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Let’s say you’re doing well six months after your brand has launched. You have at least 500 accounts, and sales are not stagnant. You own your space in stores; that is, you aren’t in immediate danger of being sent to the bargain bin. You are in a continual dialogue with all your industry partners. Going forward, you will be emphasizing ongoing sales and brand awareness, and you see 2,000 accounts in the next half year as an achievable goal. Independents such as you create grassroots success all the time. One major chain authorization will trigger additional authorizations. It is at this point that you should begin to consider the use of a broker.

A broker can be your sherpa, but you also have to be wary. Although a broker can lead you up the mountain and protect you, brokers know that not everyone summits. Manufacturers come and go, and trends dominate the marketplace. As one manufacturer exits, another arrives fresh off the assembly line. Long-term relationships between brokers and manufacturers can be rare. So be realistic about your expectations of a broker and protect yourself at all times.

SHELF CHECK 15

Don’t Worry About Having a Broker for Development or Launches

Although brokers have an important role, don’t rush to get one. Brokers are not required for product development or brand launch, nor do you need one before you have 500 accounts, because brokers charge excessively to develop a brand. Manufacturers with unproven brands will be charged monthly retainer fees upward of $6,000 by major brokers and $2,000 by boutique brokers. Additionally, brokers are not vested in your company. Brokers represent many manufacturers. You will lose your shirt waiting on brokers to capture every relationship and account. Brokers will not operate on your timeline, and, in fact, they use time to their advantage. Returning calls? Not their strong point. So using brokers too soon will siphon precious operating cash. There are a few, but not many, brokers who will ethically represent a product with no secured accounts and/or brand awareness upon signing. Some brokers might jump in early if an established brand launches a secondary product line. Otherwise, it’s not worth their time working on a brand they have to pioneer; that’s your job! They perform best by maintaining an established product while expanding its reach.

What is the alternative? For day-to-day operations, hire a sales director. Experienced sales directors know how to manage, communicate, and create productivity with overlapping teams. However, note that this is a serious decision because of its longer-term implications. When you are ready to expand, at some point, you will be faced with the question of whether your sales director has the skills needed to manage a much larger sales team, including regional vice presidents. You will need a real impact leader to take this role. You may need to let go of less capable people.

Watch Out for Desperate Boutique Brokers!

Many boutique brokers tend to be a bit desperate, and some will say anything to get your business. They do this because they only get the smaller fish, and they need a lot of them to feed on because most of the smaller manufacturers have very short shelf lives. The big fish will go with the major brokers who have lots of clients, don’t need to lie to get your business, and turn down half of the manufacturers who apply to partner with them.

So let’s imagine the pitch a somewhat desperate boutique broker might give to a manufacturer of a new unproven product: “Hey, I’ve seen your product everywhere in the independents. Glad we are on board to support your first major authorization—wow, Whole Foods!” This all sounds positive, but after the cheerful banter, empty promises, and 400 days at exorbitant rates, few tangible results will have appeared.

SHELF CHECK 16

Ask Potential Brokers if They Can Solve Your Biggest Problem(s)

One of the best ways to judge a relationship is how your problems are dealt with. For example, Michael’s Perfect Pickles has more than 500 accounts, including a couple of majors such as WFM and Sprouts. When Michael reviews his SPINS reports, he discovers that several Sprouts locations are not selling Michael’s Bread and Butter flavor although the SKU is authorized. This is what we call “gaps in distribution.”

Personal account visits could rectify this problem. But with Michael’s heavy schedule of trade shows and buyer meetings, he’s not sure how to solve the problem efficiently. Most broker account executives are in and out of major accounts every week on all sorts of business. Account executives may have a list of fifty products to discuss at each retailer, but as long as they achieve your goals that will be what matters. Michael tells a broker he is interviewing, “My biggest problem is that fifty-some Sprouts stores are missing our Bread and Butter SKU. We need to solve this fast. Can you fix Sprouts’ gap in distribution within a month?” If the broker assures Michael that he or she can meet his goal, Michael’s response should be, “Let’s put this in our agreement because this is important for success.”

Gaps In Distribution

As I noted in Shelf Check 16, “gaps in distribution” means you have authorization to be placed in a store(s) and for one reason or another your product isn’t there. Imagine Michael’s Perfect Pickles is now authorized in all Sprouts stores. But one day while Michael is in Phoenix, Arizona, he discovers that several of the Sprouts stores don’t have two of the four authorized SKUs. A good broker and sales team can resolve this quickly.

