#466 – From Amazon to Aisle 7: How Sellers Break Into Retail with Doug Harding
What if your online brand could conquer the retail world, just like it did on Amazon? Join us as we chat with Doug Harding, an expert in navigating the complex transition from online selling to retail dominance. Doug shares invaluable insights into why retail remains a powerhouse, accounting for about 80% of US sales, and how online successes can pave the way for tangible, store-shelf victories. From strategic placement in major retailers like Costco, Walmart, and Target to the essential role of branding and social media in capturing buyer attention, this episode is packed with actionable advice for Amazon sellers ready to make the leap.
We unpack the challenges of retail distribution and explore the sophisticated logistics behind ensuring your product stands out in stores. Doug explains how refining packaging and leveraging distribution partners can smooth the path from online clicks to retail checkout aisles. Discover the financial strategies that can support this shift, including creative financing options like private equity and factoring, which have helped brands like Bertello pizza ovens expand from a Shark Tank pitch to a household name in major retail chains.
For those contemplating retail expansion, we highlight the potential for impressive sales growth and the unique considerations of wholesale cost structures. Our discussion covers the nuances of retail pricing and profit margins, emphasizing the importance of maintaining brand integrity while negotiating store placements. As we explore the opportunities and strategies for retail growth, you’ll gain fresh perspectives on why retail is far from dead and how it can be a robust avenue for your business’s future success. Tune in for a wealth of wisdom on harnessing retail opportunities and nurturing sustainable business growth.
In episode 466 of the AM/PM Podcast, Kevin and Doug discuss:
- 00:00 – The Power of Retail Expansion for Amazon Sellers
- 04:30 – Changing Perspectives on Online Retail
- 07:26 – Navigating Retail Distribution Challenges
- 15:45 – Retail Pull Strategy Implementation Guidance
- 17:13 – Maximizing Retail Placement and Distribution
- 20:56 – Understanding Retail Shelf Placement Strategy
- 24:55 – Packaging Strategies for Retail Success
- 31:15 – Retail Logistics and Distribution Challenges
- 37:17 – Subscription Fees and Dominant Retailers
- 40:50 – Retail Product Launch and Distribution
- 42:54 – Shark Tank Product Success Story
- 50:23 – Retail Margin and Cost Structure
- 57:42 – Margin Analysis in Retail Sales
- 1:01:16 – Challenges of Online Advertising
- 1:03:50 – Exploring Retail Opportunities for Growth
Transcript
Kevin King:
Welcome to episode 466 of the AM/PM podcast. This week, we’re talking about something everybody that’s selling on Amazon or online needs to pay attention to, and that’s retail. If you’re not giving a shot in retail, you should be right now, and maybe you should be doing that before even TikTok shop or Walmart or expansion to Europe, because it’s a huge market in the US and there’s people that will help you and guide you and can grease the wheels and even help you with the financing on that side of things. So my guest today that’s exactly what he does. Does this for some of the top Shark Tank brands, does this for other clients, a lot of different Amazon sellers.
Kevin King:
It’s Doug Harding, and so I think you’re going to get some good insights in how retail works, what the margins are, what the breakdowns are, what you got to plan for, where you need to be on the type of product, and a whole lot more in this episode. So, enjoy this episode with Mr. Doug Harding. Mr. Doug Harding, welcome to the AM/PM podcast. Nice to meet you.
Doug:
I appreciate you having me. Thank you for having me on. I’m excited.
Kevin King:
Now you do something that a lot of people, I think you know. It’s interesting. I just had a podcast just recently with a Chinese-based seller. She helps teach a lot of these Chinese-based sellers that sell, like on Amazon and e-com, and it’s an interesting story for those of you listening. You should go back and listen to it. But how it applies to today is, she said look, we Chinese sellers, we used to have a problem with language and it was difficult for us to write the marketing and the listings and the stuff on Amazon. But now, with AI, that’s no big deal. We’re good with the numbers and analyzing all the reports and the data and everything. That’s always been our advantage. But we just don’t know two things when it comes to the American marketplace, and those two things are branding. We don’t know, we’re not good at branding. We don’t understand the American culture and we don’t know how to get into retail stores. We don’t know how to actually do the retail side.
Kevin King:
I started thinking about that and, as an Amazon seller from the Amazon world, most of us are always competing against the Chinese and we’re competing on price and there’s just a race to the bottom with these guys and they have some competitive advantages, but one of the advantages it sounds like we have is one is culture. We know the culture, we’re here, but it’s actually retail, and so I think more Amazon and e-commerce sellers should actually be looking at retail, maybe before they should be looking at TikTok shop or at Walmart.com or at some other expansion, because retail is still what? Something like 80% of the sales are still retail. So I just want to get a feedback a little bit from you. You’re in the retail side of things and you help brands get into retail. What’s your take on where retail’s at now versus e-commerce?
Doug:
You know good question, and specifically with Amazon. If a brand comes to us and says we’re on Amazon, we’re successful, the margins are working, we’re growing and scaling, now that actually means that you’ll be able to bring that success over the retail. A few years ago, when it was a little bit easier on dot com, the margins were a little bit better, there wasn’t so much expense. You would definitely get a higher profit margin. You know, if you’re working on Amazon or any kind of dot com business. But now with how competitive is how expensive places Amazon and all the other third party fulfillment centers are, if you are successful on Amazon, you’re going to be successful in the stores. If you work with the right groups right. So it’s about placing your product in the right space, where Amazon is more it’s mass marketing, where if you go into retail, you know you’re looking for one or two partners to start with that are going to help you take to the masses. So, it’s just a little bit different. But if you’re successful on Amazon, we say, come on over and you know, take a look at retail, because that’s where the big money is.
Kevin King:
So success on Amazon. Back, I remember I went to a pet show probably seven years ago in Vegas with one of my brands that I was selling and every time I would say I was selling on Amazon. I would talk to some distributors in the pet space and they’re like go away. It’s almost like one of those little crosses. The devil just showed up in front of my booth. Get out of here. We don’t deal with any online people. But I think that and that was because people were doing a lot of price checking and the original reaction in retail and a lot of distributors was like no, we’re not going to be your showroom, so if someone can go, just buy it on Amazon. But that seems to have changed in the last few years. Is that true?
Doug:
It has changed. It’s actually a litmus test now. Amazon is a big part of having your brand looked at. When it comes to branding, you never know what’s going to hit right. When you go back to your original question, the Chinese have problems with getting into retail. I think that’s universal. But branding, obviously some of it takes off, some of it doesn’t. Getting into retail is more of a process and, um, if you’re able to position your product the appropriate way, um, you’re able to get into retailers. So, it went from Amazon was a cheap, um you know website that nobody wanted to be on. So, the knockoffs. Now it’s a true litmus test. It really is. We had a meeting the other day with Whole Foods. What do you think the first place they look at? Obviously, Amazon because they’re a partner. So, it has changed. You know, just like the metrics to where, if you’re successful on Amazon with you know their costs and the fees eating into your margins, just like it happens in retail. If you’re successful on Amazon, you’re going to be successful in retail if you work with the right partner. But sometimes that also means changing your packaging. So that’s a whole another conversation that we can have too.
