| What is a broker? | Why use a broker? | Selecting a broker | Considerations of the broker | Building an effective working relationship
What is a Broker?
A broker is a sales agent hired by a manufacturer to be the exclusive sales and marketing organization in a specific trading area.
A broker represents a product to prospective buyers, usually without cost until a sale is made. When orders are written, they are passed on to the manufacturer who then ships the goods directly to the retailer or foodservice company. The product may also be shipped from a wholesaler.
A broker will represent a variety of manufacturers or principals, as they are called, usually with non-competing products.
A broker can represent you to one or more of the following:
- retail grocery chains
- wholesalers
- foodservice operators and distributors
- drug chains
- mass merchandisers
- industrial users
- military installations
The manufacturer pays the broker a percentage of sales, usually 5 to 15 per cent, depending on volume and amount of labor required. These commission rates are usually negotiated along with fees for special services. There may be a start-up fee. For example, a start-up fee may be $1,000 for the first six months, deducted from future commissions.
Industry overview
According to a study done by the Canadian Association of Sales & Marketing Agencies in connection with the U.S. Brokers Association, about half the products sold in U.S. supermarkets are sold by brokers, while in Canada about 25 per cent are broker sold.
Over the past few years nearly every major distributor, both retail and foodservice, has consolidated its purchasing and marketing operations for Western Canada in Calgary. These moves have caused brokers to look at Western Canada as one market. As a result, many local brokers have been bought out by larger brokers or have merged or formed alliances with brokers in other provinces. The brokers can then maintain both head office contacts and contacts with local retail or foodservice outlets.
Unlike in the U.S., brokers in Canada are permitted to act on a "buy/sell" basis where the broker takes possession of the goods. This is usually done with imports or in situations where the processor only wants one buyer and the broker finds the buy/sell arrangement to be profitable.
Why use a Broker?
A broker gives the manufacturer:
- an expert sales force
- local representation
- stable sales costs
A broker has:
- personal contacts and established relationships with buyers
- expertise in select markets
- regional expertise and the ability to address the region's individual characteristics
- greater efficiency as the overhead costs of selling are spread over a number of principals
A broker is the manufacturer's eyes and ears in a region. The broker monitors developments, finds distributors and handles problems. If a customer has a complaint, having a representative available saves the manufacturer a trip.
The value of broker services is usually measured in terms of sales results and cost savings. The cost of brokers services can be compared to the costs of maintaining the company's own sales staff, including salaries, travel expenses and office operations. For example, to offset the costs of $50,000 for one salesperson would require sales in excess of one million dollars at a commission rate of five per cent.
There may be situations when you choose not to have a broker represent you. If sales are high enough to warrant your own direct sales staff, you may be able to provide better service if you have direct contact with the customers. In cases where high product knowledge is required, or where service is extremely important, you may want to train your own staff to handle your product.
Options
One option is to have your product completely represented by a broker (broker sold). Another option is to have broker representation in specific regions as an extension to an existing sales force. A third option is to use broker representation for specific products or brands. For example, a company makes two brands of cookies. Brand X is sold through the company's own direct sales staff (house accounts) and brand Y is sold through a broker.
Services provided
A broker is more than an individual salesperson. A broker is usually an established company with several professional sales people and clerical employees. Services that a broker may provide include:
- merchandising
- planning promotions
- computerized space management
- distribution warehousing
- buy-sell programs
- Electronic Data Interchange (EDI) and other computer support systems
Head office coverage
Product presentations are made to chains and wholesale groups to achieve computer listings and schedule promotions. More and more key buying decisions and centralized listings are being made at regional headquarters. Visits to the head office ensures direct feedback and co-ordination between the head office and retail accounts. Brokers can also assist in getting customers to pay their bills.
Retail coverage
Follow-up at the store level includes regularly scheduled calls which range from every four to eight weeks for rural locations, to once a week for major retail and wholesale accounts in cities.
Activities at the store include building special displays, making sure the product is on the shelf, adjusting shelf space, handling complaints, pulling damaged product, rushing through an unplanned order, helping to plan a special promotion for the local minor hockey team, monitoring promotions and monitoring competitive activity.
In order to resolve problem situations, extra store visits may be necessary.
Computer support
Electronic Data Interchange (EDI) allows customers to transmit orders to one central location. It also provides quick turnarounds for the customer and gives the sales office a record of the order and the ability to track deliveries for warehouses. Sales can be monitored by account and by territory against budgets and marketing plans. Wholesale and retail pricing can be monitored and reports can be provided on stock rotations.
Selecting a Broker
Because the broker becomes part of your sales team, it's important to choose carefully and to understand each other's objectives. This may require shopping around and interviewing more than one candidate.