Distribution gaps can plague a product launch. So stay close to make sure you don’t have any gaps.

Your retail buyer might see only overall sales numbers and decide that yours is a poorly performing product when in fact it’s really the gaps that are dragging your numbers down. For example, if you are authorized for 150 stores and only 75 actually receive your product, you won’t have true sales numbers. If you were in all the stores, your sales might double. So you must fix this problem fast.

What would happen to your product otherwise? Buyers might simply cut it and support someone else’s. They will offer your space to new brands or, worse, expand your direct competition as midseason replacements. And if another manufacturer approaches them with an undeniable product, large ad budget, marketing plan, and deep pockets, watch out!

So how do you defend yourself? You need to dig deeper into the sales data and demonstrate that once you improve distribution your sales might double. Improve your distribution quickly, and present the positive sales data in SPINS reports. Until your brand builds a die-hard fan base, you must guard shelves meticulously. Loyal customers are the goal. Become undeniable.

Just because your product is undeniable, however, doesn’t mean it’s irreplaceable. I stumbled upon some chocolate-covered pomegranate ice cream bars at Ralphs once and bought them for a party. That night, several of us ate the bars and found them decadent. They were our new favorite! Three weeks later Ralphs underwent a reset and these ice cream bars were cut. This happens frequently. So one can never get too comfortable.

10 Ways to Avoid Being Broken by a Broker

1. Thoroughly research as many brokers as possible—and get references.

2. Avoid broker burn.

3. Ask potential brokers to disclose their account lists.

4. Discover how many account executives are in the brokerage and what its coverage is.

5. Ask how often the potential broker visits retail accounts.

6. Discover how accessible buyers are to you and how often the potential broker meets with them.

7. Find out what other products the potential broker represents and whether there are any conflicts.

8. Determine whether the potential broker supports clients at trade shows.

9. Find out if the potential broker charges a percentage or a retainer.

10. Outline the conditions of the agreement and termination.

1. Thoroughly Research as Many Brokers as Possible—and Get References

Start your broker search inside your current accounts network. Talk to retail managers and ask which brokers they prefer and why. Who do they see the most often? Who do they highly respect? An outstanding broker is known inside store accounts. An outstanding broker diligently works shelves, presents new items, and resolves issues with integrity. I have been told, “Broker John Doe from ABC Company is here every week and he’s fantastic.” Distributors are another good resource to assess brokers. They can recommend top brokers tailored to your brand. WFM corporate offices supply a list of recommended national and regional brokers.

Does your broker work with buyers in your desired category? Specificity is key. If your broker works mainly with food items, then your new toothpaste item is a misfit. If you are launching a skin-care line, just authorized at the WFM Whole Body department in the South Pacific region, then make it a priority to visit the WFM Whole Body department and ask the Whole Body team leader, “Who is your best Whole Body broker for skin-care products?” Brokers might not have a working relationship with buyers in every category. If one broker doesn’t have the buyer you need, continue your search. Be smart. You don’t want to finance your broker’s networking efforts unless they pay off for you. Treat this process as if you were hiring a babysitter—which you are!

2. Avoid Broker Burn

Brokers are unusual creatures. There must be some underground society and a cave somewhere on this planet where they have annual meetings. Google Maps might not be able to find it, but I am convinced it exists. They are, at times, highly unreachable. Let me be candid about this kind of relationship. I call it “broker burn.” There are brokers who will say all the right things to get your commitment. Dare I use a car salesman analogy here? Nah.

Once you contract this type of broker, your calls are rarely returned. Excuses, scheduling problems, and multiple dodge-and-evade tactics will be employed against you. Before signing, treat any agreement with brokers as though you were signing a new mobile carrier contract in the remote mountainous regions of Pakistan.

They say it’s not the years, but the mileage. Trade shows have the ability to age you by a year in just a few days. One quickly gauges personalities stalking any trade show floor. Character after character goes by, swimming past booths more than once. Some characters are genuine. Others smell like sea lice. Then there are the sharks, looking for prey such as fresh founders, obviously delusional owners, and starry-eyed salespeople.

So let’s use Michael’s Perfect Pickles as an example of a real-life client I once had at a trade show. Unfortunately, other brokers were not eager to sign Michael’s brand at that moment. Reputable brokers had rejected the brand. Michael’s problem? Sales numbers.

