Jordan Buckner (00:01)
Getting approval from retailer feels like you're moving the business forward. You land the PO, you start seeing your product on the shelf and it starts to feel like you're really going somewhere. It feels like nice validation. But getting a yes from a retailer doesn't actually mean your underlying business fundamentals work. You can scale into hundreds of stores, move a large amount of volume and still lose money on every case that you sell.

That actually happened to me. I lost money when I was selling TeaSquares into hundreds of Albertsons stores because I didn't understand all the fees and deductions that came with it. So today I invited on Abby June Richards, who is the CPG CFO, to break down how to actually evaluate retail opportunities, thinking about things like contribution margin, cash timing, and the real cost of doing business.

whether you are just kind of starting out in retail or you have been retail for a little while, but you're trying to really just get the footing under you. Really kind of want to break down some of those key concepts so that you can have the right mindset in moving forward. So Abby, I'm excited to have you join me today and welcome to the show.

Abby June Richards (01:09)
Yeah, thanks Jordan. So excited to be here.

Jordan Buckner (01:11)
once told me that CPG is harder than it looks. And I love the stickers that you made around expo as well. think those are like really cool, but it's so true because I love it. The getting to like starting a product and like starting in the food business feels like

one of the easiest businesses to do quote unquote, because like everyone can, most people can like cook and make something. And so you're like, oh, I have a product I just need to start selling into a couple of stores. But then you realize like, it's not just about having one retailer, like velocity and volume have a real role to play and the kind of barriers are really high. And so I think a lot of people are really confused by that when they start getting into retail. And so yeah, I kind of want to start out talking to you like founders are

getting a lot of retail yeses right now. I see a lot of them like launching in new stores and expanding. I'm kind of curious like what's your first reaction when someone's like, hey, I just made it this big account. Like shouldn't I be excited? What kind of goes through your head?

Abby June Richards (02:10)
Yeah, mean, getting that yes from a retailer. mean, you mentioned that it feels, you know, validating. It's definitely an exciting moment. But I like to say it's like a hurdle in the race, right? It's not the entire race. And there's so much more that comes after that.

It just means that you now have the opportunity to truly win, right? You have an opportunity to win in that retailer if the economics and the cash position can support it. But I'll give a quick plug for our cash fight framework. That is one of the things that we use because there are so many different angles to look at, right? Like so many different things to be thinking about and optimizing and improving over time. And that's

It's a lot to handle for sure.

Jordan Buckner (02:55)
my goodness, so as you're evaluating a retail opportunity maybe with a brand, what kind of numbers do you look at first to understand what the opportunity could look like for any given company? What questions do you ask?

Abby June Richards (03:09)
Yeah, of course. So, I mean, we're starting with the case price, right? Because that's...

your revenue, your gross revenue to your customer, whether that's the retailer or distributor, then you have to layer on trade spend, which reduces your revenue, right? Your cogs, which is everything that it takes to get the inventory ready to sell. Your fulfillment, right? And ideally you're landing around a 30 to 40 % margin on net revenue and

That's important because you still need money to market, right? Do demos and ideally maybe cover a little bit of your overhead over time. Maybe a little, it'd be nice to pay yourself at some point.

Jordan Buckner (03:46)
Yeah.

I know, it definitely will. And I think that that whole margin calculation piece I found to be really tricky because in starting off, especially for the first time, like, okay, let's estimate trade spend is 15%, maybe 20 % just as a benchmark. And here's our product cost. So we know there's gonna be some distributor fees, but let's kind of model that in what it could be.

How much of a discrepancy do you see between people like modder, really like figuring out like modeling what their margin is going to look like versus the reality of like once they start selling and seeing the real numbers that come in.

Abby June Richards (04:27)
Yeah, mean, yes, founders, they get that contract from the distributor. And I think it seems to be that they think these are normal terms, right? This is the normal thing. They're excited, right? Maybe they finally got the anchor account or the distributor said no before, but now they're saying yes because they have a retailer that will...

sell through. And so it just feels like forward motion. It just feels positive. And they're like, well, this is the contract. It's like signing with your cell phone, right? Do you, don't, you don't redline the cell phone contract, right? But with the distributor, it's very different because

you need to understand all those fees, right? Reading line by line, understanding what have you agreed to, whether it's OIs, having an understanding of how bridge buying can occur.

Did I agree to an early pay discount, which is 2 % on a 20 days faster payment is like 37 % APR. And if you have leverage, it's possible you could ask for that to be taken off, right? But.

I think that's the difference is looking at all those different little mechanics, reading the contract really, really carefully, understanding the DC opening fees, right? Just making sure you understand all of it because most trade spend is valid, right? Yes, there are deductions that are goofy that come through. They're for a different ⁓ customer or different vendor,

are definitely mistakes and there are ones that you can reverse, but a lot of it is valid. A lot of it was in the contract to begin with.