Kevin King:
And Walmart’s doing the same. I mean, Walmart used to be Walmart and Walmart.com were like two separate things. But now the Walmart buyers are looking at Walmart.com success and deciding do I want to kick someone off the shelf and put you in or not? That did not used to be the case.
Doug:
Yeah, it’s a big we’ll say it’s a big obstacle to overcome as a retail wholesaler because the buyer could always kick back. But we’ll give you a try on online to see if you’re successful. And it’s so hard it’s definitely not the best position to be in, but any way that you can get into one of those you know Fortune 10 companies a Walmart, Costco, Target, just getting in front of them the right way, it’s worth it, right.
Kevin King:
So who’s considered the holy grail right now in the US when it comes to like retail? Is it? It’s Walmart? Um, it’s Costco? Um, maybe it’s Whole Foods? Uh, who would? Who would Best Buy? Who would Home Depot, who would I rattle off like, okay, here’s like the, the top 10 or roughly, you know, like everybody’s dream to be in?
Doug:
Yeah, yeah, the calls that we get everybody wants to be in Costco and Target right. So that’s always the first two calls that we get at WRD Global. Can you help us get into Costco, can you help us get into Target? And we usually say absolutely, where are you now? And they say online. So those are the two most coveted places. And when it comes to you know, the hardware space, obviously you have Lowe’s and Home Depot dominate that space. And then in grocery, everybody wants to be in Whole Foods, Public Sprouts, those ones are really big now. And of course, you always have the bigger players, uh, Traver, Albertson. So those are all big ones. But everything circles back to Costco and Target. I don’t think we have a brand that doesn’t want to be in both of those places and I don’t think there’s probably a brand out there that doesn’t want to be in them, as long as, again, the metrics make sense. That’s what it boils down to.
Kevin King:
So how important is branding If I’m online, if I’m an Amazon seller right now and maybe that’s one of the reasons the Chinese sellers have trouble is because they can’t do the proper branding online and their brand name is a bunch of letters like DK72342, because that’s easy to get a trademark on. How important do the buyers look at? Do they just care about the sales and we don’t care we’re going to repackage this and change this up a little bit anyway or do they actually care about the branding and the photos and the A-plus and your social media and all that stuff when they’re analyzing you?
Doug:
Yeah, they definitely care. The second place they’re going to go to, the first place they’re going to go to, is Amazon. Usually, the buyers are going to go to Amazon. That’s going to be the first litmus test. The next thing is, again, just as you mentioned, what’s your social outreach? They’re going to check you out on Meta, see what you’re running on Google. Those are the first three things. And then, of course, where are you? So, all of those, all of those things you know, paint the big picture for a buyer. They’re going to go back to see where your first review was, when you built your Facebook page. They’re making decisions that can cost them their positions, and there’s so much free data out there, so they’re dipping into it. It’s Amazon, it’s Meta, and you obviously want to have advertising on Google and have a track record that you’re able to show, because without track record, without history, you’re a risk, you know, just like anything.
Kevin King:
Now there’s some people that maybe listen to this that don’t sell on Amazon. They only sell on TikTok shop or they only sell on Walmart. Is that a disadvantage? Do they like to see that you’re diversified across marketplaces on online marketplaces, or they don’t really care?
Doug:
Yeah, they definitely like diversification. Obviously, TikTok is new and it’s emerging. It’s something that the buyers are looking at a lot more recently than Amazon. Amazon’s still the litmus test. We don’t have a product that’s not on Amazon. So I would I would warn all the brands that you know it’s the number one litmus test out there. Whether you’re dealing with Costco, Target, Publix, Bj’s, Home Depot, those they want to know about your online presence. You know your Meta and they’re going to look for your Amazon sales. And it’s not just you know your sales you’re going to get. You know they have the rankings, the reviews are important. All those little metrics that some people say don’t matter, they matter when it comes to a buyer. Because then again it just it comes back to them taking a risk, is the product going to move out of the shelves and, more importantly, is this new brand off of Amazon going to be able to support and, you know, take care of our customers the right way?
Kevin King:
There are certain categories that are just a little bit easier to get into retail distribution, like I don’t know, I’m just making supplements are easier than say, pet products or something like that, or automotive accessories or whatever. A little bit more difficult. Are there? Are there a few that are a little bit harder and a few that are a little bit easier?
Doug:
You know, you brought up, maybe, in the cosmetics world. If there’s anything that has to do with supplements cosmetics, unfortunately, things you put on your face and your body you can get away with very easily there’s very little regulation. When it comes to supplements, that’s one of the hardest things right. There’s all kinds of certifications that you need first to get in. We’re not just selling coffee. Every product has its niche. If you have a patent that has to do with gas, there’s something that you have to. You know there’s going to be some oversight there. If you have a product that has a certain niche that you put in your mouth, they’re going to want to see. You know case studies nowadays. Sometimes they’re. You know, if you change the formulas at all, you have to update, uh, everything. You know it’s all CYA business in reality, but supplements are the hardest thing.
Doug:
Putting stuff on your face, that’s the easiest. Cosmetics, um, unfortunately, I hate to say, you put poison on your face out there there’s not too many uh regulations and getting in some of these uh major retailers. But when it comes to consuming, um, when it comes to, you know, consuming supplements, we have a few brands, yet that’s definitely the hardest path, the longest path, um, uh, you know, because without any data, um, you’re not getting in the door and then they have to try to like it and it has to work. So, a lot of the stuff that you see on the major retailers vitamin shop, GNC that we work with, there’s a lot of due diligence they put behind that.
Kevin King:
Yeah, I think that might be a surprise to a lot of online sellers because most of these marketplaces don’t have they don’t really either they don’t have them or they don’t really enforce them to a large degree the testing and the regulations and stuff that is required to go into retail.
Doug:
Yeah, it’s completely different. Amazon, it’s still the Wild West, but in retail you know, if we’re again, we’ll focus on Vitamin Shoppe and Kroger. Those are two places we’re working deals with right now. There’s six months of back-end work. You know there’s certain certifications that retailers need, but the good thing about that is if you pass the test, you know how hard it is to get there. You know how hard it is to be replaced right. So, there’s a good and a bad to how long it takes to get there. The due diligence If you pass it, getting to a company like Kroger is well worth it.
Kevin King:
And I mean to get on the shelf. You got to take some, usually got to take someone else’s spot too. So that’s what, once you’re on the shelf, that your work hasn’t stopped.
Doug:
Um, right, that’s it. Most people think, yeah, you’re on the shelf. There’s going to be hundreds of people passing by all day. Uh, my product’s going to move. Now it’s a. Could it be more false? Um, we have a whole implementation team that helps with our products, especially the new ones, getting on the retail shelf. And, off the top of my head, if you’re not spending 10% of the PO, I’m getting that product pulled off the shelf. You’re not going to be there that long. We’ve had products launch into companies like Sprouts, Target, pulled immediately. We’ve had companies that we were able to get into regional locations three to five. They put marketing dollars behind it, made sure you had the right placement. There’s all these little small intricacies end caps, design. We’ve taken those companies that actually listened and grew and put money behind their programs to 1,900 locations from five where people have stepped in and said I have flows. Now I’m in 2,000 locations and you don’t do anything or put any marketing behind it. You get left behind pretty quick because all the big boys out there, they’re marketing every day, they’re at eye level, they’re at the perfect shelf space and you’re not going to win unless you do what the big boys do, and that’s, you don’t put money behind it when you get out the shelves.
