“COVID has had a huge impact on department stores, which, in turn, has had a huge impact on malls. Think of those malls that had an anchor store that is possibly closing and freestanding makeup stores in them like MAC. All that revenue being gone is really tough,” says Jeanne Tamayo, cosmetics buyer at San Antonio-based supermarket chain H-E-B. “How people are shopping has changed forever, and that’s very important. There are, of course, benefits for the food and mass channel.”

For the food and mass channel, there are benefits (read: big bucks) to improving their beauty draw. Pre-pandemic, gen Z and millennial consumers went to grocery stores three times a week on average. However, they did the bulk of their beauty purchasing elsewhere. According to a 2018 report by the Food Marketing Institute and Acosta, 80% of American households shop for products within the health and beauty care category at grocery stores, but 77% of their outlays in the category occur outside those stores. The report declares, “Add it up and the opportunity is large: if the grocery channel was to capture its fair share of HBC sales, it would represent an incremental $29 billion.” With billions at stake, we checked in with grocery experts about what beauty startups should know to get their products on grocery shelves.

There are several entry points for brands seeking to crack grocery stores. Brands can pitch to individual buyers for categories appropriate to them, approach distributors serving the grocers they’re interested in and engage with platforms such as RangeMe showcasing brands to grocers. Reaching out to a buyer initially is prudent, says Mia Bell, founder of Inspired Beauty Wholesale, particularly if a brand is pursuing an independent co-op or regional grocer. A buyer will direct a brand to a distributor if that’s the preferred course of action for brand consideration. Bell counsels clean indie brands to first aim for grocers such as Nugget Markets, Fresh Thyme, MOM’s Organic Market, New Seasons Market, Erewhon and PCC Community Markets that have a track record of being friendly to upstarts.

Grocery companies operate on strict calendars dictating reviews of products from current vendors. H-E-B implements two merchandise updates annually. Tamayo, who is open to assessing new brands throughout the year, takes meetings with vendors from March to May for the update executed in spring the following year. The holiday product review period is December to January. Tamayo details the review process can last six to nine months, and brand rollouts can take two to three months. Sandra Velasquez, a sales and distribution manager for brands in the natural and specialty channels, says it’s not unusual for it to take a year for a brand to break into a grocer.

For brands contemplating the grocery route, Velasquez recommends they step into the local branch of a grocer they could see their products sitting in. If there are staff people on hand, ask them how many units per week similar products are moving. The exercise allows brands to get a sense of what they have to manufacture to do business with that grocer. “If you feel shy about asking, you can pretend you are doing a report or just say, ‘I’m a vendor and want to understand the category a little bit better,’ and, hopefully, you encounter someone that is helpful. I would do that for a few stores,” says Velasquez. Illustrating her point with a hypothetical example of a body care product, she continues, “Let’s say you are trying to get into Nugget Markets, and they expect two units per week. Then, you need to do two times 52 times the number of stores. Ideally, you would be surpassing the expectations, but you need to start somewhere by doing the basic math.”

Visiting a local grocer is crucial because Velasquez advises brands to start in their backyards with grocery distribution. Someone from a brand’s team has to travel to the stores the brand is in, and that’s easier if the stores are close. Marketing to stores is easier as well if they’re concentrated geographically. Dan Aziz, founder of Premama, a maternity wellness brand stocked by Sprouts and Target, says, “In a perfect world, when launching in a retailer, you want to start ideally in one geographic area like the Northeast, Midwest or Northwest.” Velasquez also advises brands identify stores with high traffic and go after them.

