CHANNELS OF DISTRIBUTION

Presented by P K Dave Natures Formulary, LLC

Presented with the help of Adam Ismail - LDI Group & Nutrition Business Journal data

DISTRIBUTION CHANNELS
Food, drug and mass market Food = Supermarkets > Kroger, Safeway Drug = Walgreens, CVS, Rite-Aid Mass = Wal-Mart, Target Natural Food Stores Network marketing (multi-level) Mail order Internet Practitioner

USA NUTRITION INDUSTRY MARKET SEGMENTS

How nutrition sales breakout Foods, Supplements Sales in $ Billions Supplements

Natural Personal Care Nutritional (health foods, supplements, etc)

Functional Foods

Natural Foods

Other foods

DISTRIBUTION CHANNELS SALES BY CHANNEL

How sales break out by channel Industry is dominated by traditional retail distribution Natural Food channel is unique to the USA market and serves a distinct niche of consumers Food, drug and mass market channel has grown to most signicant due to increasing acceptance However, FDM channel concentrates only on well established fast selling brands/ products Practitioner Mail order Network/ MLM Internet

Natural Foods

F, D & M

MAINSTREAM RETAIL CHANNELS

SELLING FOOD VS SUPPLEMENTS Selling healthy food requires food stores Selling supplements is best thru mass marketers

Food Mass

Convenience Drug

Club

Food Mass

Convenience Drug

Club

MAINSTREAM RETAIL CHANNEL

Mainstream retail stores are focused on maximizing the protability of their shelf space Companies pay hefty slotting fees which can be as much as 20% of the annual sales - if you are a small brand They prefer fewer SKUs and only the fast selling products There is a requirement for national advertising and also purchase of space in retailers weekly circulars Products are placed on a guaranteed sale basis: if they do not sell in a prespecied period, products will be returned to manufacturer for refund Private label opportunities are an attractive alternative Retailer may want a lower cost alternative to national brands Supplement companies are often asked to manage private label programs for the same items they sell under their brand - in return for greater shelf space

NATURAL RETAIL CHANNELS

SELLING FOOD VS SUPPLEMENTS Selling healthy food requires food stores Selling supplements is best thru mass marketers

Large Chains (WF) Ind. Nat Super Ind. Nat Food Health Food Stores Supplement stores

Large Chains (WF) Ind. Nat Super Ind. Nat Foods Health Food Stores Supplement Stores
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NATURAL RETAIL CHANNEL

Chain stores in this channel are of primary importance for natural foods and supplements However, for supplements the preferred channels are in different priority thereafter Natural channel retailers View supplements as way to attract buyers as a source of other products While unit prot is higher on supplements, higher velocity yields better cash ow on food products Natural supermarkets such as WF have evolved to focus on natural and healthy lifestyle. They focus on upper income green consumers (who do not prefer mainstream retailers) Exclusivity to channel is less important now - but dual channel costs are high Traditionally natural food stores required that brands avoid mainstream channels as they saw it as a threat. This less so now.

NETWORK MARKETING CHANNEL

Supplements are the mainstay of the network (multi-level) channel in the USA There seems to be a trend to a lesser preference for this channel in USA recently. There is greater MLM activity in international markets

Selling supplements is best thru this channel

Supplements Nat/Organic Foods

Personal Care Functional Foods

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NETWORK MARKETING CHANNEL

One on one selling approach offers unique opportunity to new marketers Method allows more time to explain benets and educate, whereas retail channel relies on print advertising and point of sale materials If a products is very different or high cost, peer to peer selling can produce better results than retail channels This channel often causes products to be priced high to cover compensation of channel members. Distribution costs can be lower Better control over pricing Customers of this channel tend to buy a core group of products each month based on ones they need to use most often. Does your product t the prole of daily or intermittent use?

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MARKETING CHANNELS CONCLUSIONS

Mainstream channels offer the largest sales potential: Entry and sustenance costs are very high Preferred for products that are easy to sell and fast moving Food markets best for natural foods while mass merchandisers (Wal-Mart, Target) best for supplements Natural channels offer the next best sales potential: Entry and sustenance costs are reasonable Natural Food markets (Whole Foods) best for natural foods and supplements However health and supplement stores are also important channels for supplements and personal care Network marketing Best suited for unique or specialty products on the one hand and core products (e.g. daily supplements/functional foods) on the other hand
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THANK YOU!

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