Episode 93 – Getting Real About Distribution – w/Gregory Esslinger, Part One

May 1, 2023

Dr. James Richardson:

Welcome to Episode 93 of Startup Confidential, Part one of my interview with Greg Esslinger of Natural Food Ally. Welcome, everybody. This is Dr. James Richardson on Startup Confidential, and this time, we have part one of a discussion with Greg Esslinger. Sorry.

Greg Esslinger:

It’s all right. I forgive you.

Dr. James Richardson:

I’ve had five cups of coffee. And I studied German in college. I have no idea why that was so hard. 

Greg Esslinger:

Thank you. Yes.

Dr. James Richardson:

Who is a distribution expert and former employee of United Natural Foods. Is it incorporated?

Greg Esslinger:

I believe so, yes.

Dr. James Richardson:

Thank you. He’s here to chat about the nitty-gritty use of third-party distribution, how new founders can avoid the big fuck-ups. Okay. Greg, thanks for joining us. Tell us about yourself, man. 

Greg Esslinger:

Well, thanks for having me on. Like you said, I spent a decade at UNFI, and that’s kind of how I got my start in the food industry. Start from the bare bottom of UNFI as a purchasing assistant. Went up, climbed the ladder up through the ranks, and left about four years ago. I had been a buyer, account specialist, was a supplier relationship manager, which basically just means all the issues that founders are having, you’re the guy that they go to. When I left, I was a group manager, basically just means that I was managing a group of the supplier managers and in charge of the revenue that we were able to extract from those brands. I left four years ago. I started my own company, Natural Food Ally, just help brands navigate that natural channel of distribution. But say most everybody reaches out to me for deduction help or just UNFI help specifically.

Dr. James Richardson:

Awesome. Well, thanks for being on the show. What, Greg, are the top three things that founders who are new to the industry tend to mess up when they approach the third-party distributors?

Greg Esslinger:

Well, I would say first and foremost, just having false expectations and thinking that they got into the big dance, and UNFI or KeHE accepted them, and that means that they’re off to the races. And just means the work is just beginning, and they’re not doing the selling for you. These are big distributors that have processes in place, and they’re more UPS services for your product.

Dr. James Richardson:

Okay, that’s one. What’s another one.

Greg Esslinger:

There’s one. Well, that they go after these distributors without leverage. They don’t bring a big retailer with them. They’ll try to go straight to the distributor without any company or any retailer asking to pull them. So, they’ll take advantage of you. They’ll say, “Okay, if you want to get in, sure, we’ll let you in, but you’ve got to commit to marketing spend,” that can kill a brand when they’re starting out. And I don’t know too many brands right now that are just spending willy-nilly.

One other big one is just not reading your contracts. That’s probably the biggest mistake that brands make is that they see this big contract with a bunch of convoluted language and refers to policies document that they got to read that’s 40, 50 pages long. Brands are so excited about making it into the distributor that they just find say, “Okay, fine, I’m just going to sign on the dotted line and worry about all these issues later.” In doing so, they just don’t know what they’re getting themselves into. They can’t price correctly because they’re not taking their account. They’ve got to spend. Reading the policies, if you don’t do that, then you’re in for a world of unexpected hurt down the road.

Dr. James Richardson:

I want to go back to the first. Thank you for those three. I want to go back to the first one though. Where is this impression being consistently generated from that once you get into 3P distribution that something just happens? Where is that coming from? Do you have any idea? Are there stakeholders who are promoting this belief?

Greg Esslinger:

I have no idea who’s promoting that. When I was a category manager, it was just the conversation that I would have with founders about getting in to UNFI, and this will transform their business. I don’t get it. I don’t know why they think this because you still have to have your own sales team doing all the hard work. Yeah, there are sales folks, and they’re great people that work for these companies, but they’re not out actively pushing your brand. They’ve got hundreds of thousands of brands that you think they’re just going to actively push every new item that comes through the door, you got another thing coming.

Dr. James Richardson:

Let’s pause and go into that.

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Dr. James Richardson:

What kinds of brands in their system are they that use the UNFI sales team likely to have a meeting about and try to push? Is it all based on scale?

