Changes in the natural products industry and to the role of a natural products broker

Vegetarian Journal, May-June, 2003 by Lisa Shapiro

THE GROWTH OF THE NATURAL PRODUCTS INDUSTRY

The natural foods industry is a $34 billion business that has experienced what Wall Street folks call 'hyper growth' over the last decade. This has primarily been due to growing awareness about the importance of healthy food choices within the mainstream population, which in turn drives the expansion of natural products within the mass market and through natural products retailers. During the '90s the natural products industry saw growth in the double digits, unheard of in the grocery business. While growth has slowed slightly over the year 2002 to a solid 8.3 percent, this is still substantial when compared to the flat 0.1 percent growth experienced by the top 10 supermarket chains.

If you have been patronizing your local health foods store for a number of years, you have experienced the change directly. Ten plus years ago, if you were looking for soymilk, non-dairy yogurt, or non-dairy cheese, you might be lucky to find one shelf designated for these products in your local health foods store; there was only a slight possibility of finding any of these products in the mainstream markets. Now, the situation is quite different. You can find an entire "dairy" section dedicated to soy, tofu, and other dairy-free products in national food store chains, and most mainstream markets have sections designated for what was typically known as "health food products." Today, you have more variety, more brands, more companies to support, and most importantly, more choice in satisfying specific health and ethical needs. This has been a direct result of consumer demand.

There are many avenues and channels that natural food products go through in order to find their way onto your supermarket or health foods store shelf. Of the many ways a product reaches the consumer at the store/retail level, the work and efforts of a natural products broker is preeminent.

WHAT IS A NATURAL PRODUCTS BROKER?

The functions of a natural products broker are multifaceted. A natural products broker acts as a liaison between the manufacturer and the store/corporate buyer, providing service at both the distributor and retail level. The following is a list of some of the most common responsibilities a broker fulfills:

* Introduce new products/manufacturers to the buyers

* Bring in line extensions (when a manufacturer comes up with new products in an existing line)

* Provide in-store support with merchandising assistance (how the product looks on the shelf)

* Maintain inventory levels (some brokers hire staff to just do weekly/monthly counts to ensure a product doesn't disappear from the shelf)

* Design displays and end cups (end-of-aisle displays that are "prime real estate" in a grocery store because of the high visibility and traffic they garner)

* Provide education and training for staff (the more education the staff has, the more likely it is they will pass information on to consumers)

* Provide consumer lectures (these presentations drive product sales through customer demand)

* Process orders (some buyers can deal directly with a broker, and the broker then "turns over" the order to a distributor or directly to the manufacturer)

* Create marketing and sales programs (newsletters, sales specials, monthly promotions, etc.)

* Provide product samples for staff and consumers (think about how many times you tried a sample in a store and then proceeded to purchase it)

* Negotiate better deals with manufacturers and distributors (sometimes brokers will kick in their commission to allow a retailer a better discount; this creates goodwill and larger volume for the broker)

The overriding goal for a successful natural products broker is to secure the largest percentage of market share possible for each manufacturer's goods, or as one broker stated, "My sole goal is to get it on the shelf and off the shelf into a customer's hands."

A broker's salary is dependent on that success, as he or she gets paid on a commission basis. Typically a direct line, one that the manufacturer ships directly to retailer, can garner the broker a percentage ranging from 7-15 percent of wholesale costs. If it is a distributed line, the percentage is somewhat lower, ranging from 3-10 percent. Even though the percentage is lower, the broker can make up the loss of percentage points with larger sales volume and wider distribution.

THE CHANGING FACE OF THE INDUSTRY

Despite the industry's growth during this last decade, its landscape changed in many ways. As the demand for natural products expanded, the key components shrank when mergers and consolidations began to affect all layers of retail, distribution, manufacturing, and brokering. Where once the industry was dotted with independent health foods stores, brokers, manufacturers, and distributors, the scenario now is more a conglomeration of large corporations. There still are independent "mom and pop" retailers and remnants of how the industry used to be, but more than ever, big business has penetrated the natural products industry and continues to do so as the demand escalates and the profits mount.