Chasing Shelf Space: The Risks of Retail Expansion

Ryan Armistead, the founder of Happy Moose Juice, shared valuable insights in a recent LinkedIn post. He cautions against premature launching in big chains. These comments are relevant for kombucha brands considering retail channel expansion, especially in large geographies like the USA.

It seems like many brands that die, usually do by overextending within the big chain retail grocery channel. The allure of being on shelf at Whole Foods, Sprouts, or Kroger can be hypnotic, simply because of the opportunity to scale distribution out to hundreds or even thousands of doors.

Chain grocery may be the best channel for consumer replenishment and everyday consumption, but it doesn’t make it the best channel to build your brand’s foundational sales in. Those sales are expensive. And more times than not, the launches and sales will cost you more money than you will make in the first year, two, three, or even more. I know this from experience (I got the grey whiskers to prove it 👴🏼).

Unless you are absolutely caked with investment or cash, launching any chain grocery store is more likely to be an excruciating uphill battle than it is a breakthrough for your business; even if your product and brand are excellent.

Emerging, challenger CPG brands are premium by design (for good reason) and usually produced at smaller scales. That’s a recipe for upside down unit economics in the grocery arena where customers are pinching pennies with every single item they pick up off the shelf. Distribution is expensive. Brand awareness and trial take lots of time to build in each store. And brands are on the hook for all kinds of expenses like chargebacks, promotions, free fills, slotting fees — even when the distributor loses a pallet of your product. Those create some deep holes to dig out of.

We’re almost 14 years into Happy Moose. Our largest grocery customer is about 20 stores. We’re purposely avoiding the big guys for right now. But we are still growing faster than ever and doing it profitably. Build your sales strategy thoughtfully, ideally in alternative channels where you can make money now. Resist the temptation to say “yes” unless you know it will grow your bottom line, especially if you don’t have the money to lose. You’ll look back and thank yourself as you grow, watching other brands fall into the grocery store deathtrap.

Among the comments that this generated were:

Stick with local/regional retailers as they build a strong and loyal customer base. Expand when the retailers are coming to YOU.

Grocery distribution can absolutely be a growth engine, but it can also quietly become a capital sink if the economics and velocity aren’t there yet. The hidden costs you mentioned are very real, and they compound fast at scale. The brands that tend to last are usually the ones that sequence channels intentionally instead of chasing doors for the sake of doors.

Part of our selling point is not being in chain retailers where you constantly have to promote your products at lower-than-normal retail prices. That erodes the competitive positioning with mass produced items that you can find anywhere.

Ramping Your Brand

These opinions reinforce those of Dr. James Richardson. I reviewed his book Ramping Your Brand in October 2023. Among the mistakes brands make that lead to sub-optimal performance and eventual failure as a business are some directly related to the issue Ryan discusses:

• Being misled by significant door-count gains in the first year, only to see retailers and distributors drop their products and sales decline in year two.
• Failing to grasp how unstable new CPG brands are regarding retail account security, cash flow, and “mouth-to-mouth velocities.”
• Chasing growth by buying distribution — “caught up in a distributor’s view of the universe…working for brokers, distributors, and retailers.” This is an especially easy trap to fall into if an investor hands you a bucket of money early in your learning curve.

The better strategy is to:

• Clearly understand how to–perhaps counterintuitively–‘throttle’ sales when revenue is still under a million dollars.
• Build business on the back of heavy users first. Then, pace distribution led by consumer demand.