Title: Distribution in the USA
1Distribution in the USA
- Kylie Hargreaves
- Senior Trade Commissioner
- Austrade, Los Angeles
- September 2004
2FINDING THE RIGHT PATH
- The US Market
- Distribution Options
- Choosing the Right Channel
- Staying Committed
- Getting Help
3 THE USA IS THE WORLD'S LARGEST MARKET
Land Mass 9.3 million sq kms Population 290
million GDP US 10,500 billion
(3growth) GDP Per Capita US 39, 922 of
States 50 District of Colombia of
Supermarkets 41,932 of Toy Stores 17, 866
of airports 14, 801
Land Mass 7.7 million sq kms Population 20
million GDP US 530 billion
(3.5growth) GDP Per Capita US 26, 537 of
States 6 3 Territories of Supermarkets
3,775 of Toy Stores 763 of airports
444
4SO THERE IS A MARKET FOR YOUR PRODUCT BUT..
- THE WORLDS BIGGEST MARKET ALSO MEANS
- COMPETITIVE
- FRAGMENTED
- COMPLICATED
5CHOOSING A CHANNEL TO MARKET
- EVERY DISTRIBUTION OPTION IMAGINABLE EXISTS IN
THE US
Importers
Fulfilment Houses
Distributors
Retailers
Selling Agencies
Wholesalers
Consumers
6- EXPECT TO DOUBLE YOUR LANDED PRICE BEFORE YOU GET
TO THE CONSUMER IF YOU USE TRADITIONAL MODELS
Lands US10.00
Importer
Margin of 30 150
Distributor
Buys US14.00
Margin of 25 80
Wholesaler
Buys US19.60 Sell 1000 units _at_ 5
2 10 of sales
Retailer
Mark-Up 100 250
Buys US20.60
Sells _at_ 150 mark-up - US30.90
7- SO THINK CREATIVELY!
- E-Commerce - websites B2C or B2B, Ebay,
Auctions/Portals - Home Shopping Catalogues, Infomercials, TV
Shopping Networks - Direct to Retail some US retail stores will
buy direct - Private Label
- Fulfilment Warehousing combines
importer/wholesaler role - Licensing IP sale, Manufacturing Under
License, Franchising - Set up a local office local presence, 1 800
number etc - Share set-up costs with a complimentary
Australian - Joint Venture or Subsidiary
8WITH SO MANY OPTIONS, HOW DO YOU FIND THE RIGHT
CHANNEL?
- CHOOSING THE RIGHT DISTRIBUTION CHANNEL WILL
DEPEND ON - SEVERAL KEY FACTORS
- What do your target consumers look like?
- Where do they live?
- Where and how do they buy similar products?
- What price position is your product taking?
- What storage and warehousing requirements does
your product or buyer have?
9- What level of management time, money and
commitment can you give to the US market? - What level of control do you need over the
pricing, brand promotion of your product - How flexible can you be in terms of delivery
timeframes, scaling supply up or changing your
product and packaging. - What level of promotional or after-sales support
does your product require?
10(No Transcript)
11SOME EXAMPLES
- E- SALES - REMOTE, WELL USED TECHNIQUE IN THE USA
- Lower entry cost via website / direct mail
- Can be done from Australia or a Fulfilment House,
easy to test the market - Immediate wide distribution
- Low mark ups
- Easier delivery using logistical service
provider, however - Difficult to build a brand through this approach
alone - Payment issues Guarantee/Returns need to be
addressed
12- CATALOGUES - AGAIN WELL USED TECHNIQUE IN THE USA
- Lower entry cost via Fulfilment House
- Immediate wide distribution established
relevant client base - Marketing Costs covered by the Catalogue Company
- Lower mark ups
- Payment tends to be dependant on sales (may have
consignment terms) - May have vendor requirements such as UPC, Proof
of Insurance, Carton/Packaging specification
13- FULFILLMENT HOUSE / CONTRACT WAREHOUSE
- You retain ownership of the products
- Typically a combined role importer/logistics,
as well as accounts after-sales support - Lower cost logistical structure for Australian
companies - Payment tends to be dependant on volume of sales,
retainer or per business service transaction - Pick,pack and ship per your instruction
- Can sell to other wholesalers, distributors or
consumers, as required
14- SALES AGENTS, MANUFACTURERS REPS or BROKERS
- Act as a Sales Force finding new accounts and
trying to expand sales to existing accounts - Act across different geographic and market
segments - Do not purchase product, take ownership or
warehouse product - Will often provide market insight and advice
which can be valuable in your marketing
strategies - Tend to carry a range of complimentary products
from other suppliers - Will need strong support, training marketing
collateral from you and regular incentivisation
to stay top of mind - Payment is usually on commission but some
retainers are common
15- WHOLESALERS (around 400 000 in US)
- Sell primarily to other wholesalers, distributors
or retailers not to consumers - Purchase only in large quantities
- Provide full-service- purchase, warehouse,
break-down, sell, transport and extend credit /
accounts etc - Often include rack jobbers companies whose
role it is to keep shelves stacked in high-volume
outlets - Retailers may require you deal with their
wholesaler
16- LARGE VOLUME DISTRIBUTORS
- Purchases goods from a US location (eg.