Contemporary grocers recognize the entrenched brands they’ve historically depended upon don’t always cut it, especially for younger shoppers. In his pitches to grocers, Oliver Bogner, partner at Go Ventures, a retail sales and creative agency, says, “Here’s a category that is not growing or is growing very slowly, and we are bringing in this product that is better resonating with gen Z and millennials, and it’s at a higher price point, so we are going to grow the category for you.” To illustrate the pitch, he singles out Cake, a startup that’s modernizing lube, and indicates it can enliven a grocer’s sexual wellness offering. Velasquez doubles down on the notion that brands have to convince grocers they can lift their business. “Everyone thinks their products are made with the best ingredients. Everyone thinks their products are made with love. That’s not enough,” she says. “When you are pitching, it’s not about you. It’s about how you are going to help retailers generate revenue.”

Tamayo has been zeroing in on subcategories within cosmetics that have strong potential for H-E-B. Specifically, she’s been focusing on clean brands, and makeup brands with mass or masstige pricing speaking to multicultural and gen Z consumers. Tamayo has greenlit the brands E.l.f. Cosmetics, The Crème Shop, Arches & Halos, Pixi and Pacifica. To evaluate brands, she examines a brand’s presentation, samples, price and retailer lists, customer profile and social media marketing plan. She’s hones in on points of difference, and checks the social media networks brands are on, and their following, engagement and content to determine if they resonate with consumers and, if so, what sort of consumers. Although Tamayo is looking for brands geared toward gen Z shoppers, she underscores grocery stores have a wide range of customers, and a brand can’t totally turn off older shoppers if it’s going to win on shelves.

Beauty brands arriving at grocery stores are frequently tested at the outset in a small number of stores or temporary displays that cost them less than inline shelf locations. At H-E-B, Tamayo mentions cosmetics brands can be tested in a San Antonio store experimenting with gondola-style fixtures. But she stresses she wants to ensure a brand has ability to meet the demands of a grocery chain before she signs off on it. “It’s big business, and I like to know if the brand is ready to scale,” says Tamayo. Bell elucidates, “Would you be able to fulfill several 100 pieces up to several hundred thousand pieces depending on what the retailer decides? Can you fulfill that in a timely manner? It could be three months or maybe they could need it in 30 days.”

During the pandemic, John Clevenger, managing director of Trundy Point Consulting, explains the chances a new brand will be approved by a grocer have decreased. As they confront supply chain difficulties, grocers need brands that can limit out-of-stocks. “They are leaning into oldies, but goodies,” says Clevenger. “In the beauty category, they may be looking to Pantene because they are looking to fill orders, and they are placing less of a priority on having new items to create an incremental purchase.” And, with customers spending less time overall shopping in grocery stores, they aren’t perusing aisles for new items the way they once were. “For decades, retailers believed variety was very important and that, by having more variety, they could attract shoppers. This recent experience has forced a reconsideration of that and a significant portion of retailers are rethinking assortments,” says Clevenger. “They may be looking at an assortment with fewer items on shelf. If they have the same amount of shelf space and fewer different items, that can mean less risk of out-of-stocks.”

For indie brands that have available inventory, though, Bell contends there could be opportunities bubbling up that would be rare if stores were operating under regular circumstances. “I am telling brands to pay attention to what you see at the grocery store. Do you see there are empty slots? That’s because a lot of major brands are having trouble providing product,” she says. “Why wouldn’t you be somebody’s savior and come in and say, ‘I have inventory.’ That’s an open runway for people at this time.”

Grocery stores contain hundreds of brands and thousands of stockkeeping units. Whole Foods, for example, features about 5,300 SKUs. Coordinating with the vendor multitudes to keep grocery shelves loaded is an exceedingly complex logistical puzzle. To simplify it, grocers team up with middlemen, notably brokers and distributors. Grocery broker Alliance Sales & Marketing defines a broker as an entity with a goal to “get your product on the shelf at grocery stores and help you market your product to customers.” The company also emphasizes it can assist with negotiating the costs of doing business with grocers. Other leading grocery brokers include Acosta, Advantage Solutions and Crossmark.

