there are a lot of other reasons for that. And one of the main reasons is that if I know specifically exactly what's going into the backdoor of every store, then that's powerful information. That helps me drive sales. It helps me help the retailer understand what's really going on in the category from my brand's perspective. So that's something that I think retailers and distributors and everybody need to be paying attention to. Because I think we're going to see more of it and less the retailers and the distributors and the brands again, try to force these wasted costs out of the system.

Charles: Where do you see the wasted cost? Are you talking brokers, commissions? Where are these costs?

Dan: God, they're everywhere. And this goes back to everything that's in trade marketing. So the broker is an extension of your sales force. I believe that every brand needs to have their hand firmly on the wheel, meaning that you need to be driving sales. You need to be telling your broker partners that this is where I need you to park the car. These are the stores I don't want you to get in specifically, exactly. You do the research, you have the knowledge behind you to help drive that initiative-

Charles: Brokers used to help stores merchandise and do resets and do all that stuff. They used to be very hands on in the stores. Now brokers aren't persona non grata in a lot of these stores. So they've lost a big portion of how they use the function.

Dan: They've broken that into different silos within their broker. And so, I mean the first thing is you got what stores you don't want to be in. You don't want to try to be in every store. Secondly, that usually different function within the broker where they've got a merchandising team. And to your point, they can provide tremendous value there, but the reality is-

Charles: But the brokers don't have merchandising functions anymore, that's all been cut out.

Dan: Some of them do. It depends on what retailers you're going to. And so-

Charles: In my experience I haven't seen any merchandising in the last five years. By any broker.

Dan: I'm surprised. Mainstream or natural?

Charles: Mainstream and natural. That's where we saw.

Dan: Well then who's doing the reset? Okay. So then what a lot of retailers will do is they will charge the brands a fee to have the section reset.

Charles: So what's happening now for instance. At Whole Foods, Whole Foods and saying, "You submit the promotions, we'll do the merchandising. Because brokers don't come into our stores and merchandise anymore. As a matter of fact, we don't necessarily want them in our stores. And instead of you praying the broker five percent, we want three percent. And if you want to continue to pay the broker, you can give them two percent."

Dan: Yeah, I'm familiar with that program. The reality is we just get back to where we were before. Retailers cannot possibly be experts in every category in every item they sell. That has really very little to do with merchandising. But the reality is, is that the way your products merchandise from one store to another store, it's the way your brand is represented through not only through your brand, through other channels, etc. But the reality is that a lot of the merchandising overlooks the value that your brand brings into the shelf. So when they commoditize that part of their business, then again we're fighting the lowest common denominator. There are a lot of brands that do schematics for retailers. And you can actually, when you walk into the retailer if you pay attention, I've been doing this for a long time. You can get a feel for which brand is responsible for doing the schematic which leads to the merchandising.

Charles: You know who's was actually more and more doing that? Is the distributors are analyzing data and coming up with schematics and planograms for retailers. And more and more of the retailers are leaning on distributors to do that because they've got better knowledge of the category. So the distributors are almost taking the place of the brokers in that respect.

Dan: And that's what I was going with it. Yeah, so thank you. So what I'm getting at is they're not experts in the category. They're focused on selling the stuff that they distribute. So if you've got a product that they don't distribute specifically on their own or products that are not within their network, how do you know you're going to get your fair shake? And then more importantly, how does the retailer know that they've got the best schematic out there? And I'll give you an example without getting too deep into the weeds. There is a category that I do a lot of work in. And actually I was talking to the distributor about doing that. They actually wanted me to do something for them at one point. But they overlook what's driving sales in the category because it's not broken out in any of the databases. Spins, Nielsen, or IRI. And as a result, they're commoditizing the way that the consumer shops a category rather than focusing on how does a consumer actually, what drives the consumer to the category. How do they make their purchases, etc. And so by doing that, they actually dilute the brand's ability to perform on their shelves, the brands that are really driving sales.

So they're more focused on their Pareto curve, the 80/20. So if your product is high velocity and you're doing really, really well on the shelf, then you're okay. But back to where we started this conversation, if you're a brand that doesn't have the same high velocity but has a higher market basket, then your brands get overlooked. So the net net at the end of the day is because of the inability for that distributor, broker, whoever it is that's doing that schematic, the retailer. They're actually driving sales out of the category, and they're actually dumbing down their customers' ability to find those new products, that excitement and be able to find the products within their stores. Does that help.

Charles: I think so.

