Expert: Eric Hofer - 4/22/2010

Question
QUESTION: I have been shown an opportunity to take an existing regional beverage brand to another un-tested and un-served (by this brand) region. It would be a franchise arrangement where I would pay for their extracts but have favorable pricing on packaging/labeling, etc. from their existing suppliers.  I would bottle locally and market/sell to regional/local distributors. How would you suggest I evaluate this opportunity and get it off the ground?

ANSWER: Jeff,

Effectively you'd build a model (say in Excel) that forecasts the sales, and operating costs; and you'd turn to the brand owner for statistics in order to predict the likely sales potential.

Your model would go month by, working off your various assumption:-
- number of accounts
- average drop size
- staff costs
- promotions, etc.
- rental/depreciation ....
etc.

As I read this, you are thinking that you'd bottle locally.  I'm assuming you'd job the bottling (through a co-packer), though to start I'd think about just importing the product so that you can establish the interest.

Working through the model you'll determine how many years it'll take to earn back the investment.  And therefore, how much leverage you need, etc.

If you're serious about this, we can chat at some.  You can find me on skype (eric.hofer).   


---------- FOLLOW-UP ----------

QUESTION: Thanks Eric!

I am serious about pursuing this opportunity and have considered simply importing the product as a way to "test the market". My concern with this approach is how to evaluate how much the cost of shipping eats into the thin margins inherent volume model that is the soda business.

That aside, how can I predict/evaluate the number of accounts, drop volume, etc.? I have some contacts "in the business" that I can approach about possible distribution/sales.  Is it as simple as calling up and asking if they'd be interested in carrying this product and asking them for projections?  

In other posts I've read, I recall mentions of "incentives" offered by manufacturers to distributors to get product on the shelves. Can you expand on that for this particular situation?

I'm not on skype...the software is free, is finding/chatting with eric.hofer free as well?

Answer
Jeff,

I offered here, where I volunteer...  so yes, it's free.  I'll tell you if you're over stretching the bounds.  

First, you can get an idea of what the shipping costs will be.  You have to decide what your average container risk will be - say 1500 cases, the distances, customs, etc.  And the product itself will be tying up capital, so how much are you willing to commit, risk and cover the cost of funds.

Next, you would determine a price point.  The higher you go, the less you might see...  but I don't know your target so it's hard to comment.  For example, if you're going to an island where the customs, shipping, et al can double the price of common goods - and people in general are used to pay 10 USD for a KFC Zinger, then you'd likely get a warmer reaction to a 2.50 can of cola as compared to Miami where there's loads of local bottlers and a slew of Wal-Marts and Costcos turning out cases are far less.

There's a general belief that you'll always capture some market with a launch.  The question is whether you can capture enough to make a living or a killing.  Here you could test product through sampling events.  People taste and comment, and as part of the survey you're asking what would you pay, where would you expect to find the product, etc.

Next, your manufacturer must have some profile of their typical consumer.  Why not ask them and compare demographics with what they can tell you?

Getting stuff on shelves in many circumstances is not incentives; it's mandatory.  You pay for the space.

Anyway, try me on Skype.  I'm currently on EST (for 1 more week).