I recently interviewed a colleague about the food marketing industry. Our conversation was focused on clarifying the topic of Food Brokers, also known as Sales and Marketing Agencies (SMA’s).
John founded his own SMA which he and his partners successfully sold to Acosta recently. Acosta is one of the largest SMA’s in the U.S. I hope the interview will shine some light on this topic and explain the somewhat complicated process of how a food manufacturer or brand can get their product out into the world. And how sales and marketing agencies help make that happen.
Lionel: Can you explain the difference between brokers and sales and marketing agencies?
John: They’re interchangeable – they mean the same thing. That word ‘broker’ had, over the years, been used in the food industry to describe independent companies that provide services to food manufacturers to help them sell their products. But ‘sales and marketing agency’ or SMA, is now used more commonly than ‘broker’.
Lionel: We’ll stick with sales and marketing agency (SMA) from here on out. Can you tell us more about what they do?
John: The essential function of an SMA is providing a shared service to their clients – food manufacturers and food brands. These are services manufacturers could do for themselves, but SMA’s can provide greater efficiency by specializing and providing them to many companies.
SMA’s, by spreading these services across many clients, can provide them at a lower cost than food manufacturers could by doing them themselves.
SMA’s provide three main types of services for their clients. First, they meet with buyers at retailers’ headquarters to sell – to win and maintain business for their client’s products. I call this activity ‘white collar’. Second, they provide services in stores; things like merchandising, setting up promotional displays, making sure the right price tags are on the shelves, and managing the business at the store level. I’d call them ‘blue collar’ activities. The third type of services are clerical and administrative. What used to be paperwork but is now mostly online; orders of merchandise from retailers, invoices, payments and tracking shipments.
Lionel: What types of stores and other industries do SMA’s work in?
John: Within the food industry are two main categories; retail and food service. Retail is grocery stores, (think Kroger, Stop and Shop etc.) mass merchants (Walmart, Costco) and natural foods and specialty stores (Whole Foods, Mrs. Green’s etc.).
Lionel: What about food service, it sounds similar to retail?
John: One way to think about retail, is its food people buy to take home and prepare. Food service, on the other hand, covers what’s called away-from-home meals. All the other places people consume food, when they’re not home. This includes restaurants, which is large portion of food service, but also other places like schools, hospitals, workplaces and even the military. SMA’s are just as important in helping food manufacturers sell into restaurants and these other venues, as they are selling to grocery stores.
Although the products are usually sold in bulk and not individually packaged.
Lionel: Talk more about the food service side.
John: Within Restaurants are national chains, like Chili’s, regional chains and local chains, and then all the many individually-owned restaurants like your local diner.
Selling into restaurants, and other foodservice channels, is different from retail because you don’t have the second set of services I mentioned earlier – like merchandising products in stores. Food service is about selling to headquarters purchasing offices and also selling to wholesale distributors like U.S. Foods and Sysco. Because these distributors are the ones that move the product and orders and invoices go through them as an intermediary.
In the other ‘away-from-home’ channels we talked about, like schools and workplaces, SMA’s manage their client’s business both through the wholesalers and also to what’s called the operators; the chefs and managers of the foodservice operations at all these venues.
Lionel: Sounds pretty complicated!
John: Definitely. Although your ultimate client is the food manufacturer – that’s who’s paying the SMA’s, you also have to balance the needs and interests of the operators and wholesalers.
It’s sort of like a triangle, with, say the food manufacturer at one corner, operators at another and wholesalers at the third corner. And SMA’s are in the middle, trying to balance everyone’s needs.
But retail and food service are overlapping in some respects. Because grocery stores often offer ready-to-eat food. Making them more like restaurants.
Lionel: Yeah, I’ve been reading about that – the word ‘grocerant’ combining grocery and restaurant, has been developed to describe this. More and more grocery stores are expanding their ready-to-eat offerings.
How have SMA’s developed over the years; what’s changing?
John: Consolidation. The old brokerage companies started as local or regional companies. Over 30 years ago both the retail and foodservice sides of the food industry were more localized than they are now. Lots of smaller, local food manufacturers and retailers. The trend has been consolidation and concentration, with larger entities buying up smaller entities. And SMA’s that serviced manufacturers, retailers and operators also needed to become larger to service larger, national companies. A national food manufacturer like Tyson’s chicken, would rather deal with 5, or even 1 SMA to represent them nationally, rather than a patchwork of 30 or more regional SMAs. So, everyone had to get bigger. That’s why we sold our SMA to Acosta, a very large company.
Lionel: Sounds like a lot of the overall economy, less small players, fewer, but larger players.
How do you think the industry will develop? Any trends you can see?
John: SMA’s are still important, but things are shaking up. As there is a trend to consolidation and size in food manufacturers, like the merger of Kraft and Heinz a couple of years ago, then it makes less sense for them to outsource these headquarters, merchandising and admin functions. As they become larger and have many product lines and brands, it increasingly makes sense for them to do these ‘shared service’ functions themselves and to not need to outsource them.
They may still hire SMA’s to do certain functions, like retail merchandising and other services, but they may often bid these out and buy those services from the most cost-effective company. And they’re driving the fees they pay SMA’s down. And pay a flat fee rather than a % of sales. Or they may pay a small % of sales like 1% and then pay for services on top of that.
Lionel: OK, what about trends on the food service side?
John: In foodservice, group procurement organizations (GPO’s) are becoming more dominant as a gatekeeper to buy products and services for their clients, which might be larger colleges, hospital groups and other organizations. They go directly to food manufacturers and negotiate prices for their clients, which are the operators. And the wholesalers are consolidating too. So, the role for SMA’s is getting more complicated, here, as well.
Lionel: So, it sounds like GPO’s are sort of like a broker, but who’s client is the operator, not the manufacturer.
How do you see the future role of SMA’s?
John: SMA’s still make sense for small to medium-sized emerging companies. There are many new entrants, especially in the natural and organic food sectors. Younger consumers especially are looking for newer, sustainable, and healthier food brands. These smaller companies still need help from SMA’s.
And there is a role for new companies to hire sales and marketing strategy companies, just to get advice on how to best enter the market. This makes a lot of sense for these emerging companies to reduce their risk. These companies offer essentially, an outsourced VP of sales. They can advise on the best way to go to market and have their own existing relationships with buyers in many retail and foodservice channels.
Lionel: That’s actually what we do; contact us here.
John: Yes; these types of strategy companies de-risk the go-to-market process for emerging and growing companies in the food business. And there are other strategy companies that help advise emerging brands on their on-line strategy too, which is increasingly important.
Lionel: I’ve done a lot of research on how brands are combining on-line strategies with brick-and-mortar retail distribution. And (shameless plug) I even wrote a book about it: ‘The Future of Omni-Channel Retail: Predictions in the Age of Amazon’.
John, thank you so much for sharing your experience and insights with us.
We work with all kinds of food brands and manufacturers and help them access different food retail and foodservice channels. We help you identify the right Sales and Marketing Agencies (SMA’s) to bring your product to market. We also help manage those SMA’s and provide overall guidance on bringing food brands to market in all major channels. These include grocery and convenience retail, restaurants, hotels, and high-volume food service operators like colleges, hospitals, corporate dining, and airports. Contact us here.