Dan: Yeah so at the end of the day, really what needs to happen. The smart retailers, the savvy retailers are leveraging their relationship with their brands to help drive sales in every category. Think about it. You're an expert in your customer. You should be an expert in every one of your competitor's customers. And if you can leverage that knowledge to help the retailer drive sales within their category, then the retailer should be working closely with you. And what that means, go ahead.

Charles: Yeah, so you're bringing up a really cool point is what retailers should be doing is, and I'm seeing this increasingly in the last year or two and it's been one or two retailers. But sadly retailers, they're saying, "Okay, let's talk about your marketing plan and what you're going to do around bringing your customers into my store." So they want to see brand ambassador, whole brand ambassador program built around their stores. A social media platform, how often are you going to post on Instagram, on Facebook? They want impressions now and they want to build a relationship with you that encompasses more than just a the shopper experience in the store. That basically encompasses a life experience that you're providing that includes their stores.

Dan: Well that's good.

Charles: Does that make any sense?

Dan: Oh yeah. No, I think it's great that they're asking for the information and it's kind of what we've been talking about. The underlying theme of everything I've been saying Charles is that if you've got a collaborative relationship with the retailer, then that's where you really need to be. So let me boil this down to this. There's a category captain and a category leader. So a category captain, I've done that before several times. A category captains is a brand that comes in as a third party resource that does about everything. We did the merchandising, we did the category reviews. We did the deep dive analysis, we did the schematic work, almost everything. And it was a great experience. I learned a lot. But it's very expensive. It's something that's small brands can't do. What I'm proposing is that you and every other brand out there, natural organic brand become a category leader. And a category leader in my mind, is any brand willing and able to step up to help the retailer, help educate the retailer around the stuff we're talking about today. So if you've got a situation, and this is where I was going with this, where a distributor or broker or even the retailer, someone else is doing the schematic.

If the retailer is smart, and I say that our purpose, the retailer should leverage your insights to help you take a look at the schematic before it gets printed, and help get your input as to why certain changes need to be made. Because again, having someone that's not making a lot of money now or just generate schematics everyday is not really going to help drive sales. And if you think about it, what's important at the end of the day? I remember many, many years ago, one of the things we were looking back when he had the old weekly flyers that retailers would put out there, they would talk about the items that the retailers were trying to sell and drive excitement with. And instead of paying attention to items that, they were focused on high margin items, etc., instead of focusing on items that would drive the most traffic into their store.

So what I'm getting at is they would have a lot of chips and a lot of snacks and things like that they were pretty much giving away, really low margin when promoted items. Instead of having those items like diapers and wipes and things like that, that would drive sales into the store. Because the reality is that when a new parent comes into a store to buy their diapers, they buy a lot of other stuff. And that's what we're talking about here. So again, it's part of this education process. So as a category leader, and this is what my turnkey sales, stories, strategies, course is about. Is about teaching every brand how to become an expert in their brand. And I don't mean 2.5 children, head of household, etc. I'm saying know that customer. Are they into yoga? How do the buy products? How active are they in their community? What things do they do for fun? Really get to know your customer in an intimate level, one. Two, get to know your competitor's customer on an intimate level so that you have that understanding. And then now be able to leverage that with your retail partner.

And that includes being able to go to who's ever done the schematics, who's ever doing the merchandising, who's ever doing the pricing and the promotion schedule to help them understand what's really driving sales in their category as opposed to just paying attention to the numbers.

I'll give you another quick example. Years ago I worked for Kimberly Clark. We had the pocket pack. If you use the Pareto curve in terms of understanding, if you cut off all the items that fall below the 20 percent threshold, the pocket pack would fall below that threshold. And so it has no reason for being using that methodology.

The reality is that we put it on the checkstand. And because we put it on the checkstand as an impulse item, which by the way had a really nice margin on it, that was actually the key driver to drive consumers to the category. Kleenex is Kimberly Clark's brand. And so the ability to drive sales from other places in the store is another thing that retailers need to be looking at.

So again, if you're just looking at the numbers, the 80/20 rule, you're missing out on so many of the things that you need to be focused on that are at the end of the day, are going to achieve your two objectives. Bringing new customers in your store, and making a reasonable profit. We've talked about a lot. What things have we not talked about that you wanted to share? And by the way, tell us a little bit about LesserEvil. What are your products? Where can we find them? What's unique about that brand?

Charles: Where do we want to start? LesserEvil is I want to say our tagline is ingredients mean everything. Basically, we manufacture all our own stuff in Danbury, Connecticut. And we traffic in items that most brands won't. So we use extra virgin organic coconut oil. We use grass fed organic ghee from New Zealand, and we use Himalayan salt. We use 90 percent organic ingredients. We find this organic cassava in Brazil ... A lot of what we do is purchasing and logistics, and finding a lot of items that aren't necessarily readily available, but we think make the best products out there. And we manufacture them and we sell them at not too big of a premium versus our biggest competitors.

