Food brokers vs distributors in the US: how products actually reach the shelf

A food broker sells. A distributor buys, stores and delivers. A retailer decides what goes on the shelf and sells it to shoppers.

• Brokers act as an outsourced sales team for several manufacturers. They present products to retail and wholesale buyers, manage promotions and follow up in stores. They are usually paid a commission and don't normally take ownership of the goods.
• Distributors buy the product, hold it in their warehouses and deliver it to stores. They take ownership and earn a margin between their buying and selling price.
• Retailers authorize the item, set the shelf price and decide how long it stays.

A brand selling into US grocery usually needs two things: a way to win the retailer's decision (a broker or its own sales team) and a way to deliver (a distributor, the retailer's own warehouse, or direct store delivery). An imported brand often adds a third party in front: an importer that takes the goods through US customs. Our guide on how to export food to the USA covers that step.

A retail food broker represents a portfolio of non-competing brands to buyers in a region or channel. Typical work includes:

• Presenting new items to category buyers and preparing for category reviews
• Negotiating promotional calendars and trade terms with the buyer, on the brand's behalf
• Working with distributors so authorized items are set up and in stock
• Checking store execution: shelf placement, pricing, promotions and out-of-stocks, sometimes through a retail services team
• Reporting sales and promotional results back to the brand

Brokers range from national sales and marketing agencies that work with large chains, to regional brokers covering a handful of retailers, to specialists in natural, specialty or foodservice channels. When you choose one, look at which buyers they actually call on, whether they already carry a competing brand, what in-store support is included, how they report, and the notice and commission terms if the relationship ends.

A distributor buys your product, stores it and delivers it to the stores it serves. It handles retailer orders, invoicing and collection. Its income comes from the margin between the price it pays you and the price it charges the store, plus programs it offers to suppliers.

National distributors deliver to thousands of stores. Three examples, as each describes itself:

• KeHE focuses on natural and organic, specialty and fresh products and says its network reaches more than 31,000 retail and online stores.
• UNFI describes itself as a grocery wholesaler delivering to more than 30,000 locations in North America, including natural product superstores, independent retailers, conventional supermarket chains, ecommerce providers and foodservice customers.
• C&S Wholesale Grocers describes itself as a distributor, wholesaler and retailer serving chain, independent and military customers from 60 distribution centers.

Below them sit regional and specialty distributors: world-food and ethnic specialists, gourmet and deli distributors, and regional grocery wholesalers. For an imported specialty brand, these are often the realistic first step.

One point surprises many new brands. A distributor is a logistics and credit partner, not a sales force. Distributors generally add items when their retail customers ask for them, so the selling still has to happen at the retailer. Large chains may also buy directly into their own distribution centers, in which case the brand or its importer supplies the chain's warehouse and no distributor is involved.

In direct store delivery, the supplier or its DSD distributor delivers straight to each store rather than through the retailer's warehouse, and often stocks and merchandises the shelf as well. DSD gives the brand more control over freshness, availability and presentation, but it costs more to run, so it is used mainly where frequent deliveries and shelf service pay for themselves, such as beverages, bakery and snacks.

DSD also changes the economics of a listing. In its 2003 study of slotting allowances, the Federal Trade Commission (FTC) found that they were less frequent, and lower, for products that suppliers delivered directly to stores rather than through retailers' warehouses.

1. Prepare. Sell sheet, pricing by channel, item data, samples and a promotional plan.
2. Present. The broker or your sales team presents to the category buyer, often timed to the retailer's category review.
3. Authorize. The buyer authorizes items for a set of stores and asks for a new item form.
4. Set up. The retailer's distributor sets you up as a vendor and enters the items, or the retailer sets you up to ship to its own warehouses.
5. Ship. The distributor orders from you or your importer and receives product into its warehouses.
6. Set the shelf. Stores receive product for the planned reset date, and the item goes onto the planogram.
7. Sell through. Promotions run, the broker checks stores, and the buyer reviews sales against plan. Items that don't sell through are at risk at the next review.

Every distributor and retailer has its own forms, but the requests are similar. UNFI's published supplier FAQ is a useful benchmark. It lists, among other documents:

• A signed supplier agreement
• A certificate of insurance for the required amounts
• A new supplier and new item form
• A freight form, and a new store opening and reset program form
• A W-9 tax form, or a W-8 for international suppliers
• Applicable certificates, such as kosher, non-GMO, organic or fair trade
• A distributor price list and specification sheet
• The latest third-party food safety audit certificate
• Label files showing the front, back and UPC

Retailer new item forms ask for much of the same core data: the GTIN or UPC for the unit and the case, case pack, dimensions and weights, pallet configuration, shelf life, ingredients and allergens, pricing and images. Barcodes come from GS1 US, which notes that GS1 barcodes identify your company as the brand owner of the product, information retailers look for. For imported products, expect questions about who the importer of record and FSVP importer are.

Trade spend is the money and product a brand invests to get and keep its items on shelves. Terms vary by retailer and distributor, but the concepts are consistent:

• Slotting allowances. The FTC has described these as one-time payments a supplier makes to a retailer as a condition for the initial placement of a product on store shelves or for initial access to warehouse space. It found considerable variability across categories in whether they are paid and how large they are.
• Free fill. Free product for the first shelf fill in each new store, given as goods or as an invoice credit.
• Introductory allowances. Discounts on opening orders to help a new item get started.
• Off-invoice allowances. A reduction in the invoice price for orders placed during a promotional period.
• Scan-backs and bill-backs. Payments based on units sold to shoppers or bought by the retailer during a promotion, claimed after the event.
• Temporary price reductions, ads and displays. Promotional events the brand funds so the retailer can lower the shelf price or feature the item.
• Distributor programs. Promotions, new store and reset programs, and marketing services that distributors offer suppliers.
• Deductions. Distributors and retailers often recover these costs by deducting them from payments, so check every deduction against an agreed promotion.

The FTC notes that slotting is only one part of a wider negotiation that also covers marketing research, promotional plans, advertising allowances and introductory discounts. Trade terms also have legal limits: the FTC explains that discriminating between competing customers in allowances, such as payments for advertising or display, may violate the Robinson-Patman Act. Take legal advice on how your programs are structured.

Work backward from the shelf. Start with the shelf price the category supports, then take off the retailer's margin, the distributor's margin, broker commission, the cost of trade spend and, for imports, the importer's margin and the landed cost. What remains is the price you can actually achieve at the factory gate. If that number doesn't work, it is better to know before the first buyer meeting than after the first promotion.

• Starting in specialty and independent stores: a specialty or regional distributor, plus a broker or your own sales effort in that channel.
• Targeting regional or national chains: a broker with relationships at those chains, plus the distributor or retailer warehouse each chain uses.
• Fresh, chilled or high-frequency categories: consider DSD where service and freshness justify the cost.

Whichever structure you choose, check the contract terms that matter most later: territory and exclusivity, commission on accounts you win yourself, termination notice and any commission after termination, minimum volumes, and how deductions are approved.

Union Trade helps food and beverage brands design their US route to market and put it in place. We map the importers, distributors and brokers that fit your category, model the price from factory gate to shelf, prepare the category presentation and new item data, and negotiate terms on your side of the table. See distribution & retail listings and food brokerage and negotiation, or tell us about your brand.