All products and principals require varying types of services and there are brokers of all sizes, degrees of service and sophistication. For example, some brokers are willing to assist with the development of a new product. Others want to see the finished product before they begin working with you. Find someone you're comfortable with and suits your company.
You can also ask for referrals from brokers you are using in other territories and other manufacturers that you feel comfortable asking. Buyers can also recommend brokers for specific product categories.
Trade shows are an opportunity to meet brokers and see them in action. You might consider sending letters to all or selected brokers in a territory and invite them to respond and meet with you at an upcoming trade show.
Both the Canadian Association of Sales & Marketing Agencies and the US National Food Brokers Association (NFBA) publish information on selecting the right broker. Canadian Association of Sales & Marketing Agencies publishes a directory of member brokers listed on a province by province basis.
Important steps in selecting a broker
Identify your needs and expectations. They may include:
- retail market coverage
- head office contacts
- marketing and trade programs
- merchandising service
- specialized services including translation, meeting government requirements, computer services and reports
Analyze your products from the broker's point of view. Things to consider include:
- What level of sales are you anticipating?
- Are you going to be one of their main lines, or a minor account?
- Is your product going to be a good door opener for them in dealing with new accounts?
- Is your product something they'll be excited about selling because they can do really well with it?
- What is your product's competition?
Evaluate the candidates
The strengths of a broker may include good head office contacts, retail market coverage, trade contacts, quality employees, market knowledge, professionalism, aggressiveness and good communication skills.
Strengths are also related to "people chemistry" which is partly a subjective judgement. Make sure the broker's market positioning is in line with your own.
Carefully consider the information you gather. Then, make your final decision and appoint your food broker.
Questions to ask
Who are the owners of the broker's firm and are there any immediate management plans, ownership changes expected or impending mergers?
Who are the major principals? By asking for a business portfolio, you will find out what products they are carrying now, and if you will become one of six main lines or one of sixty-six. Both you and the broker want to avoid a conflict of interest with existing products lines.
Who are the five largest retailer and/or foodservice accounts?
Are there any items in the present product line that would be an advantage to our line or provide an experience base?
Are there people in your organization familiar with our product category? If so, what is their experience?
Who would handle the account and what is that person's background? What accounts does that person have now? What particular successes has he/she had in the last six months?
What has been your best selling and merchandising performance in the last 12 months?
Considerations of the Broker
After seeing your product and a half hour of discussion, the broker should have a good idea as to whether or not to represent you. Factors taken into consideration include the commitment of the manufacturer, the company and product match, and the potential or current volume in dollars.
The commitment of the manufacturer is shown by the amount of research that has been undertaken, the marketing program and the financial resources available.
Company and product match takes into account how the product fits with what the broker is currently representing. You need to know if there are possible conflicts with other products and does the product fit with the goals of the broker?
Potential or current volume in dollars looks at whether or not the product is already on the market. If it is, what business space does it occupy (where is it being sold now)? Other considerations include, what is the current listing or present distribution in the grocery network?
If the broker is not able to represent your product, a referral can be made to another broker.
Building an Effective Working Relationship
A productive relationship is based on communication and trust. Because your broker is putting your sales plan into effect, you may want to seek the broker's advice during the planning stages. Your broker is your regional marketing expert.
To get the results you expect, give the broker the tools needed to the job. The broker will require training and sales support materials. For example, a show and tell book will include product information, price lists and order forms. An information package to leave with buyers may have similar contents.
Also, fact sheets can show photographs of the products and highlight the specifications. Personal product sales training and a plant visit should also be considered.
You will need to provide the broker with a quota for sales. Make sure you both agree on all targets.
Identify the criteria that will be used to measure performance. An annual review should contain no surprises. If performance is not satisfactory, you may give the broker notice for termination of services. It's likely that the broker will also have a similar clause in the contracted offered to you.
Be realistic about your expectations. If your product will contribute 10 per cent of the broker's income, you can't expect the broker to put 100 per cent of his time into selling your product. Remember, the broker represents several principals. To get the results that you want, provide ample lead time. Allow the broker to plan ahead for market visits, new product launches, promotions and meetings.
For more information:
Canadian Association of Sales & Marketing Agencies
Suite 301, 885 Don Mills Road
Toronto, Ontario M3C 1V9
Telephone 416-385-2322
Fax 416-510-8043
Grocery Manufacturers of America
formerly (National Food Brokers Association (NFBA))
2401 Pennsylania Avenue NW
2nd Floor
Washington DC 20037
Telephone: 202-337-9400
Fax: 202-337-4508
Alberta Food Processors Association
1-800-463-0864
http://www.afpa.com
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