BUILDERS
"It is easier to hold ground than to take it. It follows that defence is easier than attack.
Only by means of superior strength can the attacker make up for all the advantages that accrue to the defender..."
- Carl von Clausewitz, 'On War'
Several media outlets have recently referenced von Clausewitz in the context of the war in Ukraine. Attacking the US market is like going to war. On one hand, new brands are disadvantaged compared to those that already occupy the market. On the other hand, it is an uncertain venture that should only be undertaken after meticulously planning everything necessary to win.
After expanding the distribution of Van Houtte coffees across Canada, I was asked in the late '90s to launch the brand in the United States. It was a humbling experience. Over the past two years, I have spent most of my time assisting foreign brands in the United States. The essentials have not changed.
Three realities distinguish the US market from the rest of the world: the intensity of competition, the level of segmentation, and the complexity of execution challenges. Successful foreign companies focus on a narrow niche where they are among the best in the world, establish a strong local team to delegate execution decisions, and ensure they have the means to achieve their ambitions.
This article draws primarily from the experience of retail consumer product suppliers, but readers from other industries will find relevant observations. The following quotes are from the same work by von Clausewitz.
Succeeding in the United States
First, let's clarify what it means to succeed in the United States. For a consumer product supplier, it is much more than securing listings at Whole Foods, Kroger, or Walmart. Success means, four years later, achieving robust and growing sales volumes, retaining listings, and ultimately making money. I emphasize the last point: in business, one has not truly succeeded until they are making money.
Competition
Precisely because it is the largest market in the world, the US market is also the most competitive. One must expect to face not only North American brands but also significant South American, European, and Asian brands. Many will have made it their mission to succeed at any cost and will invest substantial amounts. A new foreign brand will also face a significant disadvantage against established brands. Moreover, supermarket chains have little patience for products that do not perform in the first few months, resulting in a ruthless market for the weaker players.
Segmentation
The United States also exhibits the highest level of segmentation in the world. Segmentation is what compels emerging brands to focus on narrow new segments to protect themselves from established major brands. For example, the plant-based milk market, originally dominated by soy milk, has been segmented by almond and oat milk, as well as further subdivided into organic sub-segments within each category. Innovative new brands like Oatly are creating new segments that offer distinct benefits to distinct customer groups. In other categories, a brand like Goya Foods targets Hispanic American consumers, which would not be viable in markets like Canada, France, or Korea. Competition drives the segmentation process, and the size of the market makes it possible.
Success in the United States, therefore, belongs to those who, like Apple and Starbucks, launch products that lead to the creation of new categories where they are the pioneers, rather than those who launch products similar to those of the pioneers in developed markets.
The segmentation of the American market is a significant barrier to entry for foreign brands. Understanding it comes naturally to American entrepreneurs. On the contrary, it is a counterintuitive concept for many foreign entrepreneurs who have succeeded in smaller and less competitive markets, and whose products are often designed to appeal to a broader audience in their domestic market.
Oatly is an example of a foreign brand that used segmentation to its advantage. Guru, a Canadian energy drink brand, provides another example. It expands its distribution to the United States by creating the segment of organic energy drinks.
Complex Execution Challenges
Surviving in the US market requires uncompromising execution. Here are some key factors to consider:
Working with Brokers
The market is vast and complex, making it challenging to establish quick business connections with enough retailers. You will need to rely on a network of brokers, especially when dealing with supermarket chains that prefer established suppliers. Competent and professional brokers working on a national or semi-national basis typically charge a monthly fee of $8,000 or more, amounting to nearly $100,000 per year. Ouch!
Local Team
Brokers alone are not enough. To succeed, you will also need your own commercial management team. It's not a choice between one or the other; you will need both. The leader of this team is crucial and must be highly skilled, commanding a minimum compensation (including bonuses and benefits) of $250,000. Plan for a minimum total team budget of $500,000.
Listing Fees
Most retailers will demand listing fees for carrying your
products. In the natural segment, the norm is one or two
free cases per store. Traditional banners typically charge
$20,000 per SKU for a banner with 150 stores. By the time you have distributed your products to 3,000 stores, you may have spent around $700,000 on listing fees.
Merchandising
Supermarkets stock an average of 30,000 items per store. They often neglect to reorder stock, place it correctly, or display it at all. You may be compelled to use merchandising services to ensure your product is prominently placed on the shelves where it should be. This service costs around $60,000 to $70,000 per year for weekly visits to 130 stores concentrated in a region.
Distribution
In most cases, you will need to utilize distributors to deliver your products to retailers. Distributors often require high margins between 20% and 25% for new products. They may also request promotional allowances for the independent stores they serve. While regional distributors dominate the food product market, UNFI and Kehe have a significant market share for natural products on a national scale.
Branding and Packaging
Foreign brands typically need to reposition their brand and adapt their communication strategy to resonate with American consumers. This includes reevaluating packaging, which requires an investment of $50,000 to $100,000, depending on the number of products.
Promotion and Marketing
A minimum of 20% of sales in the first year should be allocated to promotional programs with retailers to encourage sampling. This percentage may decrease to 10% or 15% in subsequent years. You will likely need a dedicated website and Instagram page for the US market, along with employees to manage them and a budget for influencers to increase awareness among your target audience. While some brands opt for an international English-language page to reduce costs, it presents a significant competitive disadvantage compared to brands communicating through dedicated American pages.