“Think of a brand that’s at $1 million or $2 million in sales, it’s very hard for them to get the attention of a buyer, but, if there’s a broker who has been going into this retailer for years and represents $50 million in sales, it’s easier for them to get the attention of the buyer,” says Clevenger. “Now, you pay for that access.” By and large, brokers charge 5% to 10% commissions or monthly retainers.

Brokers can manage brands’ presences at stores, too. “They check to make sure the price tag is correct and that there is backstock,” says Velasquez. “The difference between grocery stores, and Credo Beauty is they have thousands and thousands of SKUs. So, it’s very easy for things to happen at the store level. Your price tag could easily fall off, and you’re not in a boutique store where someone is paying attention.”

The role of distributors is pretty straightforward. They distribute products to grocers. But the distributor universe is relatively hidden. Distributors aren’t blanketing social media with advertising. Per market research firm IBISWorld, Sysco Corp., C&S Wholesale Grocers, US Foods Holding Corp., United Natural Foods and Performance Food Group Co. are among the distributors with the greatest market share in domestic grocery channel. For budding beauty brands, smaller distributors such as KeHe, Frontier Co-op and Lotus Light Enterprises may be better fits. Distributors predominantly take 25%.

In beauty and personal care, Velasquez says it’s more likely that brands will be able to go direct than in other departments within grocery. Nevertheless, she notes, “We end up working with distributors because the stores that we want to be in force us to. It’s not because we wake up and think it sounds great to work with a distributor.” In addition to distributors, Bell remarks that, prior to the pandemic, brands could spend hundreds of thousands to firms that put on demos in stores to get their products in front of shoppers.

Velasquez points out most grocers use margins, not markups. Grocery stores typically command anywhere from 30% to 50% margin. Take a product with a cost of goods of 80 cents, an amount encompassing ingredients, packaging, shipping, labor and storage. That product could sell to a distributor for $2.05, giving the distributor a 25% margin and the brand a 61% margin. The distributor will in turn sell it to the grocer for a wholesale price of $2.75, and the grocer sells it to the customer at $5.50, resulting in the grocer scooping up 50% margin on the product. Of course, along the way, there could be other parties eating into margin such as brokers and support staff tending to demos.

Margin doesn’t cover what grocery stores reap from brands sitting on their shelves. To get a product on shelf, brands generally have to pony up slotting fees. Bell describes slotting fees as a sum per product per store that a brand forks over to a grocer. In eye-popping reporting on grocery stores, Vox estimated it could cost $5 million to place a candy bar near the checkout at a grocery chain. That estimate is based on fees of $3 to $5 per inch in each store. Free-fill is a form of slotting fees requiring brands to provide grocers with free products. Bell surmises a beauty brand may have to provide three to five pieces per product for free upon going into grocers. She says, “This is a way for them to lessen their risk and also have a good test run to see what’s going to sell.”

When the clean cosmetics brand Au Naturale went into 25 Whole Foods doors in 2017, founder Ashley Prange approximates free-fill cost the brand roughly $60,000. When it expanded its footprint at Whole Foods two years later to around 200 doors, she told Beauty Independent the cost soared 10X. A natural grocery chain asked a personal care brand Velasquez works with to supply six units for each of the six SKUs heading to stores for 340 stores or 12,240 units. The brand was able to negotiate free-fill down to three units for each SKU or 6,120 units.

“I would advise people to negotiate,” says Velasquez, cautioning, “There is no uniformity in grocery. Every store can ask whatever they want, and it’s up to you to decide if it’s worth it for you, and they will tell you if it’s not negotiable.” She doesn’t advise brands against negotiating for prime planogram placement—a planogram is a visual representation of store shelves—but hasn’t encountered much willingness on grocers’ parts to budge on planogram placement. Velasquez says, “You don’t really get to tell them where you get to be on the planogram, and they don’t necessarily release that so that no one is fighting about it.”

