MASTERCLASS:Why Irish SMEs need to think long and hard before approaching the multiples, writes OLIVE KEOGH
FOR SMEs, landing a listing with the multiples is the holy grail of retailing. But mixing with the big boys is not for the faint-hearted. Even seasoned campaigners have problems in the tough world of multiple retailing.
What makes selling to the multiples a particularly vexed issue in Ireland is the size of our market. Any company intent on building volume has no choice but to sell to them because of their dominant position in the food and household sectors.
Where some companies go wrong is to assume their experience will be different. It won’t. Supplying the multiples means entering a world without sentiment.
The other mistake many make is to assume the multiple way is the only way. This form of retailing does not suit all and those who take this route without the product and the logistics to support it are destined to fail. Also likely to find the going difficult are suppliers with a commodity product. In these circumstances the bottom line will always be price and few Irish companies are in a position to match prices from lower-cost producers.
“Companies need to think hard before approaching the multiples,” says John Hickey, director of the First Sale training programme. The programme is backed by An Bord Bia, Musgraves and Enterprise Ireland and helps prepare high potential start-up food companies to enter the retail market.
“Things that give them a competitive advantage when they are small – such as low-cost local distribution or an owner-manager who is doing everything himself – may no longer apply when the business gets scaled up.”
For example, Hickey cites a small company making a €100,000 profit selling a food product locally. Its listing with one of the big chains increased its turnover by €1 million, but quickly turned its profit to loss. “The message is clear,” says Hickey. “At times it is better for small producers to stay small.”
The key advice to those who want a multiple listing is to be aware of what is involved. Multiples have a particular retail culture that involves expectations not only about price and value for money but also about production facilities, capacity, continuity of supply, and safe and efficient distribution.
“At the very least you need an innovative product with as many points of difference as possible,” says Rita Ahern who set up Greenacres Foods in 1994. Building volume was central to her business model which made a multiple listing essential: “I needed to reach every possible consumer. Working with the multiples has its own terms of engagement and you have to be prepared for that. You are only one cog in a chain of people shuffling for margin.”
Ahern, who is now a food mentor for Enterprise Ireland, successfully built her business to a €3 million turnover before selling it. “The Irish market is so small that exporting may be essential to achieving critical mass,” she says. “If you’ve gone through the rigours of supplying the multiples here it definitely makes it easier when you look for listings in the UK.”
Ahern says getting the listing is only the beginning. “You also have to be able to show how you intend to build the brand status and to promote your product in the medium- to long-term,” she says. This means having an allocated marketing budget and a plan to go with it.
Having crossed the first hurdle of securing a meeting with a buyer, do not waste it. Go in with a well-prepared pitch that covers areas such as company/promoter history, product range, retail comparisons and competitor profile. Make sure to build some extra margin into your prices. This allows room for manoeuvre if the product sells well and the retailer comes back looking for a long-term agreement at a more competitive price – for example a 5 per cent discount on the invoice price.
“Small businesses are always passionate about their product but they also need to realise that they have to prove their business case,” says Donal Horgan, managing director of SuperValu, which sources around 75 per cent of its products from Irish suppliers.
“Some of the simple things a producer can do is to present market research to a retailer and outline their proven trials and quick wins. Given the limited shelf space available, companies need to demonstrate that potential consumers will be equally as passionate about their product as they are themselves.”
Multiples have a reputation for being fickle, yet it is easy for small companies to become dependent on them. The advice from those who have been there is to accept the multiples’ business but to balance it as quickly as possible with business from other sources.
To most, multiples mean the familiar supermarkets and the big DIY chains, but there are business opportunities in other types of multiple environments, such as coffee houses, service stations and restaurant chains. German retailers Lidl and Aldi also source in Ireland.
As a supplier it may also be possible to make the multiples’ buying power work in your favour, particularly if you are making own-brand products. One small company coming under pressure to reduce prices on baked goods successfully asked the multiple to negotiate cheaper ingredients on its behalf.
Top tips for selling to multiples
Demonstrate market/ customer awareness
Go in with a different, not a “me too”, product
Show why your product is better/different/more appealing than whats on the shelves
Leave room to manoeuvre on price
Show how you intend to promote/support the product
Be sure you can scale up to meet demand
Have distribution sorted out
With food products show how you can guarantee safe transit from your facility to the shelves
Have new product ideas in your back pocket
CASE STUDY: Malones of Dublin
When Liz Waters took over the family business, she brought it into the 21st century with a range of environmentally friendly cleaning products – and it was just what the multiples were happy to stock
MALONES OF Dublin is a family-owned company making household cleaning products for over 100 years. Since 2005 it has been run by Liz Waters, who brought the company up to date with a range of bio-degradable environmentally friendly cleaning products based on essential oils.
When Waters took over, the business was just about ticking over. Previous generations of the family had decided not to follow the popular trend of the time into aerosols and sales of the company’s traditional waxes went into decline.
Despite this the company’s reputation for making quality products had kept it on supermarket shelves, which made life easier for Waters when she launched the new range. The products are now sold in all the major multiples, including Dunnes, Superquinn, Tesco, SuperValu and Woodies.
Waters’ experience of dealing with the multiples has been broadly positive. “Because we were offering something different they were prepared to give us space alongside the big international brands,” she says. “The second crucial factor in our success has been pricing. Eco products are usually more expensive than the big brands so to attract buyers we had to be competitive on price.”
Without the big marketing budgets of the multinationals behind her, Waters has had to be creative about promoting her products. Her “secret weapon” is her team of Malones Ladies who run the company’s instore promotions around the country. “They are handpicked and trained by me to promote the brand and they are a vital link between me and my customers,” says Waters.
Malones employs six full-time and 25 part-time staff and makes its eight products in Dublin. Distribution is sub-contracted.
“It is certainly demanding working with the multiples but it gives you a level of penetration you can’t get any other way,” says Waters. “Getting the listing is one very small step. An even bigger challenge is doing the constant PR and marketing to ensure people lift your product off the shelf.”
While “hello money” is supposedly no longer a feature of Irish retailing, some companies say they have been levied with “service charges” by the multiples.
“This has not been my experience and it’s not something they seem to apply to smaller companies,” Waters says. “The key thing is to have a product with a USP. If you are different then you are offering them something they’re not getting from anyone else and they want you.
“My advice – apart from having a quality product – is to be able to guarantee supply: make sure you can ramp up production if you get a listing and be able to show the buyers they can trust you and that you’re in it for the long haul.”