See the "Costs" section below for an estimated breakdown of total expenses. Restricting sales to online channels to simplify operations will not lead to significant success. Most online sales occur through traditional retailer platforms, and products with high velocity on Amazon typically gained recognition through traditional channels first.
You must be among the best in the world
"The best strategy is always to be very strong; first in general, and then at the decisive point."
The first factor for success in the United States is to be among the best in the world in the eyes of a sufficiently large target audience. To ensure this, you need to conduct a detailed market study to identify your strengths and weaknesses compared to the competition. Then, you'll need to develop a business plan illustrating how you will seize this opportunity, outperform your competitors, and achieve profitability.
The imperative of focus
"...there is no higher and simpler law of strategy than that of keeping one's forces concentrated."
The second factor for success is absolute focus on a limited number of opportunities. Most foreign brands that have succeeded in the United States have done so with a much narrower product range than in their domestic market…the range for which they can claim to be the best in the world. For example, Heineken markets 300 beer brands worldwide but promotes only 3 in the United States. Many brands initially limit themselves to specialized distribution channels, such as natural food chains, or to a single region, such as California. It takes several years to achieve a solid national distribution in the United States, and it's better to approach it one region at a time. For organic products and plant-based meat products, for instance, I recommend starting with California and then expanding distribution to the Northeast.
It's not about being everywhere; it's about creating value.
Organizational planning and governance
Organizational planning and governance are two other critical success factors that are often overlooked. Excessive control from the head office is one of the most common handicaps for foreign brands. Once the battle has begun, decisions must be made quickly and on-site by people familiar with the field.
There are three conditions for making it work:
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You need a high-caliber local team, starting with the GM or President of the U.S. division. Recruit the best people so that the headquarters' management team has complete confidence in them.
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All execution decisions must be delegated to the local team. The strategic plan and budgets should be prepared jointly. Corporate policies must be respected, and the vision and values must be shared. Business reviews should be conducted monthly or quarterly, discussing progress using specific indicators. However, the role of the headquarters in the success of a launch in the United States is primarily to provide resources, support, and motivate the local team. When it comes to the first significant foreign market, the CEO and key decision-makers at the headquarters usually need to assimilate new delegation and performance management practices. Take the time to document the decision-making process and approval levels in writing. If you have doubts about your GM's ability to deliver, replace them rather than making decisions on their behalf.
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The headquarters team must have reached a minimum level of organizational depth, meaning they have seasoned leaders in key functions such as sales, operations, finance, IT, and human resources.
The costs
"Kind-hearted people might of course think there was some ingenious way to disarm or defeat an enemy without too much bloodshed..."
I won't beat around the bush. In the case of a new foreign consumer products brand, you should expect annual losses of at least one million dollars, and in many cases much more, for a few years to establish a sustainable presence. That's why you need to be profitable in your domestic market, have reached a certain size, and have secured the necessary financing before starting. Ultimately, as it will always be a challenging journey, you must be convinced that the U.S. market is essential to the future of the company to persevere and succeed. The investments can be more modest in technology product markets if there is less competition, and obviously for private label products.
If you have doubts, don't try with limited resources to "see what will happen"; it would be a waste. Instead, wait until you are ready.
Entering through acquisition
You can expedite your entry into the United States by acquiring an already established company at a reasonable price. Danone acquired a local company when it entered the American yogurt market. Maple Leaf acquired two major plant-based meat brands—Field Roast and Light Life—when it decided to enter this market. This option is reserved for larger companies and is not necessarily the least risky approach, as shown by Maple Leaf's recent results.
Mitigating risks
Yes, there are approaches that can mitigate risks:
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Conduct a test in a small chain that caters to your target customers, for example, or test the product online before investing millions in a larger-scale deployment. Ensure flawless execution and promotional support.
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Work with a strategic partner who already has a sales and distribution organization, such as Guru and Beyond Meat with Pepsi-Cola. This approach reduces the scale of initial investments and execution risks but requires the same level of supervision as working with a distributor and usually involves profit sharing.
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If you have natural products, start with specialized chains like Sprouts, the Fresh Market and Whole Foods, where you can benefit from regional velocities two to three times higher than conventional chains.
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Consider listing your product with Costco: it is a channel that potentially offers significant volumes per store without listing fees and without a distributor. However, be aware that until you have made your brand known through wider distribution, your product will be treated as a seasonal or temporary novelty, and the opportunity could be short-lived.
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Private label: it is a less expensive way to generate cash flow in the United States, but you must be among the lowest-cost manufacturers to endure. Since it does not offer the opportunity to build consumer loyalty, a private label contract does not contribute to value creation with the same multiples as sales under your own trademark.
Prerequisites and planning
If you have read this far, you understand that the American market is not for everyone. I have developed a 5-point diagnostic to determine if a company qualifies for success in the United States. At most 3 or 4 out of 10 companies that contact me pass the test: Export Diagnostic for the US
If you are among the businesses that are not yet ready, we can discuss what needs to be done to get there. If you are ready, we can discuss the planning process for your launch. Plan for 6 to 12 months of preparation before take off.