Consignment might be the unexplored new frontier for farmers and food manufacturers.
What is Consignment?
Consignment, in the food business, is a way for farmers, food producers, or food manufacturers (the consignors) to sell their products with the help of food retailers or grocery organizations (the consignee). The farmers or food producers are not paid up-front at the point of distribution and delivery, rather they are paid after the point of sale, where the retailer has sold the food product to the end consumer. It’s at this point that the retailers pay the farmers or food creators minus an agreed upon percentage of the proceeds for selling the products. The consignee has the right to return to you the merchandise which does not sell and without obligation. The consignment selling model (see below image) has several advantages for both food producers and retailers.
- Consider what happens to a food manufacturer who has developed a new consumer product that is thought to be a bestseller, but no retailer or wholesaler is willing to invest enough capital to stock a small number of the items in inventory?
- Consider what happens to a food manufacturer who is told that the seasonal product they are trying to sell is such a capital risk that there is probably no chance that it will make the retail shelves during the Christmas season.
- How are farmers or food producers supposed to offer their products and terms of sale to be sufficiently attractive to get the product on retail shelves for exposure to the consumer buying market?
Consignment Advantages for Retailers
- No need to pay up front for inventory to sell, as most retail stores need to
- Any products that don’t sell can be returned to consignors or disposed of
- Payments can be made days or weeks after the item sells, improving cash flow
- Can build a solid clientele who return regularly to scope out the changing merchandise
Consignment Advantages for Food Producers
- Warehousing, preserving, marketing, and selling of the products are the responsibility of the retailers
- Sold items that involve shipping, delivery or food preparation & presentation are the responsibility of the retailers
- Retailers provide an alternative channel to sell products
- Food producers can set a higher price, thus making more money per transaction
- It is a cost-effective way to get your products in front of a consumer audience without having to invest in overhead expenses typically associated with running business
According to the Association of Retail Professionals, demand for consignment goods is on the upswing, says that Association of Retail Professionals. Growth in number of new consignment stores is currently around 7% annually.
Tips for Food Consignment Success
Do Your Due Diligence
Nothing pays you back more than fundamental market research. You should have a thorough understanding of the industry you are entering by doing your homework and conducting market research. You need to know your product, study the competition and know who your customers are. A little advanced planning can save you a lot of pain and suffering later on.
Establish Product/Market Fit
You need to sell what your customers want to buy, not what you want to sell. Product/market fit is the degree to which a product satisfies a strong market demand. It is the first step to building a successful venture in which the company meets early adopters, gathers feedback and gauges interest in its product.
You're selling what you like instead of what your customers want to buy
Location, Location, Location
Just as in the real estate business the location of your food product and how they are staged can have a huge effect on the success of your business. Your product has to be featured in the right show where it will have a reasonable amount of success.
Melony of the YouTube channel 'Lost & Found Decor' learned that lesson the hard way when she entered her antiques business in her first consignment mall. Her mistake: choosing the cheapest show. She spent all time staging her merchandise in a visually appealing way, and decorating and lighting her booth. All this effort was for naught because her beautiful products were in show comprised of garage sale booths filled with junk, used tools and clothing, and leftover odds and ends. So her booth was way out of place and she ended up with the most expensive booth in the show.
You want to ensure that ensure that your product and the venue you choose to sell your product are a good fit. For example, you don’t want to sell candles with a retailer whose product focus is clothing.
Implement ERP Software
Onboard ERP software designed specifically for food producers, for food manufacturers, distributors, and traders. ERP (enterprise resource planning) software like Inecta offers a fully integrated, forwards and backwards traceability system that allows you to keep close tabs on your products throughout their supply-chain journey.
With dedicated food manufacturing ERP software, you can:
- Track materials from receipt to delivery of the product to the customer
- Quickly determine, isolate and retrieve potentially contaminated goods long before it reaches the customer
- Increase speed in which completion of product recalls are completed
- Optimize governance and drive compliance
- Test and improve upon traceability system on perpetual basis
- Decrease chance of risk associated with recall
- Work within regulatory and compliance reporting requirements
Have A Written Agreement
Anytime you enter into any type of business relationship that involves the exchange of goods, there should be a written agreement that spells out all of the terms and conditions.
Fully Understand Returns
Whether you are a farmer selling produce or a seafood retailer selling packaged fish to customers, you need to fully understand how, when, and in what condition product can be returned. Returns are a big part of the consignment business.