Kevin King:
I know a lot of times, a lot of times, they do a test right, so you go in it’s. It’s rare for Walmart to say, hey, put us in 44 and we’re gonna put you in 4400 stores, unless you’re a big brand and they you have a track record. But if you’re new they’re probably going to test you in a handful uh or something, and is one? Is that that still correct for most of the brands? And the second is when that happens, you know where you’re at and that’s what I’ve heard people say. If I’m going to be in Tucson, in the Walmart on Main Street in Tucson, I’m going to go target everybody on Facebook that lives around that Walmart with some ads for my product to try to influence them. Going in and pulling the stuff off the shelf just to kind of hopefully juice the numbers a little bit to make it look like my stuff is flying off better than it might not. But what if without those ads? Is that a strategy that you see a lot of people use?
Doug:
That’s it. It’s the exact strategy and we just want to keep it going too, because the goal is to stay on the shelf right, repetitive uses, obviously, the continuous marketing, the continuous. There’s a push-pull program. Our sales team pushes your product out there when it gets on the shelf. We need a pull program. Right, it’s not mandatory, but we highly recommend it. We use our model, based off of some other successful ones that we had. Some people say hey, you have sharp tape. Once you get on the shelf, everybody pulls your product off the shelf because it’s got Kevin O’Leary’s face on it. Couldn’t be more farther from the truth. Right, we just like anything. You have to just put dollars behind it and it just depends on if you’re doing direct target marketing when you get a, a shootout. They’re called shootout trials. We have one at Lowe’s coming up for one of our products. Really neat, it turbo trust. So we’re launching in about 200 stores trial. We’re going to do everything you said that you recommended, but our goal is to do that on a scale of 2,000. And it’s just about continuously getting the pull. And when you run through the market you have to have the next innovation and that’s the next step of retail.
Kevin King:
So walk me through the. A lot of people don’t understand slotting and positioning on the shelf and, like you said earlier, you know they this one’s a um eye level and or they’re on end cap. Can you explain to the audience that might not be aware of some of this terminology what’s an end cap? What’s slotting? What’s, uh, some of the little placements that you can do around, uh, a store that actually usually costs you some, some change.
Doug:
Yeah, yeah, good question. First off, with the verbiage, all the retailers kind of use the same but different words slotting, shelf space, end caps. To reverse engineer that question, the place that you want to be in the store is on an end cap. The end cap is obviously the end of an aisle. That’s usually attached to some type of display. Right, that’s the number one spot in the store. The second best spot in the store is right now we’re in the checkout aisles, because you’re going to get guaranteed traffic in the checkout aisles where, if you’re in aisle 17, sometimes people don’t walk down aisle 17, but everybody has to check out, and then you know. The third space is, yeah, looking for shelf space just directly in your category, whether that’s paying some type of slotting fees, giving some kind of discount upfront, paying for premium placement or doing what a lot of great entrepreneurs do? You go after the brand that you’re better at and you try to replace them, and if they’re at eye level, you take their eye level. Or if you not try to replace them, you offer competition, because if it’s a brand that’s moving in that store and you offer something similar. Odds are they’re going to get more customers. They’re not going to lose customers to brand A because brand B is there. They’re going to gain more customers and that’s what the retailers look for.
Kevin King:
And then you have the ones where the little hanging things they hang off a shelf or something. What are-
Doug:
Strip clips.
Kevin King:
What are they called?
Doug:
Yeah, the strip clips.
Kevin King:
Strip clips, yeah, there’s the strip clip. They’ll merchandise in any way they can. In the middle of the aisle stuff. You walk through Walmart and there’s just what’s they call it? Pallet offloads or something like that. It’s like the stuff is still on the pallet.
Doug:
Yeah, so really neat. The distributor that we use it’s called US merchants. They’re one of the largest in the country. Um, they service Costco, Target, Bj’s, Walmart, Sam’s club for us. Um, their CEO, um, I don’t know the details he created the pallet program that is at Costco and they actually started the program with Costco, have expanded, they have the spurts on it so you’re able to save space, you’re able to get the retail display and the brand on the bottom of the pallet. The pallet is full. I forget the name of the program, but they actually created that and we’re lucky enough to just have them as one of our distribution partners. And if you’re able to go to a retailer like that, another secret right is if you go to a retailer like Target and Costco and say I’m going to sell all this product and we have this great idea, it’s going to go one way or the other because every entrepreneur has that. But if you come with a pallet program, if you come with the actual SKUs on a pallet, send over the diagram, show how many fit on the truck, how many fit on a pallet. All of a sudden the buyer knows you’re the real deal and the pallet program has a lot to do with that, but it’s really amazing that you brought that up, because our distributor part of US merchants. They invented that product or, I’m sorry, they invented the program and it’s used at Costco by some of the biggest brands in America.
Kevin King:
Costco is also a different animal, because Costco don’t you ship directly. So versus like, if I’m in Walmart, I’m shipping to a Walmart distribution centers and they’re spreading it out on their trucks, but with Costco you’re shipping directly to every single Costco, right?
Doug:
Yes and no. Yeah so there’s different. They have regional shipments. There’s a regional rollout. Yeah, so each place is different. Almost every one of the major retailers with 250 or more stores offer both. They’ll either work with a distributor or they’ll have direct store delivery, but a lot of them also, even if they have DSD, they have warehouses that are placed strategically around the country, including Costco.
Kevin King:
You mentioned earlier about the eye. You want to be at eye level or trying to displace, but how much control do you really have over that? Because don’t the buyers do like planograms, like these little diagrams, and they match it up, and I’ve seen guys in the store holding like a laminated sheet of paper, like reorganizing the shelves. Yeah, um, what’s the science behind that? Or the? What makes that, that hum, that work? Is that just some buyers random, like I’m gonna do this, or is there real data behind it? Okay, we’re putting a slow moving stuff on the top, the good stuff in the middle, um, or what? What’s the? What’s the reasoning and science behind those things?
Doug:
It’s changed before it was like if you bought them a nice lunch you would get better placement. You know, 10, 10 years ago it was that. Now AI controls so much of the buyer’s decision. They still have the decisions, but they’re using um. You know, you’re able to see almost any website sales now with the right software. Um, they’re most decisions that are being, I would hate to say, made for them just based on trends, trends that they know that are going to come in. And then also placements are bought, paid for, I forget, generationally by some of the major brands there. I forget, that’s not the right word. So if there’s no real science to it, it’s just you have to have. You know every store will have a different pitch for each brand. It sounds silly, but you could be going after your competitor. You could be going to become a partner, you know, next to your competitor. You could be going into a store with a brand new product that nobody’s ever heard of. All of that shelf space, algorithm stuff is kind of being AI-based now and if the buyer likes you, you still have a little bit of sway.