So I think we drive a lot of value. We also I think resonate a really nice brand message. The messages about holistics and lifestyle, and feeling good about what you're eating, and being strong and not skinny. I think we definitely push a holistic message that resonates well with our consumers. So I think they see our products, they know they're getting the best possible ingredients, the best possible product. And they feel good about the packaging and they feel good about purchasing the items.

Dan: That's great. And so in your selling story, how do you communicate that?

Charles: It's all about the packaging. Obviously our social media, we work were pretty hard on that. But building a nice brand block in store and getting consumers to pick up the packaging, and look at the back and look at the ingredients, and look at what we're saying with our brand messaging.

Dan: And where I was going with that, that's great. One thing I wanted to share with you, I wanted to encourage you to do is you've shared a lot of great information about the product beyond the four corners of the package. And yet that's far more important than the numbers that say your product is up X percent or whatever. If you were to focus on the things that are unique about your product and build that into your story, that would help you leverage your position with the retailer. So if you can say, "Look, I'm driving sales with healthy oils" and so on and so forth. And help the retailer understand why that matters to them and what does that consumer like that look like that buys that product. For example grass fed ghee, that's a hot trend. Do they have grass fed and do they have healthy oils? And so leverage that with the retailer, which by the way, none of the databases really, actually none of the databases allow you to even see that in terms of sales velocity, etc. Anyhow, that story is what's really important, so thank you for sharing that. Are there any questions you have of me? I mentioned to you before we started that I'll give you an an an opportunity to ask me a question.

Charles: Okay, so let's talk about ... We obviously love innovating and bringing new products to market and being first to market. How in your experience are there any ways to validate products without bringing them to market and going through the huge learning curve that is basically a year and a half of pushing the product until you can feel like you've got a velocity story?

Dan: Great question, got a few weeks? Just kidding. I spent the entire week immersed with a bunch of leading thought leaders at NatchCom talking about this. And actually had the privilege of speaking too so that was a lot of fun. But being able to talk about a lot of what we're talking about today. So let me answer your question this way. Retail is expensive, and it takes a lot of time to get your product on the shelf. So let's frame it that way. And you can't really afford to go through the process of introducing it, waiting to get into distribution, etc. And then putting on shelves. So the best way to do that Charles, is to innovate offline.

So what do I mean by that? First of all, I made the comment several times that you need your own customer. In my opinion, you need to have a list of shoppers, of customers that buy your product. And you need to be able to nurture them and educate them and entertain them through your own platform, your website, etc. And I've got some tools to do that on my website. But what I'm getting at is that you need to own your customer. You need to have that personal one on one intimate relationship with them. And then once you do that, there are a lot of great ways.

So let's say that you've identified your core shopper that is a tremendous brand evangelist. Well give them access to the product, ship it to them, ask them what they think about it before it even goes into retail.

Another option is that utilize those products online into an online store and allow customers to try them. But the key thing here is you need to find a way to get them to come back to you and share their thoughts, share their opinions of the product. And so in terms of innovation, what I recommend is that you innovate in small batches to a loyal, enthusiastic group of consumers that know, like, and trust that brand and understand what you're about. And if necessary, then I guess the second step would be to take that online and be able to test the market it there. And then once-

Charles: There are some online retailers who actually do this.

Dan: Good, yes.

Charles: Yeah, so I think what you're saying makes a lot of sense. One online retailer that I'm thinking about right now is Thrive Market that actually you can send out a product to their customers that is highly targeted based on their buying history and solicit some feedback.

Dan: Yeah. That's a great resource. There are a lot of resources like that. Again, own your own customer, but yeah if you could do that ... And then now you're developing a unique relationship with the retailer where all of a sudden you're a value add. So not only are we talking about what your customer thinks of in terms of that product, but we're also learning a little bit about their customer. At least they are. And so yeah, that would be a great way to partner.

Charles: Very good answer to that question.

Dan: I'm trying, thanks. Again, I'm trying to educate retailers to not make it more difficult for me to drive more traffic into your store. And that's really what I'm trying to do is educate the channel, educate our national community about different strategies to use to work with retailers. To help retailers understand that having something new and innovative and fresh and different is a point of differentiation. And then if a retailer can celebrate that and highlight that and leverage that against their competition to say, "Hey look, if you want to see what's new in this category or whatever, come into our store and try it out." Well, that builds excitement. That builds a lot more excitement than playing the pricing game too.