Importer) - Often have their own sales force,although many
simply manage inventories/logistics for their
large corporate accounts (eg. Macys) - Have authority over prices, terms and promotion
in their territories - Could be national or regional - sometimes this
is legally required (wine) - Supply via the distributor is often demanded by
the retailer - Wider distribution coverage at lower cost
17- OPENING AN OFFICE IN THE USA
- Provides maximum control over market strategy,
sales force, brand etc - Communicates a local presence which can be a
strong competitive advantage - Takes commitment and resources (200K - 500K
per year) - Deal with legal, tax, immigration and funding
issues
18OTHER ISSUES TO CONSIDER
- REGULATIONS
- RETAIL ENVIRONMENT
- PRICING ISSUES
- LEGAL PROTECTION
- Thinking about the sorts of questions posed today
will quickly help you identify 1 2 potential
distribution options for targeting.
19REGULATORY ENVIRONMENT
- FEDERAL REGULATIONS AFFECTING CHANNEL OPTIONS eg.
- Food Drug Administration Regulations (FDA
Agent, Importer of Record) - Environmental Protection (Hazmat etc)
- Buy America Act (US Corp required)
- Import Licenses
- STATE REGULATIONS eg.
- Prohibited Items (eg kangaroo in California)
- Controlled items (eg. Liquor in Utah)
- Consumer Safety Requirements (eg. Lead Content
in Toys) - INDUSTRIAL STANDARDS eg.
- - Building Codes
- Electrical Standards
20RETAIL ENVIRONMENT
SUPPLY CAPABILITY
A MONTHS ORDER COULD EQUAL AN AUSTRALIAN
SUPPLIERS ANNUAL PRODUCTION Eg. BRISTOL FARMS
(13 stores) each store has a turn over of
between US20 50 million CRATE n BARREL (115
stores, 15 million catalogues) US865
million BLOOMINGDALES (30 Dept stores) US1.7
billion TRADER JOEs (215 stores) US2.5
billion
21RETAIL ENVIRONMENT
- SMALL RETAILERS ( 1 15 stores)
- Egs. Fred Segal, Henri Bendel, Sax 5th Ave
- TYPICALLY-
- Do not import directly
- Domestic freight is prepaid by the supplier,
then billed back to the retailer on the invoice. - Key documentation required is a packing slip
and/or invoice. - Shipping instructions may include a specified
freight company for larger shipments or - Assume UPS (United Parcel Service) for smaller
shipments and direct-to-store shipments. - Other issues Returns, CODs
- Ship passed cancel date - the order may or may
not be cancelled.