Kevin King:
Online, there’s a couple of things that don’t matter as much. One of them is packaging. A lot of people don’t spend much money on their packaging when they’re selling online. It’s a brown box or it’s an ugly little package. I’ve always been of the opinion that you should actually do nice packaging online, because people eat with their eyes first, and it can convey a slight increase in packaging, can convey a big increase in justification of price. But a lot of sellers don’t understand. You basically get your whole listing onto a package, so when someone picks it up and turns it around in a store, what is it? And then the second is a lot of these stores I know, like Walmart specifically, a lot of times not all the time, but a lot of times they want the SKU to be different. If you’re selling some Quest bars and you’re selling a box of six online, they want a box of five in the store with a different UPC. So there’s no price comparison going back, or at least they used to. Maybe that’s changed now. So what do you recommend on packaging and on configurations? Do they need to be different than what’s online or you can just run the same stuff?
Doug:
You can, but you’ll have a less chance of getting in. You’re exactly right. If you have a consumer products food, a consumer products good, that’s food, we’ll say. If you’re going to be in Publix, Amazon and Costco, you’re probably going to have three different packaging, three different price points and three different serving offerings. You might have a 16K cup, a 9K cup and a 12K cup, and it’s because, again, they’re trying to eliminate the competition of what they have on the shelf compared to what you could put everywhere else. So most of our brands have three, sometimes four, different packages and it’s so important because you think, oh, we can just make a bigger box. You can’t, because in Costco your stuff’s going to be on a pallet, where in Publix and Sprouts you may be on a shelf, where, if you’re at an outdoor, we’re going to go to coffee we have a lot of coffee. If you’re in an outdoor space, you may be in the checkout aisle. So your placement is going to be different at each of those. You know each of the locations and it just kind of depends on the retailer and the brand.
Kevin King:
And what about on the packaging side of things? What do you guys have to do to help these online people migrate to retail? When it comes to packaging, what do you have to hit them over the head with and like come on, guys, you got to wake up here.
Doug:
Yeah, well, luckily, we have a really good partner that has a lot of Fortune 50 brands, so we like to bring them out and take them out for a tour and show them the difference between packaging on a pallet and packaging on a bag, because every entrepreneur has the best package, the best design. We all have the best product, the best everything, but the best thing to do is give it to someone who specializes in pallet packaging, and we help with that by sending you to the right distributor, who obviously we’re partners with, but they’re going to make the packaging different already as soon as we bring a SKU in. We’re ready for clubs, we’re ready for retail and we’re ready for Amazon and dot-com business. It’s kind of something we do from the gate because we know where we’re going. But most brands, if you want to be in retail and online, you’re going to run with three different packages and just take advice from people who’ve done it before. It’s not my field, but we have a bunch of smart people and a bunch of companies we could send to that. Just this is what they do, and it’s just best to take their advice, take your brand and your idea and let the professionals just run with it, because there’s a whole science behind that too.
Kevin King:
I know some people have been a little gun shy to go to retail because they’re like, well, I don’t have any control. On Amazon, I know if I ship in 1,000 units, I can sit there and track it and I can see that, okay, it’s got checked in or this truck load’s got checked in and I know it’s available basically to the whole world. But if I ship in a thousand units to Walmart’s distribution center, I don’t know if that stuff is sitting behind the shelves or sitting in the warehouse or when it gets to the Walmart local Walmart store just sits in the back for a while and just expires out, and then I get big returns. They’re always worried about those type of things and I know I used to have a buddy that worked for like the. It was a private company but they handled like M&Ms and Mars related stuff and he would go into his 240 retail stores and his job was to go into everything from convenience stores to Walmart and check the gum and check the M&Ms to make sure the Reese’s pieces weren’t taking up the M&M space and like, rearrange the shelf and make sure there wasn’t some guy sitting, you know a couple boxes sitting in the back and bringing them out, especially if it was around a holiday like Easter or Valentine’s or something like that.
Kevin King:
So what do you? What can you tell me a little bit about that side of the business of where and I know, like Mr. Beast, just recently he launched Feastables and he says he likes, every time he’s in LA or somewhere traveling, he likes to stop at as many Walmarts as he can to go in there and just see how his Feastables are on the shelf. And sometimes he’ll sit there and rearrange them on the shelf because they’re a mess or whatever. Uh for, for, uh from on the, from the marketing side of things, um, so what? What’s? Talk to me a little bit about that aspect of the business.
Doug:
So let’s see um, Up cup coffee is one of our brands, the mushroom coffee and a cake cup. I walked into one of our stores two weeks ago. It was a disaster. Um, I ended up texting everyone on our team you need to go to Sprouts and check the displays at all the stores and, honestly, half of them were really just in shambles. They weren’t in the right place. So the control on that it’s different per store. We don’t have to do that for all of them, but mostly the places like Costco, Target, even Sprouts, um, we’re there or our trucks are delivering there every day, or some of these brands have their own merchandise, just like you mentioned that go there. Um, difference between now and 5, 10, 15 years ago, losing track of your inventory now it’s just, it’s a lot crisp and it’s a lot cleaner now and we actually run that when we run into a Costco or Target all these stores that I keep mentioning um, we take care of the inventory when it leaves the dock, um, it’s our responsibility.
Doug:
So if it ends up in the back room, it’s our responsibility. And but we have EDI um connections to all these places that make it easier still get lost. You know, people still take snacks home. We just shipped out 3 000 ovens and, uh, you know, five percent of them are damaged, you know, after they left. So you have to deal with all those things that happen. But nowadays, with you know all the electronic, the back end it’s, it’s a lot, it’s a it’s, it’s as crisp as it is online and I would say it’s better, because when you move 1,000 units this way, it’s on a truck. When you move 1,000 units online, it’s 1,000 different or 500 different addresses. So this is actually a little bit cleaner, easier and softer on the brand’s pocketbook when it comes to administrative duties.
Kevin King:
But the brands also get charged a lot of I call them BS fees. I sell calendars into Calendar Club, which is they have all the kiosk and stuff in the malls every year and I have a co-op fee, a 3% advertising co-op fee. I got paid. If I put the label one millimeter in the wrong spot from the right corner, there’s another fee. If I’m late by day, there’s another fee. If I don’t enter the tracking number from the trucking line, there’s another fee. If I don’t make an appointment at the right time, there’s another fee. They nickel and dime you together on fees to death on fees. Then when the calendars are in the stores up until Christmas, I’m getting my normal wholesale price and then after Christmas when they mark them down to 50% off, they only pay me 50%. It’s a shared markdown. I only get 50% of my wholesale price and then when they go to 75%, I only get 75%. And then at the end of the year when they’re done or they close up the kiosk, whatever’s left over, they don’t send them back to me. In the old days they would do cover tears and stuff and send you back the covers, but now they just say, hey, we didn’t sell, uh, 217 of them. We’re not paying you for them, and they keep them, and what they end up doing is they still sell them, um, and, but they just put them in a bargain bin and they sell them and they don’t pay you for them. Uh, and this is true. This is not something like. This is the way it works. Um, so what? What are some of those things that people need to be aware of in that regard if they’re going to go into retail?