The costs of grocery distribution certainly aren’t minimal, and Bogner suggests brands should think hard about whether they can handle them. “Do I want to take a brand that’s doing $10,000 a month DTC and suddenly put them into every Albertsons or Sprouts in the country? Probably not,” he says. “But is there a brand that’s doing a couple hundred thousand a month that should be there? Absolutely, if there is customer alignment.” Velasquez tells brands to really understand their cost of goods and the margins involved in advance of leaping into the grocery arena. They often don’t account for labor or distributors. Talking about soap makers making soap at home, Velasquez says, “A lot of people think, ‘Oh, I’m making it at home, and it’s free. No, it’s not. Pretend you are paying someone an hourly wage and you are paying a facility because, eventually, you can’t make everything yourself. You won’t be able to scale.”

Grocery stores have a reputation for swiftly discontinuing products. Inez Blackburn, a professor at the University of Toronto, estimates 80% of products hitting grocery shelves fail within the first year. Despite the dismal figure, Tamayo is upbeat about the prospects of beauty brands that make it through the evaluation process. “It’s much harder to get in than to stay in. There is so much vetting upfront,” she says. “Let’s say a brand has 150 items on a two-foot planogram and eight of those are meh. That’s not going to endanger them.”

Grocery stores aren’t beauty specialty stores. While the demands from an inventory perspective are large on beauty brands in grocery, the demands from a velocity perspective aren’t as onerous for them. Velasquez reveals that a natural grocer informed her that her personal care client would be expected to sell two shampoo bars weekly. Bogner says, “The turn expectations are low so you can have a really nice little business by not turning that productively. You’ve got to turn a whole lot more in Ulta than you do in a Kroger in order to stay on the shelf. If you are at a Target, you need to be moving $10 to $15 dollars per store per week per item unless you are getting deleted.”

A really nice little business doesn’t equate to brands swimming in cash instantly. Discussing Au Naturale’s launch at Whole Foods, Prange warns, “You are not seeing ROI on that first PO.” Velasquez says, “What people should be aware of is just because you are in stores nationwide doesn’t inherently mean you are going to make money. Did you factor in your costs correctly? Did you really pad your pricing enough? If you don’t, you won’t make money. And, when you do promotions, it will come back to you.” She elaborates grocers commonly run quarterly promotions. “That promo is being charged back to you at a wholesale price,” says Velasquez. “When we say 15%, it’s actually more like 20% for you as the vendor. That’s after the distributor takes the 25% margin.”

Bell reports the good news is grocers normally pay promptly. “A lot of brands are starved for revenue or got cut off from department stores that are net 30, net 60 net 90,” she says. “With grocery stores, you can potentially get orders every month to every two weeks depending on how well you are selling at the grocery chain, and that’s phenomenal as far as cash injections for a brand.” Velasquez has found net 30 to be standard at many grocery companies.

In the age of coronavirus, much is shifting—and not necessarily to the advantage of emerging brands. On top of buyers leaning on oldies, but goodies in stores, shoppers are leaning on them in online shopping, which has ballooned amid the pandemic. In June this year, online grocery sales in the United States reached $7.2 billion, according to Brick Meets Click/Mercatus. That’s up from $1.2 billion in August last year. Online grocery shopping platforms haven’t been effective stages for nascent brands. Referring to Instacart, the app connecting Americans to over 350 retailers, during an Advantage Solutions webinar, Willy Blesener, media director for Beekeeper Marketing, shared, “Seventy percent of shoppers don’t look past the first row of products; 90% don’t go past the first page. So, if you are bidding on keywords, the first row is the preferred outcome.”

Currently, Bogner argues there is “no discovery mechanism” for new brands and products on Instacart. “But there should be a mechanism where the store can show you things that you want to discover,” he says. “In this Instacart world, it’s definitely harder for young brands in beauty, personal care and food to get noticed, but I’m still a firm believer in grocery stores because, as a customer that used Instacart during the height of the pandemic, I’m back in the store. I enjoy shopping in the store. I enjoy going to Sprouts. I enjoy going to Ralphs. I missed it.”