Jordan Buckner (06:01)
Yeah, and it's interesting because I think I hear from two founders, like there's some that just don't understand the contract and what they're signing up for and all the fees. And I think that's really hard. right, like as a founder, like it's your responsibility to read through the contract, get counsel if you need to understand what that means or someone who understands how distributors work, if it's not an attorney, because they don't know, they just can read the contract. But you know, someone like yourself who actually knows what that means.

But I also hear from other founders and I feel like I was in this camp where I theoretically understood the fees from a contract perspective of like there's a new fee to open up at DC and then there's a new fee to do like marketing support and all these other allowances. What I didn't understand was the timing of it all. And that sometimes that hits all at once, right? So maybe you send out.

Abby June Richards (06:47)
Mmm.

Jordan Buckner (06:52)
your first invoice for a second, and then they're actually deducting 80 % of that because of all these fees happening at one time. I'm like, wait, I actually thought that might happen across the entire year, not on one invoice. And then that happens the other way, where I'm like, okay, I can estimate this amount of deductions on the first invoice, but then there's additional fees from that original invoice that happened three, six, nine months later. Then I'm like, ⁓ I sent out an invoice, I got paid.

Abby June Richards (07:03)
Yeah.

Jordan Buckner (07:19)
but now they're deducting from this other thing in the future for the same invoice. And then like the timing really throws you off mentally because it's hard to reconcile how all of those layer together.

Abby June Richards (07:30)
Yes, yes, the, I won't go too deep into accounting, right? But there is the concept of accruing, right? For trade spend. Yes, understanding if you're saying yes to opening to.

DC opening fees or you know that that's in the contract, you know, you definitely need to understand how many DCs are there. Which ones am I pulling into? I've also seen where brands have in their contract that the distributor can sell to anyone, right? Open retailers anywhere. And you know, it's possible that a retailer could say yes to you just to get a free fill. mean, possible, not never has happened, right? So,

I would never say yes to, can open any retailer you want to, you can sell to anyone you want to. I would want to have control over that because of the free fills. then also just wanting to pace yourself on which GCs you're opening and making sure you have critical mass with each one before you move on to another one.

Jordan Buckner (08:26)
Yeah, and I think I like that one particularly. I remember getting counseled on that when filling out paperwork, I forget if it you and the fire or KeHe at the time, because on the paper it says, like, would you like us to pitch retailers on your behalf essentially and provide, you know, a free fill for their first order, right? And you're like, oh, I would love their help selling my product into more stores until you realize that they only might order the free product and.

because you don't know or you're not set up to support them, it doesn't sell and then you're out of free product without having that control as you mentioned. And so I think there's a lot of pieces like that where founders without the experience cannot envision the ramifications. If there's no limit, right? And they're like, a thousand stores will order and we're gonna give free fill. That could be all the product that you sent the distributor for your first order and you get paid for none of it because of this one checkbox.

Abby June Richards (09:19)
Yeah, absolutely. mean, the margins one thing, right? Calculating the margin is really important. Definitely would never say that that margin isn't important, but that's really only the first layer, right? As you alluded to is like, now we have to ask how much inventory do we need upfront?

to fill these orders, right? And then thinking through when are you actually gonna get paid on everything? Because, you know, we talked about this distributor payments, they may make you wait for the first payment while they're looking for sell through, right? That's in the contract. If you look, it's not looking to be necessarily normal terms. And to your point about it being difficult to map out, I mean, I have come into teams

⁓ situations they're already doing millions in revenue right and they have a big launch on the horizon and everyone underestimates how much cash they're going to need for that until we actually actually map it out

Jordan Buckner (10:14)
So let's talk through that, because I know cash and timing is where a lot of brands get into trouble, because that cash conversion cycle can be so long. And so let's kind of break down how you think about that cash cycle for brands and all the things they need to think about along the way.

Abby June Richards (10:30)
Sure. Yeah. terms of the cash conversions, like I'll just define it really quick. So it is the time it takes from the time that you buy your inventory until the time that you get paid back from it.

from your customer. And so that will include not only the time that you pay it, but you don't actually get the inventory, right? Sometimes there's an aspect of that. And then it's also the time that the inventory on average, right? Cause a lot of this is averages. How long is it going to sit in your warehouse? Right? Typically you're not necessarily going to be able to do like just in time for everything, right? It's going to sit in a fulfillment center somewhere for at least a little bit of time, hopefully not too long.