Doug:
It’s crazy that what you’re saying is true and it is true. Um, yeah, we’re entering our 13th year doing this. The first five years I have no idea what I was doing, let’s just put it that way. And you do, you just give the stuff away because you think that’s protocol, right? Um, the way to protect that is just kind of having the knowledge, right knowledge, knowing how the system works. Um, I don’t think in the past six, seven years we’ve never donated um any um product that was left. But it’s all about, you know, uh, from the initial PO to the invoice, everything that happens in between is tracked, it’s, it’s taken care of by either our company or one of our distribution partners. And when you partner with us as a brand, you get to actually pass that liability off to us. That if you have as an individual brand, number one, it’s just there’s so many things that can go wrong from, as you said, if the bill of lading is upside down, if it’s on the right side instead of left, if the boxes are stacked incorrectly, you get fined and chipped away. It’s kind of like the medical field, right? They don’t pay, they don’t pay and the brand dies, or the big conglomerate comes in and buys the brand and then what happens is they have control and we’re lucky enough to have the partners that have control on that end. Yeah, logistically it’s a nightmare because they do technically nickel and dime you.
Doug:
The things you can do with crack check to yourself is you go with you know somebody that is a large, well-known distributor and not do it yourself, because nobody knows how to do every single part of that logistics game. But with us signing up with WRD Global, if there’s something wrong with Target it’s going to fall back on us. Obviously, if fines happen, they still do fall back on the brand. But we take a lot for the team. You know we have long term relationships. Most of the mistakes are ours anyways or our distribution partners, because they still happen. But compared to doing it individually, it’s almost impossible to make a profit on your first run. So just signing up with a distributor making sure that you put a professional in the way, it’s kind of like doing your taxes too. They watch, so you’ve got to watch back.
Kevin King:
So in your case, you said you guys handle a lot of this. Do you have a big warehouse there in Tucson, or do you have partnerships or warehouses all over the country, and then, and then you’re all your brands are shipping in there and then you are basically distributing them back out, or how’s? How’s that process work?
Doug:
Exactly like that. So we have a partnership, um here with a local company in Tucson. They’re actually a local nonprofit; it’s called Beacon Group. They do some of our direct-to-consumer business. Then we have our big partnership with US Merchants who has 36 facilities all over the country. They’re also in Canada. They do most of our distribution. Then we have a couple of their small distributors around the country. So we handle it all. From a logistics standpoint to which distributors you’re going to use, because some distributors you know you can’t get into certain retailers with. Some just have contracts with you know specific ones, and that’s kind of where most of it’s going. Every place is being owned by the 5, 10, 15 conglomerates. Same thing in distribution. Same people that are getting the stuff to the store nowadays are owning them, like Amazon and Whole Foods and there’s you’re going to see a lot of that like Walmart and Walmart, Target, Target.com or you know dot coms um Alta, Alta is changing their model, throwing themselves inside of Target and still having their own individual model. There’s all these different models, but in the end they’re kind of owned by the same 10, 15 groups if you take a look at it. So, it’s pretty interesting, pretty interesting.
Kevin King:
Do you do cold storage too? Or no?
Doug:
We do, we do cold, we do food.
Kevin King:
Dangerous goods?
Doug:
Yes, we do, yep, yep, we do. Yeah, we actually dangerous good is just another. Actually, you know different. We have guns, we have gun safes um, we work like-
Kevin King:
Like sanitizers or pesticides or stuff like that that are flammable?
Doug:
All kinds of cleaning, yes, yeah, all kinds of cleaning fluids. Yeah, all. Yep, that’s the angle. It’s a whole different angle in our household supplies. So, yeah, all kinds of hazardous shipping, all that stuff is taken care of by, you know, our major distributors. We made the mistakes early and found the right partners.
Kevin King:
You mentioned earlier EDI. I think that might have glossed over some people that are listening they’re like EDI, what’s that? Can you explain what EDI is and the process of getting set up for that and stuff and why it’s important?
Doug:
Yeah, most of the places are not done on paper anymore, but you get an account. You know, like public’s. You know your invoicing, your logistics plan, the planogram from your meeting right on down to the deductions, um, everything is done electronically. So, if you have a small brand, you’re going to have to be set up with, you know, several softwares uh, several different softwares, because each of the companies use different ones. So, if you’re not set up with the software number one, it’s not easy to do. If you don’t know how to work with it, like software is at ace, it’s almost impossible. There’s, you know, decades of, I think, learning that goes into some of these softwares. But with us, just because we have the relationships with the distributors and the retailers, they take care of all the billing when you sign up with us and you’re able to get in. We’ve taken care of everything already, including being able to set it up to where direct deposits go directly to your bank and you’re paid most of the time on time. You know they still. You know they still pay late, but they’re a little more friendly to companies that do bigger business. So, EDI, all electronic payments, that’s the big thing. If you don’t have EDI, it’s going to be really tough to get into any major retailer and you’re going to usually have like three or four different softwares. I’ll share some names of ones that you can use and tell your audience. Some of the most famous ones or some of the most common use.
Kevin King:
That’d be great. Are there fees to use the EDI? Or is it like a monthly subscription I got to subscribe to, or it’s just a software that I just buy one time? Or does every single retailer have their own system I got to login or tie into?
Doug:
There’s a few that dominate. You know, SPS Commerce is just that’s one of them. Um, you know they have five or six major retailers that we work with. Um, we have actually five. We have five different softwares um, that you know Costco, Target, Public Sprouts I’m reading it right now. Some of them, I think all of them, are used by at least two or three. So, there’s some dominant ones. And as far as the subscription, the payments on things like that, they’re pretty nominal, not going to break the bank, a couple bucks a month. There’s no fee, it’s not like paying a credit card, it’s just. They’re all set up. Everything goes through one back-end system whether it’s payments, logistics, deductions or stuff that we’ll say gets left as samples, right?
Kevin King:
So let’s talk about the money side of things. Like you just said, most of them pay on time, especially if you’re a big boy. I sometimes get paid on time on some of mine. Sometimes it’s like they pay you whenever the goddamn well, please, where are they pleased? And so I got one right now. Um, that’s a month and a half late. Um, and they just sent me yesterday, said, hey, the check was cut and you know, um, they’re actually sending a physical check through the mail. I’m like, come on, guys, this is ridiculous. The contract clearly says this and I have no recourse other than to sit and wait. But a lot of people, I think, they’re afraid when they get into retail. They’re like how am I going to finance this? If I go in, okay, I can finance a test. I’m good for that. But if I do a 200-store test with Walmart and they come back and say we’re going to do a national roll out with all 44 hundred or whatever the number it is they have now, I’m like holy cow that’s, I don’t have to $1.2 million just in the bank service of $4 million PO, what do I do? Do I go call my rich uncle?
Kevin King:
Do I? I know there’s companies like factoring companies and stuff that will take that on and basically finance it for you for a 3% to 7% fee usually. But what are some of the options? And maybe you explain what factoring companies are too. When you get into this, if you don’t have the cash flow up front and you’re new, how do you handle this and wait forever to get paid and they might place another order in between. You got to pay your factory deposit or something, while this current stuff’s on the shelf selling like hotcakes, but that doesn’t matter. If they sell it on a week, they ain’t paying you for 60 to 90 days, unless you have some sort of like two 10, that 30 or something that motivates them and they decide to do it.
Doug:
Yep, and they want to order more coffee while they’re behind on payments. You can’t pay the roaster because they won’t pay, but they want more right?
