The opportunities for food SMEs presented by the US market are many – but so are the challenges. Simon Creasey presents out how companies and consultants believe fledgling firms can make inroads Stateside.
The numbers make for mouthwatering reading. It has 330 million citizens, it’s the world’s largest consumer economy and shoppers are receptive to exported brands. It’s the land of the free and the home of the brave – and, for food SMEs, the US could present a lucrative goldmine of an opportunity.
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So what do SME food companies who want to build an export business in the US need to know about the market to ensure they gain a foothold and keep it?
Industry experts say that there has never been a better time for overseas brands to try and crack the US market. That’s largely because of the consolidation that’s occurred among retailers over the last decade or so, which has seen the balance of power shift from large food groups to the dominant retailers like Walmart, Kroger and Amazon – the latter through its Whole Foods Market chain.
This concentration of power presents a major opportunity for imported SME brands, argues Gaurav Gupta, affiliate at US consultants Kotter. “They [retailers] are looking for exciting new products,” says Gupta. “The push for healthier, more natural, organic, artisan brands is big in the US right now and the power of the retailers mean smaller brands can get pretty good placement in bricks-and-mortar shops, which was harder to do a few years ago.”
According to Greg Seminara, founder of Export Solutions, which helps ‘supermarket-oriented’ products sell to overseas markets, the US is a great market for overseas SME food brands to target for a number of additional reasons. Firstly, compared to some global grocery markets private label penetration in US stores is pretty low. “Private label only accounts for about 17% of value share [in the US] versus the UK where it is close to 50%,” he explains.
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By GlobalDataSeminara also points out there is more space for brands in-store because the average size of a US grocery store is equivalent to a Tesco superstore in the UK.
However, even though there is a significant opportunity for overseas SME food brands to gain listings with US grocery retailers, it’s a difficult market to crack. That’s why Hamish Renton, managing director at UK food and drink consultancy HRA Global, advises companies thoroughly research what US shoppers are looking for before taking the plunge.
“You have to work out what’s the profile of the person you’re trying to target in the space. Then the question is how are [US retailers] currently servicing that need – what are they buying that you have to knock out in order for them to buy from you and how are they buying it?”
Having a product that addresses a specific niche significantly enhances your chances of being successful, Gupta suggests. “There are quite a few niches that are open in the sense that the bigger food companies are trying to build these mega billion dollar brands and they aren’t really focusing on all of those niches. They are more interested in getting a product with a broader appeal,” he explains.
“Don’t try and tackle it as one big country”
While these niche market opportunities may be up for grabs, to gain listings with grocery retailers in the US, overseas food SMEs will need to appoint the services of a distributor or a broker.
“It’s not like you’re going to knock on the door of a big supermarket chain and get a meeting,” says Seminara. “In the US, the food channels to supermarkets are dominated by brokers.”
The importance of appointing well-connected local experts is reinforced by Jon White, regional business manager for Fisherman’s Friend in the USA, Canada, the Caribbean, United Kingdom and Ireland. Fisherman’s Friend brand owner, Lofthouse of Fleetwood, started exporting the lozenges to the US in the mid-1980s after appointing a US distributor. “The key in my view to having a successful US business for a British company is having a qualified professional and dedicated US distribution arm, be it an importer or broker,” says White.
It’s an approach also embraced by Erica Hughes, managing director of Australia-based Slendier, which sells low-calorie konjac noodles, pasta, rice and ready-to-eat meals. The company entered the US market via a local distributor about a year ago following 12 months of planning. “We engaged a food distribution agent to help us select and meet with distributors,” says Hughes. “The process took about a year and we had to have samples of our product in the US in compliant packaging for each meeting with a potential distributor.”
Another good way of building brand awareness with grocery retailers and potentially gaining a listing is to attend one of the many US food shows that take place throughout the year. “The mass market retailers are now starting to look for things that differentiate them a bit, so a lot of them are going to food shows looking for products they can pick up and companies they can feature in their stores that other stores do not have,” says Gupta.
Seminara agrees shows can offer a good route to market but he says the US food trade fair scene is enormous and, as a result, brand owners need to attend the category event relevant to their product. “It’s not like you can take a booth at a big omnibus show and be successful,” says Seminara. “You have to go to one where your category buyers go. So if you’re a sweet, confectionery or biscuit brand you go to the Sweets & Snacks Expo, if you’re a gourmet food brand then you go to the Fancy Food Show, if you’re dairy you go to IDDBA, if you’re a natural food brand you go to Expo East.”
An example of an overseas food brand that benefited from attending trade shows is The Good Crisp Company, which was co-founded in Australia by CEO Matt Parry. “Talking to a lot of people [at trade shows] revealed how grocery stores brought their products and who we needed to contact in order to have our products available for purchase,” explains Parry.
“It then involved me setting up meetings with local sales brokers in the US that could present my products and get me in front of the key distributors, that I knew my key grocery store targets bought from. It is a bit of a chicken-and-egg situation with distributors and retail customers, but you need to present and talk to both sides at the same time to get each one interested and bring them to a point where the distributor will carry your product and the store will buy it off them.”
A further option potentially worth exploring if a brand has already established a presence on Amazon in its own domestic market is selling via amazon.com.