Greg Esslinger:

Yeah. If they’re actually, brand extensions of larger brands.

Dr. James Richardson:

Got it. Saffron Road has a new item.

Greg Esslinger:

Exactly. Different flavored product. That’s what’s going to drive because they know it’s going to sell. So, all these new brands, yeah, sure, they’re super profitable for UNFI because of all the marketing they can force down their throats. The reality is 75, 80% of those brands are going to end up failing.

Dr. James Richardson:

So, just for our new listeners, that’s marketing with air quotes is what-

Greg Esslinger:

Yeah,

Dr. James Richardson:

Those are great top three. I think I actually talk privately with folks about leverage, and I’m so glad that you brought that up. What are the creative forms of leverage that a smaller company, even say one to two million, which is not exactly, that’s actually a big achievement, might be able to generate with UNFI or KeHE to get some-

Greg Esslinger:

No, it’s no easy feat to get to that one to two million. The reality is with KeHE and UNFI, that they’ve got a lot of much bigger brands than that, and you’re just a small fish in a really big pond. The only real ways to create leverage, at least when you’re onboarding with these distributors, is to get the commitments from larger retailers. Whole Foods for UNFI, if Whole Foods wants you, now, UNFI is going to be forced to carry you even if you give them a hard time about the contract. That’s the beauty is that UNFI is kind of contractually obligated. The same thing with KeHE and probably Albertsons or Sprouts. They’ve got to bring in those products, and they’re sensitive customers. So, if you can target a sensitive customer for those distributors, and then, get in the door that way, that’s your best bet.

Dr. James Richardson:

And so, I think you may have answered one of my questions is what I was going to ask later, so let’s just jump to it in case I’m wrong. But what I’m hearing is that the old chicken or the egg dilemma isn’t actually a dilemma. Do I get onboarded at the distributor, and then, get a buyer? You need to get the goddamn buyer first.

Greg Esslinger:

No. No, no. It’s not a dilemma at all. It’s go to the retailer first, and the retailer knows that they can get you forced in to the distributor.

Dr. James Richardson:

Doesn’t that also apply for going down the street in Seattle to Met Market with your artisan goody goody and getting the store manager to put it on, and then, DPI suddenly has to take it? Isn’t that the-

Greg Esslinger:

I’m sure it does. Yeah.

Dr. James Richardson:

Because as long as the Met Market says they want it, boom.

Greg Esslinger:

Exactly.

Dr. James Richardson:

It’s just paperwork after that. Is there not a good case today, Greg, in 2023, given what I have ascertained is essentially the smaller number of slots available outside the natural agenda. So, if there’s fewer slots, wouldn’t it make sense to wait until you’re almost three to five million before you even go near these third-party guys? And the question is, do you see people coming to that realization entering, approaching these guys later? Or is it the same freaking vacuum of naivete coming in from zero revenue?

Greg Esslinger:

Honestly, I don’t see that happening. I see what you’re saying. I see where you’re coming from, and it makes sense. I see some brands that are really good and focused on their direct business through Amazon and starting up that way, and then, trying to build a big enough business to help with maintaining the cost once you do get into these distributors. But most brands, they’re thinking right out of the gate, trying to land a big retailer and forced right into the shit show.

Dr. James Richardson:

So, the supermarket channel, because to me, this is really, it’s about Whole Foods and the supermarket channel. It’s what we’re talking about because you don’t need a distributor to get into Target, Walmart. Walmart’s a bad place to launch, kids. Don’t pay attention to the LinkedIn feed unless you’re selling like caramel popcorn. That’s a great thing to launch. But yeah, there’s a bunch of direct ship options. My favorite is the specialty food store down the street from your house. You walk into. People used to do that, Greg. That’s how people get… Is that heater still going on or is it-

Greg Esslinger:

Yeah, it’s not happening now.

Dr. James Richardson:

Well, fuck.

Greg Esslinger:

Yeah. No, you want your big biggest bang for your buck. You’re focusing on the big guns. It still happens somewhat. You still hire regional brokers to jump into these small independent accounts, and you want to grow that independent business because it’s the most profitable. But you certainly don’t get 200 stores right off the bat.