Kevin King:
Yeah, how does a seller navigate that or what? What do you do?
Doug:
It’s a nightmare. It’s a nightmare and it happens with successful products. So that’s the worst part, because you’re running out of inventory, right, and we have a ton of options. Usually, when it hits, though, it hits fast and you always have 60, 90, 120 day lag where you’re just like. We just went from 600 stores to 6,000 and you just have to go. You could obviously get short-term loans, which we recommend against because we want brand owners to keep their 100% of their brand if possible. Just getting an investor. We obviously have access to investors, just regular, just basic private equity capital investors, but most people use factory, like you said, 3 to 7%. It’s about 3 to 5% with us. Most of them are just depending on the dollar amounts and intricacies. We pay 3 to 5% of the PO to place that factor. If we get a PO from Sprouts for a million bucks, you need $500,000. We cover it. We charge you five points. We take it out when Sprouts cuts you the check. That’s really just how-
Kevin King:
That’s basically a 20% annualized interest rate or more.
Doug:
Yeah.
Kevin King:
If I got a credit card with a good credit and I’m a small guy just getting going and I got good credit I might want to get one of those 0% interest credit cards for 18 months that has a 50 or 100,000. You know one of these Amexes that has a huge balance, a huge available balance, and leverage a bunch of those together. So you got to get basically, you got to get creative. That’s what you’re saying.
Doug:
You got to get creative. That’s another part. You know, if you’re in there for two years SBA loans you know negotiating terms on where you’re getting your products from right. I mean, that’s the goal. Your goal is to pay people on that 90, collect that net 60, but usually it happens the other way around and so you just run into a jam. The best thing is, you know factoring. If you’re working with us, we’re kind of going to get ahead of it. The third way to stop that is just planning, not going for the bait job. We’re rolling out ACE. We’re rolling out 8, 12, 32, 4. We’re going to get to 5,000, but it’s a healthy rollout. It’s an expensive product, it costs. You know the brand only. You know it’s a $500 retail oven. So rolling out sometimes, you know, just responsibly, just keeps the brands healthy, making sure you have a little bit of money coming from online. Just planning, planning. But you know plans don’t always work. Uh, we have the resources, you know, with WRD global, to just get. You know, if you get a 10 million dollar PO and it’s for one of the major retailers, we can get you the money.
Kevin King:
That’s that’s cool, that’s that’s that’s really good to know. Yeah, so that. So this is this oven that’s going out. Uh, are you allowed to talk about this? This is a Shark Tank one, right? Um, are you?
Doug:
Yeah.
Kevin King:
Yeah, so what? So, walk me through this, this product lifestyle. So some guys invented this, this oven, and went on Shark Tank. Kevin O’Leary invested and then they sold it DDC for a while. And then what happened? Or walk me through the whole process.
Doug:
Yeah, exactly what you said. They went on Shark Tank 2018. They won uh Shark Tank, O’Leary’s it, one of the investors, um, they ended up coming to uh, coming as a lead from one of my Amazon partners who sends us leads that want to uh get people into retail. Sent uh Bertello over as a lead. They were looking for someone just focused on retail. Um, you know, Shark Tank team has a lot of value, um, but, uh, they just needed someone that could, you know, focus on big box hardware. They ended up referring them over to me. Um, we, uh, we ended up able to help them and we’re launching into, as I said, you know, Ace. We have some other big ones that are moving. It’s a rotating pizza oven. It’s a patented product. We actually developed it from its original 12-inch platform to a 16-inch dual fuel rotating pizza oven. That’s going to pretty much push everybody out of the way and, uh, we made that product successful and Mr. O’Leary and their team has, you know, continued to send us a few other products. So, um, a lot of them, um are Ace Home Depot, Lowe’s True Value. I think there’s something that just happened with them. A lot of products in the outdoor space that we get sent over. But yeah, the Bertello pizza oven. We’re cooking lunch for the Ace staff in a few hours here.
Kevin King:
I think I actually have one of those ovens sitting in my garage. I moved, I bought one several years ago and then right around that time I moved and I think it’s still sitting in a box in my garage here that I just now remembered. When you said the name, I was like you know what? I think that’s what’s sitting behind those things, still in the box. I need to pull that thing out and actually use it. It’s probably an older version. It doesn’t have the dual ovens or whatever you said. Um, but yeah, I need to pull that thing out and actually use it.
Doug:
We’re gonne send you a new one.
Kevin King:
Like a little brick oven uh, miniature brick oven, pizza kind of thing, right?
Doug:
Yeah, we’ll say we’ll send you a new one. Uh, I’ll send you a brand new one. Like I said, it’s rotating. You cook with wood and gas at the same time. You could use batteries. You plug it in. It’s a great invention and we took part in it over the past year, as we sold the one that you have on your shelf now. We’ve sold about 150,000 of those, oh wow, over the past three years and we have some amazing pre-orders. Ace is one of them, but there’s a couple other big box clubs that we’re going to be launching into, uh, as well. But yeah, Bertello pizza oven, that’s my favorite product right now because we use it. I like pizza, you know it’s. It’s got a high dollar amount, so it pays good commissions. So, when you’re a sales rep, you know you’re thinking of that. So, but it’s a great product. It’s a patent, something that that’s another thing we look. If you have a product that has a patent or proprietary. Those are the things that retailers are looking for. It’s so hard to be the next coffee. It’s so hard to be the next cell phone case, the next hack, the next brand, the next design. You don’t want to be the next mushroom coffee. You want to be the next coffee that actually has mushrooms ground in with it and put in cake cups because nobody else does. Kind of just a sidebar when you have patents, a lot of reasons why it’s a favorite product. But being a patented product that offers just other functionalities that the products don’t have on the shelf. Getting that patent is super, super, super important. If you have that chance and that’s what we’re usually looking for patent, proprietary products, patents first, and that’s why.
Kevin King:
So, speaking of commissions, how do you guys work? If I’m an Amazon seller and I’ve got my patent, I got my proof of good sales on Amazon, I’m like I want to try this retail thing. I give you a call up and I say let’s go forward, let’s do this. What am I looking at in terms of fees from your side, not from the retailer side, but from your side?
Doug:
Yeah. So we kind of come on as we say you hire us for minimum wage, we cost $40,000 for the year and we charge 5% commissions of all of our gross sales to the wholesalers and retailers. Just the business that we actually touch.
Kevin King:
5% on the PO value?
Doug:
5% of the PO value. Yeah, 5% of the PO value and-
Kevin King:
What if it doesn’t sell? Are you taking 5% off on returns and drawbacks, or is it just 5%, no matter what?
Doug:
Oh, I hope you don’t jinx me here. So we have not had a. I can’t remember doing a clawback or a drawback or a buyback in about four years, but if that happens, we figure something out. I’ve actually had like two or three way earlier. Uh, we’re getting ahead of it, but what happens? Yeah, we obviously don’t take commissions on it and we’re usually helping manage their dot-com business um, we have liquidators who will pick up directly from the store and liquidate for us. I think we have so many different options, but I haven’t used them in a while, I have not used them in a while and I don’t plan to. But yeah, we only get paid for what you get paid for.
Kevin King:
It’s $40,000 per year ongoing and 5% ongoing or $40,000 one time.