“The advantage of the Amazon platform in the US is that it can give you access to Whole Foods, which is sort of a holy grail to a lot of SMEs because it’s [Whole Foods] where a lot of brands have started and taken off, so that is definitely a route,” says Gupta.
Whichever route to market an overseas SME food brand ultimately decides to take, they need to break the US down into small manageable chunks. “Don’t try and tackle it as one big country,” advises Seminara, who adds different regions and cities potentially present an opportunity for brands from different parts of the world, due to the local demographic make-up.
“There isn’t a homogenised US market,” Seminara explains. “Almost 20% of our population is of Hispanic descent, so if you’re a Latino brand then look at Texas, look at California. Italian food is extremely popular everywhere, but most of the Italians live in the North East USA and the Chicago area, so those brands would do better there. In the Pacific North West – if you look at Oregon, northern California, Washington State and even into Canada, British Columbia and Colorado – if you’re a natural or organic, better for you brand these products over deliver there.”
Seminara says a common mistake a lot of European food brands make is they tend to focus too much on cracking the New York market. “Some people say ‘I will get started in New York and once I get traction in Manhattan the whole of the US will see me and I will be a success’,” he asserts. “However, the north east is only 17% of the US population, or put another way 17% of the malls. The bigger opportunity is the south, which is around 38% of the business, or the west, which is 28% of the business.”
Another strategy Seminara espouses is brands try and gain listings with ten mid-size grocery chains with between 30 and 150 stores and focus on servicing those chains well rather than trying to gain listings at a big retailer with hundreds of stores from the outset.
The former approach is essentially how Lofthouse of Fleetwood built up its US business. “When we started we developed the brand by gaining listings in the independent trade sector – what’s called ‘mom-and-pop stores’ – and small regional drug chains,” White explains.
He says the company started its export business from the bottom up but adds it “would be very hard for a new company going into the US now to do that because the trade structure has changed so markedly and you would need to obtain distribution in one or more of the big key players”.
A good way of getting noticed by these key players is to establish an export business north of the border where it is often easier to gain a foothold. “If people are looking at North America I normally advise them to have a dabble in Canada first because often Canada is more manageable, it’s a lot smaller, it’s a pretty similar shopper and you can often find your feet a lot easier than diving into the States,” says Renton. “Learn some lessons, play for a season and you will have more credibility with the Americans,” he adds.
“I normally advise to have a dabble in Canada first”
Seminara agrees that establishing an export business north of the border before attempting to tackle the US marker is a sensible tact. “Canada is much more of a level playing field. They are used to importing food, albeit primarily from the US, so it’s a good idea.”
He adds that as with the US market, brands should try and develop a local strategy for the country, so British brands should consider targeting Ontario and French brands Quebec. However, Seminara cautions listing fees in Canada are higher than in the US on a per case basis so small companies still need to have sufficient financial resources to help get their export business off the ground.
Having a war chest of funds to rely on will help SME brands overcome some of the challenges exporting to the US presents. However, some obstacles are not so easy to navigate.
“Time difference was one of the main hurdles [we encountered],” says The Good Crisp Company’s Parry. “Having to have all my calls done first thing in the morning before the US customers finished for the day. It got so bad that in the end I moved to the US to ensure we could grow the business and it not be held back.”
The Good Crisp Company also developed bespoke packaging and flavour variants for the US market to ensure its products were relevant for the local market. “In Australia our packaging is more premium and fits the Australian market place better, whilst in the US our focus is more on the natural side of things, which is a bigger differentiator,” he explains. “We also had to change up some of our flavours. They were too mild for the US and so needed to be made stronger to suit the local flavours.”
Due to different regulations governing the sale of food items in the US, brand owners may also find they have to make changes to their packaging to ensure it’s compliant. “For us, we had to do additional lab testing to ensure we had all the data for a US nutrition panel,” says Slendier’s Hughes. “For those unfamiliar with US compliance it would be worthwhile engaging a compliance specialist to help. Also, there are new laws that allow for a shorter form nutrition panel and an external compliance expert can provide advice on this. Also remember that the weights and measures are different in the US.”
Because of the significant cost associated with gaining a listing in the US, SME brand owners need to create a detailed financial model to ensure their export business is a viable enterprise.
“There are a lot of costs in the US – your agent, your distributor, listing and marketing fees, etc,” says Hughes. “You need to calculate the cost of all these, along with compliance/packaging and logistics costs to know if it’s worthwhile entering the US market. Generally consumer prices for food are lower than in Australia so your margins will generally be lower than in Australia.”
Parry says he spent two years developing the company’s product, making sure he had the correct pricing and certifications, and researching the US grocery retail sector to ensure his product found a market. “Sometimes people get excited about entering a new country and forget to go back to the basics and ensure there is actually a demand and opportunity for what you are looking to sell,” he reflects.
Those brands that fail to do the basics do so at their peril because as Lofthouse of Fleetwood’s White says: “It’s a big market, it’s a difficult market to crack and it does require investment up front from any SME. Having said that it’s a great market to work in. With 330 million people, quite high average incomes and the world’s largest consumer economy, it doesn’t take a genius to work out it’s a market you would want to be in.”
