Moving a food from manufacturers to consumer is sometimes a costly task. It is critical that the proper channels are utilized and that the small business owner is able to manage the various middlemen appropriately. Selling a food product to the consumer with the use of a food broker, warehouse and retail chain is much different than selling the services of a financial planner where the product is direct. The following section reviews the place strategy with particular emphasis on the retailer.
Retailers
Location for the retailer is a critical factor. It should preferably be in an easily accessible, high traffic area. For a retailer, the first decision is the choice of the town/city. Certain businesses (golf courses, service stations, motels) can be located along highways, but generally retail outlets are located within concentrated population areas.
Most people starting a small business are probably more concerned with choosing a site within a certain town or city. There are a number of location choices that may be available to the prospective retailer. Obviously, larger centres have more choices in terms of location than do smaller communities. These choices consist of:
1. Shopping centres
Shopping centres are relatively expensive per square foot, but offer traffic flow, parking, extended business hours and accessibility.
2. Central business district
Generally found in the older sections of towns/cities, these areas have good pedestrian traffic, and are well serviced by transit; however, parking may be a problem.
3. Commercial strip
Retail outlets located on a street running into a business district, its advantages are high vehicle traffic and is usually well suited for restaurants, service stations and hotels.
4. Store clusters
In many neighbourhoods, small groups of stores can be found. Types vary, but usually they include shoe stores, drug stores, convenience stores, banks, hairdressers and sometimes bakeries.
In choosing a location, considerations include:
1. Cost
Locations with high traffic volumes and other advantages are generally the most expensive (shopping centres and downtown core). Choosing the proper location is crucial to most retailers; however, cost should not be the only determining factor in choosing a location.
2. History of the location
If moving into a formerly occupied location, questions should be asked about its ex-occupants. What type of store was it? Why did they vacate? Were they successful?
3. Traffic flow
The number of potential customers passing by a location is important for many types of retail businesses. Traffic flow in shopping centres is higher than in smaller malls, largely due to the drawing power of the larger number of stores and larger retailers. Some streets have a higher traffic volume than do others, either in pedestrian or vehicular form. Research the traffic flow to assure a high proportion of your target market shop at this location.
Proximity to your target market is an important consideration, as the location chosen should be one that offers the greatest accessibility to that target market. If you sell clothing for teenagers, you would not want to locate in an area of town largely populated by elderly people without children. Thus, the site and characteristics of the area population are key considerations.
4. Legal restrictions
Some locations are not available to the retailer due to zoning regulations. Information can be obtained from city planning and township offices.
5. Services available
Depending on the type of business being established, required services may not be available.
6. Parking accessibility/facilities
The accessibility of the location must match the needs of your target market. If customers will be arriving by car, parking facilities need to be available. If customers walk, sidewalks should be in good condition. Proximity to transit service would be a factor in larger centres, especially if the target market generally travels by transit or if parking facilities are poor/ inadequate.
7. Outlook for the area
Some assessment of future trends for the area should be made. Are people moving away, or are they moving in? Are any other stores being considered for construction? Are there new highways or bridges being build which will affect the traffic flow positively or negatively?
8. Psychological barriers
Some areas may suffer from a poor reputation such as high crime or undesirable neighbourhood, thus severely restricting traffic flow.
Manufacturers
Manufacturers are concerned with physically distributing their products to ultimate users, whether those users are consumer or industrial. There are a number of different methods of distribution or channels that can be used:
1. Direct channel
This method moves goods directly from the manufacturer to the consumer, usually either on a door-to-door or mail order basis.
2. One-stage channel
This method moves products from the manufacturer, through retail outlets, to the customer. In some cases, the retail outlets are fully owned by the manufacturer, although this is generally uncommon.
3. Traditional channel
This most common method of distribution is from manufacturer, to wholesaler, to retailer, to consumer.
4. All-aboard channel
This method includes an agent acting as an intermediary between the manufacturer and wholesale outlets.
Middlemen are often used by manufacturers, because of their expertise in marketing and distribution. The advantage is that manufacturers do not have to establish their own sales force, network of contacts and specialty areas. Instead, they can take advantage of the existing channels of distribution. The middlemen often perform marketing tasks and functions more efficiently than a manufacturer who lacks the resources.
There are a number of guidelines for choosing a method of distributing your product.
1. Begin with the customer and work back to the producer. Determine the most efficient and effective method of distribution, keeping the customer in mind.
2. There should not be weak links. Weaknesses in the process will result in customer dissatisfaction, i.e. late shipments, unreliable product quality.
3. The cost of distribution must be considered. The more levels involved in the channel, the higher the potential cost to the consumer, since each agent will take a profit.
4. Control over the product will be lessened when there are more links between the manufacturer and retailers.
5. The nature of the market: type (consumer goods vs. industrial goods), size, location, volume, customer habits.
6. The product’s characteristics are important (shelf life, durability).
The physical distribution of the product involves five basic decisions:
1. Inventory locations
The number and locations of warehouses must be determined on the basis of cost, the nature of the market and the nature of the product. A centralized system may be better controlled and may be more efficient in materials handling.
2. Maintain an inventory control system
When deciding how much inventory to stock, the cost of warehousing inventory has to be weighed against the cost of lost sales. The cost of keeping an inventory is usually high in terms of financing costs and storage space.
3. Establish a materials handling system
The warehouse and equipment should be carefully selected, to minimize handling costs, which can be quite substantial.
4. Establish procedures to process orders
Such procedures include setting policies about credit, invoice preparation and collections. Service could be the determining factor for retaining customers in a competitive situation, so mistakes and slowness should be avoided.
5. Select a mode of transportation
In general, the basic transportation modes are air, highways, rail, water and pipeline. In many remote areas, moving goods by highway is the only alternative. However, as the distance products are shipped increases, the greater the likelihood that more than one transportation method may be necessary.
The choice of an appropriate channel for distribution is dependent on a number of factors, ranging from the capability of the manufacturer, to the nature of the product, to the characteristics of the market. Convenience goods (cigarettes, candy, magazines) must have wide distribution, since consumers will not go out of their way to buy them. However, specialty goods may have a more limited distribution (one retail outlet) as people may be more willing to make an effort to obtain the product.
The key is to have products in the right places; so, they are conveniently available to your target market. If you are selling granola bars, you probably should not be distributing them through only one retail outlet. If you are selling Lada automobiles however, you do not have to sell them on the street corner. Sometimes the consumer will demand a product be made available. Do you know of a food store that could afford not to stock Campbell’s soups?