And then you have your terms with your customer and that adds even more time. Right? And when we're thinking about the big picture, the time that you can take to pay your vendors comes off of that. Right? So if you're not prepaying for your inventory, if you get terms with your supplier, with your co-packer, let's just say you're co-packing,

that can help you out with your cash conversion cycle. So just want to make sure and kind of define that first. And then second of all, I like to look at your

margin and then the balance sheet and cashflow impact of each customer, right? Channel. Typically, we kind of think about on a channel level, similar margin profile, similar cash timing and whatnot. Because knowing those different pieces, right? When you're modeling out DTC, you don't want to think about accounts receivable, right? So that's totally separate. You don't want to model your cash conversion cycle for your company as a whole. So I like to keep them if we're we're getting

nerdy in terms of a spreadsheet, it's on different tabs. I mean, that's the bottom line.

Jordan Buckner (12:05)
Yeah, I love it.

So then, you have, or have you figured out ways of modeling what that cash looks like in every situation? Do you advise, do your team or have clients advise where you're looking at for every retail order, every purchase order to lay out how those cash conversion cycles overlay? Because I think, on theory, if you have one order, you're purchasing, doing one production run, you have one retailer and they're buying it all,

It's fairly simple. But when you start having overlaps of two, three, four, five, and they're all happening at different times, is there a way of keeping track of that? Or what's the best approach?

Abby June Richards (12:44)
Yeah, so I will say that that rolls into cash fight. So it's the A in cash fight. A is an alert level and it ties into cash flow forecasting. Right. So we have the financial typically we want to have two different models. Right. So we have the financial model margins, high level cash flow monthly.

Separately, we have a cashflow forecast and that is going to include specific POS specific customer invoices, right? We're getting down to the nitty gritty because we want to know over the next three ish months What is going to happen with our bank balance and you can always extend that I actually had a client one time who was like can you just extend this out to 26 weeks because we want to be really specific and we have all this data and we just want to put it together and I did that and I was like, yeah, it looks like we need about

three million dollars, right? that again, everyone's like, no, that can't be right. I'm like, no, it is. It is. You're launching a like Kroger and Target and, and, and.

Jordan Buckner (13:41)
Yeah, I think that's what's so important, right? Because it's not like, they're all ordering in one bulk order and then you deliver and get paid at the same time.

Abby June Richards (13:48)
Mm-mm.

Jordan Buckner (13:48)
Right, like

you sell the first product and while you're waiting someone else is ordering, you have to fulfill that order and maybe a third client you need production for to fulfill that order and so you're still waiting to get paid from the first before you have to fulfill these other additional orders and I think that's the mindset shift that gets a lot of founders in trouble because.

It's hard to visualize that and with so many moving pieces and they're just like, I can't even see. So I think that's why it's so helpful to talk with someone who can help you visualize and lay out exactly like what you need for cash because I think it's so important.

Abby June Richards (14:23)
Yeah, and I mean, we, again, the Cash Fight framework, and we also have a free Cash Flow Forecast Excel tool, just something, it's pretty basic, it's not anything...

like most founders should be able to use it, right? But it's asking for the nitty gritty, right? It's what's currently, so on the customer payment sheet, what's currently in AR? Let's map out getting paid on that. what's in the pipeline, right? Like what do you have POs for? And then, okay, because that's only gonna maybe take us out to eight to 10 weeks, let's do some demand planning, right? What do we think that people are actually gonna order? Because

If we want to go to 13 weeks, we can't just rely on what's in, for instance, QuickBooks today.

Jordan Buckner (15:02)
my goodness. So I think it might be helpful too, because I know you referenced it, to walk through what the cache fight model is and kind of what are those key components within there.

Abby June Richards (15:11)
yeah, you're gonna get me. Okay, I'm gonna try and do it. I don't have it handy. So it's the conversion cycle is C. A is alert level, S is shelf pricing, H is shipping and fulfillment, F is financing, I is inventory, G is goods sold, H is overhead, and T is trade spend and marketing.

Jordan Buckner (15:29)
Love it, you got it. Which is kind of wild because there's so many components, Justin, what you mentioned there. They're like, someone needs to keep straight and understand the effect of everything.

Abby June Richards (15:30)
Yeah, there's just a lot to think about.

Yeah, and that's what finance is, right? We're looking at everything like big picture. We can go deep, right? Like we can go nitty gritty, but it's knowing when to stay high level and when to dive in. if, you know, that's nine pieces. If five of those are looking great, then you know you need to work on the other four, right? So it helps you kind of zero in. I will say that when I'm thinking about

Sort of triaging, you know, what's important? What to start with one big mistake I see is just under pricing so One thing I say and it's a little ⁓ tough, but it's like if you're special Charge your premium right? don't feel like you have to price with the incumbents

or even beat them in some cases. Like I've had founders, well I'm new, I need to like come in under, or kind of earn my spot. I'm like no, if you're special, charge more. And if you're not special, what's the point?