Doug:
Throughout the year it’s $3,500 a month. It ends up being $42,000 exactly, and that’s 3,500 for the first year at 5%, and then, after the first year, it’s just 5%.
Kevin King:
Okay.
Doug:
Yeah.
Kevin King:
And that doesn’t matter how many products I have?
Doug:
Oh, that’s only one. Yeah, no, that’s only one. Good question, good question. No, if we like to take on one product, one brand, at a time, obviously you’re going to have two, three packages of coffee. There’s a couple ovens. Uh, we have a turbo trusser. It’s a really cool, uh Thanksgiving item. It replaces the twine that you put around your turkey, but, um, it’s, it also could be used for chicken. Um, we have, uh, yeah, yeah, there’s different strategies with all three of those brands, or all three of those products.
Kevin King:
All right. So there’s additional costs for additional things. All right, that makes sense because you got extra work on that. You talked about liquidation, where you have someone that goes. I see on your website I saw that you had a liquidation services Is that just go pick up the stuff in the stores and clear it out? Or if I’m an Amazon seller listening to this and I’ve got man, I’m sitting on a bunch of crap that I just can’t move because some Chinese guys came in and just undercutting me, can I call you up to liquidate that as well? Or is it you just doing the retail side liquidations?
Doug:
We are just focused. We used to do all liquidation, but right now we’re so entrenched in all the retail sales. All of our liquidation that we used to get would come to the retailers. Right now we probably could help somebody out on that, but it’s really not our space anymore. Our liquidation is, yeah, bringing stuff off the shelf, making sure that we’re replacing it. There’s times where we’ve changed packages and we wanted to pull some things off the shelf right and liquidate the old thing. So, we’re able to do those things. But I’m really not into that. We’re more into just a long-term business. If you have an Amazon product that you’re trying to liquidate um here, you know, um through any type of distributor or third party, my best piece of advice is sell it online. You’re going to get five to 10 cents a dollar maybe, and that’s before shipping and um you know that’s it.
Doug:
We get calls all the time. Do you have close to expiration dates? Although you just don’t want to fall into that trap, it’s just better to put it online and at least be able to brand off of not making money. Or if you sell it to some of these liquidators, they can end up anywhere. They’re a family dollar. They end up with a prison system. They end up with free school lunches. Um, there’s really no marketing. There’s really no. Uh, you know value that’s behind it. You’re really just losing. So if you’re want to liquidate from Amazon, use it to build your site, use it to build the dot-com presence. Uh, that would be my advice. Get more, get more money yeah.
Kevin King:
Walk me through the cost structure on wholesale. So, just so everybody understands what they’re looking at. So if I’ve got an item right now, I’m just make up, say, it’s $29.95 on Amazon right now and my landed cost on this thing is, let’s say, $8, just for argument’s sake. So I’ve got my Amazon fees and my, my advertising and all my stuff taking a chunk of that out. What am I looking at when I go to a retailer and I say here’s my 29.95 item on, let’s say, dick sporting goods or something, and I say, okay, am I? Is it still key stoning for most stores? Or, like in the case of my counters, they want 70 off, uh, SRP, uh, and then some additional fees. Can you walk me through the backwards, through like what I should expect? Okay, 29.95, you’re going to sell that for whatever. 70% off, that’s um or 50. If it’s 50 off, to make the numbers easier, you’re going to sell that for 14.97 and then they’re going to take a three percent advertising fee and two percent co-op fee and one percent bullshit fee and another fee to do this and then you get your factoring fee or whatever. Can you walk me backwards so I can see, just paint a picture of a possible. Am I making a dollar a unit and I’m just, this is all money’s made on at scale, or walk me through that.
Doug:
Yeah, yeah. So, uh, first part of the question yeah, there’s all those fees. Right, it’s crazy. Like half of our I’m telling you half of our job is we save 10% because of the fees. The first rule when bringing out a brand okay, that I look for, that’s going to be successful. Obviously, we have Amazon, but we look for a 5X markup from our cost of goods to our MSRP. So if you have an eight-dollar product on that, the landed cost is eight bucks we-
Kevin King:
29.95 was too small, just to do.
Doug:
Yeah it would be it’s a tough product, right? You know, we’d like to be over four, over 4x is our, is our now we’re looking to five. Now, the other thing to factor into that is, when you work with a company like ours, you’re going to scale and your cost of goods is going to go down. So we look at a 5x, and so that’s the first rule. Well, do we have?
Kevin King:
Let’s say at $29.95,. I need to figure out can I get this to six by scaling? And maybe my first order is at eight because it’s a smaller order. But I know, okay, I’m going to take a hit on this first order and maybe break even or even lose a little money, but just get my foot in the door and then I know at scale I can get this to six. Something like that could work?
Doug:
You’re 100% right and we’re not going to do a deal unless the brand. Another rule is unless the brand wants us to do this, if you are not going to have a 25% margin, after all the bells and whistles feels, paying us, paying the distributor, shipping everything we’re not going to even present the deal to you. So, we’re going to make sure. Now some of our brands make way more than 25% margin. Um, and we have one brand that actually they’re just building their brand and they’re okay with not making that margin and being in a lot of stores right now and they have a different story. Um, but 5x, COGS, the MSRP, right, that’s the biggest rule. We’re going to do a deal that you’re going to have a 25% margin on right, at the bare minimum. We’re going to try to get you the most right. And the third thing is just making sure that we get ahead of all of the discounts and promotions and the dollar amounts that we have to factor in to make sure that you have a net profit. If you’re looking at a 5x, just going 6 to 30, you’re looking at about $9 would be a good take home on that. Six bucks, 8.50 to 9 bucks, and that’s what you’re looking at, most of our brands fall between 30 and 45 percent net margin and the retailers, depending on them, they’re between 30 and 60 percent net margin, just depending on the category, the space, if it’s outdoor food, if it’s club. Everybody’s different. There’s different algorithms, but from a brand perspective, you can do whatever you want, but we want you to make 25 to as much as possible. The retailers, they’re going to want 30 to 70, just depending on the product itself.
Kevin King:
And then what number do I need to put in? You said earlier I think you should be spending 10%. Was that of your gross or of your if I’m netting? If I got nine dollars margin, I’m getting 15 bucks. I think is what you just said. On a 30 dollar item, am I paying? It’s 10, it’s a dollar 50 a unit I need to assign to advertising, or three dollars a unit.
Doug:
Um, it would be on your wholesale price. Yeah, it’d be on the wholesale price yeah, so-
Kevin King:
I mean that’s going to come out on my 25%, or the 25% is already margin that you’re shooting for has already got that baked in.
Doug:
The 25% is already caked in. So six bucks is a really good you know it’s a really good number with coffee, right? So if we have a six or $7 cost on coffee, they’re going to take home 10, 11 bucks after it’s all said and done. That’s after the 10% on marketing. So, what you want to factor in is you have our 5%, you want to put 10% into, you know a pull program, and then it’s going to cost you 10 to 15% on distribution, depending on how many products truck load, pallet, weight, you know distance. So, um, again, we’re going to always go back to the same metric. We’re going to make sure you don’t make you make at least 25 margin or not do it, um, unless you tell us otherwise, unless you want to get in the store and at the beginning you might only make a five to ten percent margin. Um, just as you said, just to get your foot in the door.
