As we’ve mentioned in previous posts, the U.S. market is a highly competitive, crowded, and convoluted marketplace. There are several thousand retail banners spread across multiple channels (conventional, natural/specialty, club, convenience, etc.). The larger supermarket chains might stock 40,000 to 50,000 individual products at each store. In order for international consumer brands to achieve success in America, a comprehensive omnichannel strategy must be carefully planned and executed. Yet, time and time again, we see global brands make many of the same common mistakes as they attempt to enter and grow in the U.S. Below is a synopsis of the most common mistakes and misconceptions about the market.
- Managing From Afar
This is the top mistake we see international brands make. There is a common assumption that once basic operations are set up, their team will be able to manage all aspects of the U.S. business from their home country. We have seen zero instances where a brand has been successful in this endeavor. Zero. In order to achieve sales growth (or even basic brand maintenance), having someone on the ground, in the market, to manage the business is an absolute requirement.
There are three ways global consumer brands can establish in market support and ensure their U.S. strategy is being carried out properly. We’ve listed them here: Why Having In-Market Support is Critical for Success
- Lack of Proper Due Diligence
Many international brands are eager to capture the incredible opportunity the United States represents. Routinely, in their haste, they fail to conduct the proper amount of due diligence on the market and rush decision-making. This presents itself in many ways.
For example, many brands will partner and sign contracts with the first service providers they come across. Make no mistake, there are any number of firms in the U.S. that will happily take your money! However, are they the right partners for your brand? Best practice is to conduct multiple interviews with several partner options (whether it’s for sales broker support, marketing agencies, fulfillment centers, or anything else). Also, brands should not be afraid to ask for references and testimonials before starting any partner relationship.
We also see a lack of diligence in the basic understanding of how a brand should be positioned in the U.S. Has a comprehensive competitor analysis been conducted? A pricing analysis? Has a U.S. target consumer been identified? If so, what region of the U.S. do they primarily reside? Has any consideration been given to consumer testing? All of these questions and more should be answered prior to any product launch in America.
- Miscalculating Margins
In most cases, the gross margin that international brands may be accustomed to generating in their home market is not what should be expected in the U.S. market. It’s critical for brands to fully understand the U.S. unit economics of their products before launching a brand. Are all costs being considered and accounted for? How accurate are your cost assumptions? Are you accounting for the potential costs of free fills, slotting/listing fees, returns, payment terms, etc.?
Although it may differ slightly by product category, most FMCG brands should aim for a 40-45% gross margin. A good Contribution Margin goal is approximately 15%. Some brands may feel these are lofty goals; however, in the U.S. market, these are the margins required to achieve some level of sustainable profitability over time.
- American Distributors
Many brands assume their distribution partners will sell and market their products on their behalf. This is a common misconception. Yes, nearly all distributors have “account representatives,” and yes, these reps typically have a relationship with the retailers they serve in their region. National distributors like UNFI and Kehe employ account reps throughout the entire country. However, these reps rarely attempt to sell in new products to grocery retailers. They are not professional salespeople and do not attend category review meetings or new item presentations. Most of their focus is on maintaining the relationship between the distributor and the retailer, ensuring that products are accurately being delivered from the distribution centers to the loading docks of the retailers. It is up to the brand to get retailers to begin ordering their products from the distributor.
- Go Deep, Before Wide
Many ambitious global brands dream of quickly selling their products nationwide in the U.S. However, this strategy has an extremely low success rate (around 1-2%) and is very costly. Brands that attempt to roll out products across the country too quickly typically find they do not have the resources to support the brand. They do not have the necessary sales and marketing support this requires, nor do they possess the financial resources to support nationwide growth. Many times, their supply chain and inventory management systems are simply not prepared for national distribution. This is not a sustainable strategy. Instead, the better approach is to “Go Deep, Before Wide.” Global brands should carefully choose a specific geographic region of the U.S. and focus their sales and marketing efforts solely on this locale before expanding to additional parts of the country. Your FMCG products should fully saturate each region through multiple channels before expanding to the next area. This approach also allows brands to update or refine their products on a smaller scale, which is standard.
At OmniShore Advisory, we partner with global brands to manage all aspects of their U.S. business. We have the expertise to help you achieve growth in the American market while avoiding costly errors. Contact Us