A brokerage president swims over to Michael’s trade show booth. “Chuck” (the broker’s fictional name, to protect the “innocent”) raves about potential possibilities and spews out his retail buyers’ names, from WFM, Sprouts, Nugget Markets, Bristol Farms, and Raley’s to Albertsons. As conversation continues, Michael’s team is cautious due to Chuck’s hefty $2,000 or 6 percent of manufacturer’s sales rate. With a non-performance contract structure, Chuck would be entitled to his monthly retainer regardless of results. Michael cringes at this fee.

However, Chuck claims his brokerage can get Michael’s Perfect Pickles accepted into major accounts, if they work together. Michael imagines no harm in Chuck just presenting Michael’s to potential accounts and agrees to support this goal. Sometime later, after supposedly presenting Michael’s Perfect Pickles, Chuck announces he has more than 150 accounts ready to authorize. If we will come aboard contractually, Chuck will close deals and bring in product to major buyer reviews.

Alas, a deal is executed. With Chuck’s team on board, supposedly the sky is the limit. But before the ink dries, winds and weather change—rapidly. We endure months of excuses. We keep inquiring as to the reasons for accounts never closing. Chuck doesn’t perform but has improbable and eloquent excuses. The people around him dodge and evade. Verdict? Chuck is absent, but not with empty pockets. Over time, a sense of helplessness settles in along with aggressive demands for that damn retainer. A year later, we are $24,000 in the hole and under fifty accounts are closed—all modest, independent, small-performing accounts. Again, a drain of precious operating cash.

3. Ask Potential Brokers to Disclose Their Account Lists

Request that potential brokers disclose their account lists or at least a significant partial listing. Remember, these are supposed to be industry partners, so transparency to some degree can be expected. Make sure you have a clear understanding of any broker’s account list. Brokers have connections but not all connections. Be sure they have the connections you need. There’s nothing worse than wanting a meeting with Albertsons and your broker doesn’t have a connection to get you in. Look over their account lists and see if these accounts make sense to your product’s future.

4. Discover How Many Account Executives Are in the Brokerage and What Its Coverage Is

Look at broker staffing levels. If a broker employs ten or fewer people, don’t think you will receive nationwide service. I once worked with a broker who claimed their Southern California coverage was stellar. The staffing levels described on their website appeared solid. But what their website didn’t reveal was that one of their account executives had quit only weeks before. While we waited for that critical staff member to be replaced, a zero was mounted on our team’s virtual score-board. This is another form of “broker burn” and is highly manipulative. Be careful of high-turnover broker firms. This is where non-real-time data on broker websites become a problem.

Brokers, like other choice professions, are brilliant at creating strong first impressions. If you have specific retail targets, have your prospective broker call on both the regional buyer and store staff. Broker performance in stores is vital. If your broker indicates they work with Sprouts, visit Sprouts. See firsthand the represented products so you will be clear about the support they provide at a store level and, in turn, whether the store staff will associate your brand with your broker.

5. Ask How Often the Potential Broker Visits Retail Accounts

A focal point of your evaluation should be how often brokers visit accounts. Imagine Raley’s has authorized your product to be available in 160+ stores. This can be a worrisome win. You want assurance. This is a moment when a broker should be working overtime. If a broker states they visit accounts every six to eight weeks, that equates to zero feet on the street after such a pivotal success. A brokerage that has lots of staff would be a better choice because employees can visit accounts and buyers with more regularity.

6. Discover How Accessible Buyers Are to You and How Often the Potential Broker Meets with Them

Confirm in advance that a broker can get prior approval for you for meetings. A broker who cannot facilitate meetings? The worst. In this industry, retailer interest dissipates faster than a meteor entering the atmosphere.

Some buyers have no negative feelings about manufacturers attending meetings. Others will deal only with brokers, so you will need to listen carefully to their reports of meetings. If your product is rejected after a presentation, often a broker will dance around the subject to continue billing you while they dodge and evade.

One national firm, Acosta, tends to service more established manufacturers. Acosta has countless connections. They possess a colossal staff of account executives and support staff to sift through new clients. Unlike a smaller firm, they do not court clients. They do not hunt in a traditional sense due to their reputation. When your brand is undeniable, your paths will eventually cross. I warn you that Acosta manages a lot of brands. If you are building your brand you may get lost in the mix and not get the attention you require. However, if you are an established brand Acosta will be an excellent partner and keep business running like clockwork.

Smaller broker firms do have the ability to conquer regions. If you are not yet national, conquer systematically by region. Brokers can give you the specific attention you need to build your brand state by state.