22- MEDIUM SIZED RETAILERS ( 15 200 stores)
- Eg. Wild Oats,Trader Joes, Crate n Barrel
- TYPICALLY-
- Do not import directly (although this is
changing Trader Joes) - Domestic freight is paid by the retailer who
also designates the Freight company - Key documentation required is a packing slip,
bill of landing and invoice. - Other issues carton or pallet guidelines EDI
capabilities - Ship passed cancel date - the order may be
cancelled or fees may be automatically deducted
from payment
23- LARGE RETAILERS ( 200 stores)
- Bloomindales, Nordstrom, Robinson May, Bath
Body Works, - TYPICALLY-
- Generally prefer not to import direct
- Domestic freight is paid by the retailer who
also designates the Freight company - Key documentation required via EDI systems
(packing slip, bill of landing and invoice). - Other Requirements Specific shipping guidelines
including packaging/labeling, carton or pallet
sizes - Failure to meet Delivery Requirements order may
be cancelled, supplier pays for back ordered
items, fees may be automatically deducted from
payment
24- MASSIVE RETAILERS
- Eg. WalMart, Safeway, Bath Body Works, Costco
- TYPICALLY-
- May import direct to reduce margins
- Domestic freight is paid by the retailer who
also designates the Freight company - Key documentation required via EDI systems
(packing slip, bill of landing and invoice). - Other Requirements Specific shipping guidelines
including packaging/labeling, carton or pallet
sizes - Failure to meet Delivery Requirements order may
be cancelled, supplier pays for back ordered
items, fees may be automatically deducted from
payment
25PRICING ISSUES
- WHEN WORKING OUT YOUR DISTRIBUTION PRICING MODELS
REMEMBER TO - Price in US
- If you can, quote FOB US DOMESTIC TERMS
- BE AWARE FOB has a different meaning in the
US (inland carrier). - If you cant quote US style, quote CIF or CFR
- Other elements you need to consider in your
pricing models include- - Translation costs US English, measurements,
paper size (8.5 x 11) - Vendor Requirements UPC (bar codes), EDI
Capability, carton sizes etc - Customs Duties Customs Brokers Fees
- Transportation from port of entry to importers
warehouse or inland carrier - Margins/mark-ups along the distribution chain
- Commissions or incentives for sales reps
- Slotting Fees
- Insurance Costs
-
- AS WELL AS THE LEGAL COST OF DOING BUSINESS IN
THE US
26THE RIGHT PROTECTION
- LEGAL ADVICE IN THE US IS A NORMAL COST OF
BUSINESS - Trademark or Patent Protection protecting your
brand or IP - Due Diligence on potential partners background
checks - Product Liability Advice Insurance - the
liability of a manufacturer or other entity in
the chain of distribution for personal injury,
property damage or economic loss caused by the
sale or use of a product - Contract Advice JVs, MUL, Fulfilment
Warehousing but also Sales Reps Distributor
agreements -
27CONTRACT ADVICE
- Some of the key things to consider in a
distribution or sales agreement are - Territory
- Exclusive or non exclusive distributorship
- Non-competition clause
- Minimum purchase or sales obligations of
distributor - Promotional support to be provided
- Commissions
- Prior approval for advertising or promo materials
- Terms of sale, prices, discounts, price changes,
payments etc - Product liability and insurance
- Terms of contract termination, performance
clauses etc - AUSTRALIAN ADVICE IS NOT ADEQUATE
28CULTURAL TIPS
- AMERICANS ARE OFTEN VERY DIS-SIMILAR TO
AUSTRALIANS - Business is king work out the details of the
deal first, worry about the people second. - Time is money so dont waste my money, be well
prepared samples, packaging and sales sheets.
Know your ROI calculations, pricing and
logistics. - Being Direct is a Virtue ask for what you
want, say what you mean, do as you say, and just
get on with it. May come across as egocentric,
demanding and less consensus oriented than
others. - Who are you better than? Know your competitive
advantage over specific US suppliers, as well as
your domestic or international track record. - Dont be Negative Australian tendencies to be
sarcastic, down-play their achievements or
sugar-coat messages can often clash with the
American can do attitude and tendency to absorb
information at face-value. - Be persistent pestering is expected, stay in
trade fairs, visit regularly, call often but
dont expect a response until 7 12 contacts
later.
29STAY COMMITTED
- MORE THAN 8000 AUSTRALIAN COMPANIES ARE
SUCCEEDING IN THE US -
BHP
Bovis Lend Lease
30DONT THINK YOU HAVE TO DO THIS BY YOURSELF
- State Departments for Regional Development
- US Australian Industry Associations
- US Australian Chambers of Commerce
- Trade Exhibition Organizers
- Institute of Export
- Banks Accountants
- Customs Agents Freight Forwarders
- Sea Freight Council of NSW
- Export Insurance Agencies (eg.EFIC Gerling
NCM) - Australian US Customs
- Small Business Assistance Programs Austrade
EMDG schemes - TradeStart
- AUSTRADE
31AUSTRADE Helping you find your niche and hitting
it hard.
Chicago
Detroit
New York
San Francisco
Washington DC
Atlanta
Los Angeles
- 7 Offices 3 more soon
- 54 Austrade staff 16 co-located
- staff from other agencies
32 CALL AUSTRADE ON 13 28 78
- KYLIE HARGREAVES
- SENIOR TRADE COMMISSIONER
- AUSTRADE LOS ANGELES
- TEL 1 310 229 4830
- FAX 1 310 277 2258
- EMAIL Kylie.Hargreaves_at_austrade.gov.au