Jordan Buckner (16:28)
I think, you know, and I will say I've been in this industry a long time. I've created a product that I transparently say, honestly say like with running TeaSquares, right, I made Tea-infused energy bars and we never achieved product market fit. Our product had very little inert demand. There was no existing demand.

All the sales that we built, we essentially had to educate every customer on to become a customer and a supporter, and that was extremely expensive. And I think the reality is, whether I say or just look at the numbers, is that most of the businesses in CPG are not.

will not survive and that's not to discourage you from doing it, it's to say how can you be intentional with the product that you are creating and the business model behind it to set yourself up for success at the beginning. So I think a lot of people have an idea of like, this would be a really cool product. I did, I was like, what if I could eat my tea because my tea always gets cold because I make it and I never actually get around to drinking it. And so I put that in the energy bar essentially.

I can eat it at any time. But you know what? That wasn't actually a big problem for people. Like people were not willing to pay for it. I think that's where a lot of founders get into trouble because they're like.

I'm not actually solving a big problem for people and if I charge a lot for it, they're not gonna buy so I feel like I have to charge too little for it just to try to make it a easy decision to get them to try it but that creates a big disincentive and like you can't build a business that way.

Abby June Richards (17:56)
No.

Yeah, absolutely. mean, that's another mistake is not really having the sell through. You sell to a big distributor and it doesn't sell through,

I've seen brands get delisted and end up owing the distributor more money than they even had in revenue for the year. So if you sold a certain number of cases, you get to 30,000 in revenue, but you have 40,000 in charge backs, your revenue is negative. And that's before you even pay for your cost of goods sold, fulfillment, anything. I've literally had brands reach out and say, how do I record this? My revenue looks negative. And I'm like, it is negative.

that is the correct reporting.

Jordan Buckner (18:39)
my goodness, that's wild. I know that like, mean, what thoughts or advice do you have for founders who don't quite have the velocity yet to make these large jumps in distribution, but at the same time, they're running out of cash. And so they feel like they have to say yes because they have the vision of getting this big check for their initial purchase order or their initial invoice.

And they're like, I know we're not quite ready, but I kind of need the money. And I think that's a lot of tension that a lot of founders end up having.

Abby June Richards (19:09)
Yeah, I mean, the short answer is that retail isn't a big cash play early on, right? That's just not a reason to get into retails because you need some cash right now. Right. That's the short answer. Yeah, I mean, volume doesn't fix economics. If you start out with really weak margins, you're going to gain a few points through economies of scale over time. But it's not going to be this huge windfall and more volume usually

creates more cash problems. You're gonna need inventory, you're going to need support and eventually even more overhead, right? You're gonna need to hire someone to help you and it can just get into this snowball effect with cash. That's really unfortunate.

Jordan Buckner (19:49)
I think that is the thing that happens to a lot of founders and a cautionary tale not to do that because it does not get easier. very difficult to.

pull out of retail once you realize the mistake it is before you hit those velocity numbers. So as hard as it is, achieve that high velocity numbers for your category where you can feel confident in that growth before expanding your distribution, even if you feel like you need the cash because that's only gonna put more pressure on you, not less, at the end of the day.

Abby June Richards (20:19)
⁓

Yeah, you definitely have to think before you say yes, right? Let's say they give you a yes, but that doesn't mean you have to respond with the yes, right? You have to ask yourself, can you survive long enough for this to work? If you say no, it doesn't even matter what your margins are. It doesn't matter if your margins are good or not. Sometimes that can mean saying no to a deal you really want.

And founders also can think that if they say no, it's forever, right? Like they're shutting the door. It's really not. You know, I get that that's scary, but it's you can say not yet.

I'm not gonna promise that they'll come back but realistically if if you know Whole Foods wants you today more than likely they'll be open to talking about that, you know in six months or a year so They'll respect you for not coming in when you couldn't You know support it and that's why strong operators also approve a channel regionally before they go nationals You're validating your model you're managing your risk and if you don't have I mean I know this doesn't help if founders are already in

retail but if you're not seeing the velocity if you can't afford the marketing

shipping is not going to fix it, right? Like, I mean, I would say work on your product, make sure that there's nothing that's included with your product that's just kind of what you want it to be and make sure it's only things that consumers care about so that you can get your margins to a healthy place, right? And then say yes only when you know that you have a repeatable model and you can really drive sell through.

Jordan Buckner (21:46)
Abby, I'm so happy I had you on and I appreciate the conversation today. So many helpful tips for founders and brand teams. And so if you haven't already, with every, your existing retail relationships, calculate how much it's costing you or how much you're making. And before going into any new relationships, do the same. So you have a dollar amount of how much cash you'll need to get into and how much cash you expect to make or lose over a given period. So you can make a financial decision, not just a emotional decision on that choice. Abby, thanks for being on.

Abby June Richards (22:14)
So glad to have been here.