7. Find Out What Other Products the Potential Broker Represents and Whether There Are Any Conflicts

This is a doozy. Michael’s Perfect Pickles has five accounts and is considering a new broker company. However, their roster includes several of his direct competitors. This will be a conflict. For example, Hansen’s and Zevia share the same broker team. They have always been in competition. They have always fought for the same shelf space. Yet they share the same broker. Go figure.

If you are willing to share space with another successful enterprise, then by all means do so. Some companies have no problem sharing retail space with a competitor. But other companies consider their competitors their nemesis. You decide which one you are: a friendly competitor or a nemesis. Based on that determination you can then choose a broker.

8. Determine Whether the Potential Broker Supports Clients at Trade Shows

Here is an opportunity to develop your relationship with your broker and account executives. At trade shows, your contracted broker should be constantly delivering retail accounts to you to close. They should be literally walking people over to your booth and making introductions. If they aren’t, then you are simply enjoying a very expensive, very pointless show.

9. Find Out if the Potential Broker Charges a Percentage or a Retainer

Brokers generally work on a commission of 5 to 8 percent. This would be off the total invoice amount on each order they receive and ship during a calendar month. For example, if your sales are around $5,000 per month, then 8 percent would be $400, which is a lot of money if sales are sluggish. Brokers without minimum retainers will be picky about clients. If a broker is not picky and wants a monthly retainer, this could be a potential broker-burn situation.

10. Outline the Conditions of the Agreement and Termination

A broker’s agreement is drafted by you, the manufacturer. The contract is normally two to three pages. Expectations and requirements can be customized in such an agreement. Establish your desired timeline, and particularly be sure to incorporate a termination clause with a short window, perhaps thirty days, and no cancellation fees. Following is an example of a broker agreement:

MICHAEL’S PERFECT PICKLES

Broker Agreement

When fully executed by authorized representatives of the parties, the terms and conditions set forth below shall constitute the whole of an agreement between Michael’s Perfect Pickles [address, city, state, zip], and [Name of the Broker] (hereinafter called “Broker”), and shall become effective [month/day/year].

1. Scope of Agreement:

Broker will aggressively sell specified products of Michael’s Perfect Pickles in accordance with Michael’s Perfect Pickles authorized prices and published policies. All orders shall be subject to confirmation by Michael’s Perfect Pickles.

2. Normal Brokerage:

Brokerage rate shall be [industry standard is 4 to 6 percent] on net amount of invoice on line of retail and/or food-service products. There will be adjusted brokerage rates on chain account and proprietary products.

3. Payment of Brokerage:

Payment of brokerage will be computed on transactions in the calendar month and made after the closing thereof. No brokerage will be paid on uncollectable accounts. Brokerage will be deducted against all credits issued to any customer, spoilage excluded.

4. Incentives:

Bonus and incentives may supplement this Agreement for periods, under conditions, and at rates specified by Michael’s Perfect Pickles.

5. Stipulations:

No like competitive products will be accepted by Broker for his territory without prior clearance and written approval of Michael’s Perfect Pickles. No competitor shall be consulted directly or counseled in any manner.

6. Split Brokerage:

In the event there are overlapping territories, the brokerage rate will be one half to the Broker soliciting and submitting the order, and one half to the Broker into whose territory the merchandise is shipped.

7. Broker Certification:

By executing this Agreement, Broker agrees that no part of brokerage paid would in any manner whatsoever be passed on or granted directly or indirectly to any customer, buyer, agent, or intermediary acting on behalf or under the control of any customer to whom merchandise was sold.

8. Broker and Buyer Harmless:

Michael’s Perfect Pickles agrees to hold the Broker and Buyer harmless from and against any claim made upon Seller as a result of, or injury from, the use of any Michael’s Perfect Pickles products sold to Buyer pursuant to the terms hereto, provided Michael’s Perfect Pickles is promptly notified of such claim or injury and is permitted to deal therewith, at its own discretion.

9. Insurance:

Michael’s Perfect Pickles’ liability insurance coverage covers only employees and product quality. Broker is to adequately insure and cover his interest relating to his own employees.

10. Termination:

Either party with written notice of intent may terminate this Agreement. Termination shall be thirty days from date of such notice. Brokerage shall be earned and paid only on orders shipped and invoiced prior to the effective date of termination.

11. Other:

No other conditions are implied or included that may alter or enlarge this Agreement.

12. Territory Limitations:

Oklahoma and/or other specific geographic locations in which Broker would represent your product line.

Michael’s Perfect Pickles                            Brokerage Name              

Michael Jones, CEO                                     Name & Title