Wednesday, January 18, 2017

Export Food Small Business Start-up

This is why, in addition to my general small business international trade start-up courses I teach a a specific class on food export.  The information offered everywhere except from me is not only bad, it is downright harmful.  The harm in these articles is people contemplating export expansion say "If that is what it takes, then I cannot do it." Well, what is described in the article is not what it takes. What is described in the article is a whole lotta waste.  The way it is done worldwide is not at all like this article describes.

Someone has to present what really happens in small business international trade.

This article is an example, and start out with a claim that is rather wrong.
While food giants such as P&G, Nestle and Unilever have long operated with a global footprint, it’s only recently that small- to mid-sized companies have been able to effectively tackle these markets.
Small businesses have been exporting food from the United States all along, nothing has changed in recent years, the tools tactics and attitude necessary have been there all along.  Yet the story will tell us about a "pioneer" in this field.
One of those food retail pioneers is Kontos Foods, a mid-sized New Jersey-based manufacturer and distributor of traditional artisan breads and Mediterranean specialty foods. A little over three years ago Kontos began a vigorous overseas expansion program, and now ships its products globally, to a wide range of locations, including Singapore, Indonesia, the Caribbean, Panama, Bahrain, Saudi Arabia, and Dubai.
I've never heard of Kontos Foods, and I am sure they are a fine company.  But what bothers me with these perennial articles telling us about "pioneers" is they never mention cost/benefit...  I can get sales into all of those countries pretty quick too...  at a cost.  The trick is to have sales and maintain a profit, at least as good as what you would have if you expanded domestically.  If Kontos is New Jersey based, then export orders ought to be no more difficult (or costly to acquire) and every bit as profitable as a domestic sale.  And alongside testing the overseas market, one would be obliged to test expanding domestically to compare with the overseas opportunities.

Now, recall the opening false claim that biggies like Nestle and Unilever were the only possible players before.  And who is making this claim?
Before Kontos, I worked at Unilever and my colleague, Kontos Foods’ Global Sales Director Doug Werts, is formerly of Nestle. Combined, we’ve lived and worked in different markets around the world, including the Netherlands, Brazil, and the U.K.
At Unilever, for instance, I spent significant time and resources building market share in Europe and South America. Those experiences, along with our current Kontos research about consumer shopping habits, provided us with the deep consumer insight we needed to target the right products and packaging to shoppers.
So to help a small or mid-sized company break into export markets, the process is the same as for Unilever and Nestle?  This is an internal contradiction: "nothing has changed, things are now different."

Now notice the valentine-to-self slipped in there, "my experience and my time spent on the Kontos dime travelling gives ME deep consumer insights."  Bull$#!+.  Since valid and reliable market information costs tens of millions, any other "experience or insight" is mere anecdote, and the plural of anecdote is not science.  There is a way to test market with spending tens of millions, and getting solid results.  It is search and learn, a process where you discover customers not otherwise discoverable.  But the tool tactic and attitude is utterly contrary to all of the elements this article proffers.  In short:

1. The tool - LCL MOQ FOB ...  if you have specialty, overseas buyers are looking to test this in their market.  They want and need that smallest order rational, not the largest order possible.  They want a pallet load to test, not a 40' container. It is FOB because you will be prepaid before anything rolls out of your warehouse destined for overseas.

2. The tactic:  Your export offer is one-size fits the entire world.  You ship overseas what you ship domestically. All "localization" for the export market is up to the importer overseas.  No good deed goes unpunished, so you never help your buyer by doing localization.  Recall we are talking a one pallet load shipment, and as a tst possibly several of these in sequence.  Why would you foot the cost of "localization" for a test order, in which most test will come up nil?  Don' worry, your importer overseas knows how to localize on the spot if necessary.  I am also an importer, and have had to "localize' many shipments on the spot in which customs has found fault.  it's a small shipment, no sweat.

3.  The attitude:  I came here to sell, why are you here?  At the trade shows, every buyer ought to place an order for your LCL MOQ FOB.  If not, why not?  If the person you are speaking to is not a buyer, end the conversation and move on to a buyer.  If the buyer says no to your one-size-fits-all worldwide offer, then find out why not.  Start a matrix of objections to see if any changes wold be worthwhile in your offer.  This is science, something sorely lacking among those who go to trade shows happy to settle for "trade leads."

What exporting gets down to is a test of the product by the importer overseas to whom you sell.  This article has a lot of moving parts, but bottom line is you find an importer overseas who wants to test your product.  On the one hand all of the rigamarole laid out in this article nets no advantage, and on the other hand you can achieve the same results with none of the rigamarole.

Then on this this:
The problem, however, is that overseas research isn’t cheap: Attending one trade show could cost upwards of $15,000-$20,000. There are nonprofit and government programs to help assist with companies as a means of trying to boost overseas trade. We found FoodExport NorthEast, a non-profit organization that supports international commerce. The organization is designed to help American food and beverage manufacturers attendforeign trade shows, connect with potential customers and learn about consumer trends.
Sigh. It could cost that much, but you can achieve the same results at a fraction of the cost.  Here is the funny thing, it could cost that much if you take the help those orgs offer, because their help is in the form of rebating half your costs if you do things their way, which "could cost upwards of $15 -20K..."

OK, so you spend $15,000 on a trade show and get $7500 back.  And their way is not the optimal way.  And I can do an optimal version the same thing all in for about $5000.   Now what kind of leverage is it when you net net you spent too much to do largely the wrong thing?

With the assistance of FoodExport, we started hitting the global trade-show circuit. They provide exploratory tours to help retailers discover whether a particular market is right for them. These tours offer crucial learning time, where retailers, manufacturers and distributors can quickly learn which regions are worth pursuing. When you’re on one of these tours, I recommend maximizing every minute of your research gathering.
For instance, while in Shanghai for a trade show tour, I learned that people in Northern China prefer bread much more so than their southern countrymen. This helped steer Kontos’ sales efforts to the correct part of the country, saving time and money.  
Any any Chinese food importer would already know this.  Why not just find a competent Chinese importer and have them test your product and provide feedback?  If and when something developes, then you might go visit China.  All this travel and time is expensive.
The international export business is on an upward trajectory. If you plan to join in on an overseas expansion program, gather an experienced team, do your homework and get your passport ready. People are now enjoying Kontos flatbread in Bahrain, Singapore, South Korea, Saudi Arabia and Dubai. Who would have dreamed that three years ago?
As I started out this post asking, where is the cost benefit, I am pretty sure Kontos has gone well into the hole getting those export orders.  The question is when, if ever, it will proven to have been profitable.  For overseas expansion, you need no more talent than a good Freight Forwarder and a solid importer, who may be discovered without ever leaving your office.

Because these articles claiming "small businesses can export just like Nestle now" have been coming out the last 40 years, I offer a corrective course.  No nonsense, the tool, tactic and attitude to find export business no more difficult and every bit as profitable, from the first sale and onward.  You may read about the course here, and enroll now and pay later at the same site.

Tuesday 1/24 - 2/14/2017   Four Sessions
Section One ~ 6 PM to 7 PM Pacific Time
(This would be 7 PM to 8 PM Mountain, 8 PM to 9 PM Central, 9 PM to 10 PM Eastern)

This work can be done either as a proprietor producing food, or an agent representing a food producer.

Feel free to forward this by email to three of your friends.