Charles: Yeah I love it. You're really expressing, you got to tell a good story. You got to tell the story and makes sure that the retailer understands exactly what you're giving them, and what those benefits are. You know what I mean? This is my core consumer and this is why you should want her. And you should want her before anyone else gets her.

Dan: Exactly. And if you play the pricing game like we started this conversation out, you're commoditizing, you're ignoring, you're overlooking that consumer. You're just another store on a corner in another city, no big deal. But if you have the ability to own that customer, to drive that traffic, that experience ... I was talking to Phil Lempert in one of the podcasts, and he used the term theater. I'm thinking about it. Doesn't that conjure up a great a picture in your mind? So retailers should use the experience, the products on their shelf as theater to drive that awareness and that excitement to bring customers into their stores.

Charles: Yup. Look at you, man. Awesome. Use the product as theaters. It's just like you said, bring in your deck what you're bringing to the category, what you're bringing to the retail, who your consumer is.

Dan: Yeah. And on that note, the reason I built that course, and I think honestly everyone should take it. I think it's good stuff. Is that a lot, we've been taught as brands when I first started out that you print something off the printer. "Look, I printed this myself. I even changed the ink cartridge myself." And I walk into a retailer's office and I put it on their desk, and they they're supposed to go, "Wow." The reality is they already know how well your brand's doing. What they want or actionable insights. They don't really care about whether or not your product is ranked number three in the category and you're up two percent or whatever. If you're a low velocity product, you're never gonna achieve those metrics. But if you can prove to them or show them how you're driving value to the category, how you're contributing more to the category, and how you're contributing more to their overall profitability, that's a story you need to be telling. That's a story they need to be hearing from you. And that's the point of differentiation.

So I'm trying to change the way that natural brands, actually the way all brands primarily natural brands go to market. I'm trying to get you and everyone else away from the mindset that walking in with your standard deck and so on and so forth, that's enough. No, you need to have a conversation and a dialogue. And yeah, I know a lot of retailers say, "No, this is all we're going to do and this is"-

Charles: Do you have an example of a deck where someone does a good job of that?

Dan: I've got a lot of examples. And actually if you listen to podcast episode 68, that was the genesis of this idea. Something I was doing back in salty snacks early in my career when I was a DSD driver. And where I'm going with that is that by proving to the retailer that I'm more than just another box on the shelf or another brand with their hand out, I was able to encourage the retailer to give me a chance. And then when I proved that I could deliver at a high value, they started giving more opportunities and more opportunities. And then when they had an endcap or a promotion or something like that, I was the first person they called because they knew that I could deliver. And that's the genesis of why I do what I do. Why I have this podcast and everythIng else. So why does this matter?

The reality is that big brands, since they commoditize the customer and the shopper, they overlook what's really driving category cells. So to answer your question, it's being able to really be able to tell a story with the data. And the big brands don't do that.

Charles: Yup.

Dan: That's my claim to fame. That's what differentiates me.

Charles: Very cool. Yup. No, that was a really good point.

Dan: Well, these are the questions that a lot of brands aren't challenged to really think through it, so I appreciate you making time for me and helping me help you and helping me help others. And at the end of the day, we rise by helping each other. And one of the things that I really want to do is change the way brands and retailers, and distributors work together. At the end of the day, the only way that we can help get our healthy products into more retailer shells in the hands of more shoppers is if we find a way to weed out the inefficiencies, be able to address the customer's needs, and find a unique way where we could create value above and beyond the mainstream brands.

Charles: No doubt. Well, you're a smart guy man.

Dan: Cool. Well, I appreciate your time. Thank you so much.

Charles: No, you've got a great message on this podcast. I wish you nothing but the best.

Dan: I Want to thank Charles for coming on today and for sharing his insights. These are the struggles that most every brand has. So it was really great to talk through them, and offer a lot of advice. I hope you found this helpful. So thank you again Charles for initiating this conversation. I'll be certain to put a link to LesserEvil in the podcast show notes, and on the podcast webpage.his week's free download is eight strategies to maximize trade marketing ROI. A lot of what we discussed falls under trade marketing. Maximizing your trade marketing effectiveness is a complicated subject. I just launched a mini course about this where I dig deep into several different aspects of the things that we talked about today. More importantly, if you can maximize your trade marketing ROI, you can get more runway for other things that you want to do. For example, getting your product on more retailer shows, funding new innovation, and much, much more. The guide outlines several strategies that you can use to compete more effectively. You can get this downloadable guide on the podcast webpage and in the show notes at brandsecretsandstrategies.com/session96. I really appreciate you listening, and I look forward to seeing you in the next episode.

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