Kevin King:
So another example. I’m just doing the math in my head. Correct me f I’m wrong here. Make sure I understand. I just want to paint the clear picture. Yep, so if my landed cost is $6, I’m going to sell it for $29.95. Out of that $6, 10% of it I need to assign to some sort of advertising or support or social media or whatever promotional support. 5% is going to go to you, so 30 cents is going to go to you on every single unit. 60 cents is going to go to advertising. 15 to 20% is going to go to the distributor, so they’re going to take a buck and a half roughly of that. So now I’m at what am I? $2.40 or so roughly. And then I’ve got some other costs, maybe some insurance, some other stuff in there. So I’m at $3 add-on. So now my $6 item is now $9 cost really to me, and then maybe a little bit for returns, a little return allowance on my number. So let’s call it I’m in 9.50.
Doug:
Yep.
Kevin King:
Then, depending on the store, they’re going to buy that between 30% and 70% off. So they’re going to buy that at a $29.95 coffee. 70% off of that would be they’re buying it. Well, 70% off I can’t do, because they’re buying it below my cost, because 70% would be $8, $9. So I’m making no money. So if they’re at a key stone at 50%, I’m making then $5, $6 a unit. So that’s better than a 25% margin.
Doug:
Yep.
Kevin King:
Okay. So is that the general math? I know I’m probably leaving something out. We’re just doing generalities, but that’s the general math that someone should come into it from.
Doug:
Yeah, yeah. And when it comes to 25% margins for the brand owner usually we see those at the large wholesalers like Costco, Target, Public Sprouts we’re going to get a lot higher. We’re going to be at 60 points, sometimes a lot higher, just depending on the product. Coffee’s a really tough one. You know those, those bags of coffee out there, those 11, 12 ounce bags. They’re making about a buck buck 50. Um, you know all of those brands besides the large ones, depending on scale. But um, just, you know 5x from your COGS to your MSRP, we’re going to be able to get you to a margin of 25% and above based on your cost of goods, and if not, you just don’t do the deal right, you don’t do the deal. We know all that within the first few conversations, just like the buyers. A lot of the decisions are made on AI. What’s the first thing we do when we get a brand that comes to us with a patent that nobody else has? We run it through the machine. So there’s just a lot of different variables when you’re building that price. But always go back to if we can’t get you to 25% margin, at least at the clubs, then we’re just not going to bring you on. And if we do bring you on and somebody beats us down to a price point, that doesn’t make sense. There’s a lot of retailers out there. It just takes one. It just takes one to get to a place that will change your life. People are doing 5, $6 million a year online and that takes a small chain of regional stores to get there and they double their business. And if you’re getting 25% and not down that 5 million, you’ll be doing okay.
Kevin King:
So basically, the gist of this whole conversation that I get from this is that all those people on the interwebs are correct, that retail is dead, that online is just crushing retail and retail is dead and don’t waste your time. That’s just. That’s the gist I get from this conversation. Did I get that right? Did I get that right, Doug?
Doug:
Right down the pipe. Just every word, specifically. Yeah, that’s it, or just the opposite. Right, it is Friday the 13th.
Kevin King:
That’s true, that’s true.
Doug:
Oh yeah, we’re taking over 87%. We have 87%. You know that 87% of the buys um are still-
Kevin King:
That includes gas and some other stuff. You got to back the gas and the other stuff out of that retail stuff, but it’s still, it’s still very, very high. It’s still in the like 80 percent or whatever than 75, 80 percent.
Doug:
Yep.
Kevin King:
Yeah.
Doug:
Yeah, it’s a different world yeah, different world. Now, as you know, anybody almost anybody can launch, go online. Have AI run it. It’s so hard with your ads now like there’s so much more competition. There’s so many more brands. It’s so easy to start a website. It’s so easy to launch a brand, dump 100K in and make nothing. But people do that all the time. Kids are taking their money. They’re throwing it on the website. I look as dot com. You’re going to hate this. Amazon. It’s the cryptocurrency. You don’t know what’s going to happen when you come and invest into retail long-term. You work with the companies. We work with distributors that all been around for 50 plus years. We’re Berkshire Hathaway. We’re going to be a lot slower, but we’re going to give a really big long-term return if we’re able to crack you into one or two retailers and you’re going to have a fixed cost. You’re spending 40 grand 5% and you don’t have to worry about the variables. Are you going to TikTok? Are you going to Amazon? Are you increasing here? There’s political ads over here, so we have to do that. Here you just have to focus on what you’re good at. Get into the retailers. Get into one retailer and it usually defeats your annual sales if you do it the right way.
Kevin King:
And then, most importantly, grandma is really proud of you because she can go down the street into her local Walmart in a little small town and pick something off the shelf and say this is my little Dougie’s product.
Doug:
Maybe, oh yeah, my mom and dad, oh yeah, I send them all the samples. They’re my biggest promoters still. I think they got a lot of free samples. They got a pretty nice set of stuff. We got some really good products.
Kevin King:
Awesome, well, Doug. If people want to reach out to you or work with you or find out more about this, what’s the best way for them to do that?
Doug:
Yeah, you know wholesaleretaildistribution.com. So that’s our website. You can reach out to there through the link there. You’ll get set up with a call directly with me. We only have 15 brands we’re working with right now and we’re really focused on bringing in new patented proprietary brands, something else we could take to the next level. So wholesaleretaildistribution.com. I have no idea how that was open a few years ago, but that’s what we do. You go check it out. We might have to update the site a little bit. We’ve been so busy selling retailers I haven’t updated the site. So maybe we’ll have one of your contacts. Do it for us.
Kevin King:
Well, I’m sure someone could help.
Doug:
Yes.
Kevin King:
This has been great, Doug. I really appreciate you coming on and sharing this. It’s been good.
Doug:
I appreciate it. Now, thank you so much, Kevin, I look forward to it. I’m going to get you an oven.
Kevin King:
Alright, I can’t wait. I’m ready to make some pizza.
Doug:
Okay, well, I’ll get it. I’ll get our money to order for you right now.
Kevin King:
All right, cool, appreciate it.
Kevin King:
Like we talked about. Retail is not dead. It’s still 4x or more what online sales are. If you can get on the shelves, you don’t have the same problems like you have on selling online and you can move some serious numbers. I know some people that are doing, you know, a hundred thousand, one hundred fifty thousand dollars a month on Amazon and they’re doing a million a month in retail and so there’s massive opportunities there. That it is a different game, a few different things that you got to learn, but, as you can see with the talk with Doug, it’s definitely doable for a lot of you. So I would reach out to Doug or explore, put that on your roadmap to explore getting into retail. Plus like I said and this is straight from the horse’s mouth from someone that teaches Chinese sellers it’s a great moat right now against what’s happening with the price wars and even the tariffs and everything that’s going on, competing directly against factories and stuff that’s happening online. So, check out the retail options for your business. We’ll be back again next Thursday with another edition of the AM/PM Podcast. Make sure you’re subscribed to my newsletter, billiondollarsellers.com. It comes out every Monday and Thursday with lots of actionable tactical advice. Until then, have a great week and we’ll see you again soon.
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