[00:00:05] Melissa Traverse: Hello, and thank you for joining. I am Melissa Traverse, Director of Community here at BevNET Anosh, welcoming you to the Nonbase Podcast, a podcast built to help CPG owners and operators navigate growth challenges and grow more profitable businesses. Be sure to check out nonbase.com, BevNET's platform made for the CPG community, where you can find this episode and so much more. Retail can grow your brand fast or quietly kill it. The difference is understanding the true cost of doing business and choosing the right retailers at the right time. Getting on retail shelves feels like the goal for many brands. It looks like growth. It signals traction. Digital customer acquisition costs are high. And for a lot of brands, it is the milestone they're chasing. But it's very possible for a brand to scale into retail, drive real volume, and still lose money. So today we are going to uncover what retail really costs, why volume doesn't always fix your margins, which retailers might be riskier than others, and how to decide if now is the right time for you to make the leap. And we have three really great perspectives that together tell this full story. First, we have Lauren Chew, founder of Love & Chew Superfood Cookies. Lauren built her brand into national retail, landing in major accounts like Whole Foods and Sprouts, only to make the very hard decision to pull back after realizing the economics weren't working, even with strong sales. Next, we have Abby June Richards, founder of the CPG CFO. Abby works behind the scenes with emerging brands to build their financial models and pressure test their retail strategy. So she sees exactly where founders get this wrong and what actually makes retail work. Finally, we have Leanna Krasnow, founder of Nudo, a premium pasta sauce brand with bone broth that's at the very beginning of this journey, actively deciding how and where to enter retail and asking these questions right now. Well, I can't thank the three of you enough for joining. the Namves podcast. I think we should start things off with a quick introduction from each of you. Lauren, let's start with you. Can you give us an idea of, tell us all about Love & Chew. I was first sort of introduced to you through your social media posts talking about this exact topic. And, you know, it was really so refreshing for you to be so forthcoming about, you know, the issues that you had. So please, you know, walk us through Love & Chew.
[00:02:36] Lauren Chew: I was doing a trade show last week and someone came up to me and they were like, are you the crazy girl from Instagram that pulled out of Kahee and Unify? And I was like, yes, yes I am. So that being said, my name is Lauren. I'm the founder of Love & Chew. We're a better for you cookie brand. And yeah, we've been in market for about seven years. We launched nationally to about 2,500 doors through distribution. And now we've pulled out and I'm working on a new cookie brand, which is really exciting.
[00:03:11] Melissa Traverse: So, so exciting. And can you walk us through the moment you realized that, you know, and I think this is an important point, even with strong sales, the model was broken. When did you, when did that hit you?
[00:03:26] Lauren Chew: You know, it's really tough, right? Because I'm sure that Liana's hearing this from her network, too, that, you know, Distribution is hard and this is why it's hard. But when you actually experience it, it's kind of a different ball game. Also, before we entered national distribution, I had a belief that with scale, we would get better ingredient pricing and co-packing pricing. And to be honest, we were always playing catch up. And, you know, there's just like a variety of external things that have happened since we've launched. There was COVID, then there was the war in Israel, now there's the current war in Iran. There's always something, there's a bad year for almonds, whatever it is. And we just never really saw the savings from scale that we wanted to see. And then for my product in particular, I have two issues. The first one being I'm in the business of selling singles. which by exiting retail, we've left the business of selling singles, which is great. And then two, our gross margin is just simply not strong enough. We're tied to two main ingredients in our formulation. One of them actually, what hit me is I was answering an RFP for a very large airline. And I said, I want to buy 20 truckloads of this ingredient. And they said, sorry, no price break. It doesn't work that way. And I was just like, wait, what? 20 truckloads and there's no price break? So is there ever a price break? No, not really. It just depends on the crop and we set the price, et cetera. And I think a lot of people listening to this podcast know what ingredient I'm talking about. You can look at my label. So it definitely comes down to the individual situation. But yeah, it's a tough game.
[00:05:14] Melissa Traverse: Thank you again so much for sharing all of that. And we're really going to drill down and find out the reasons behind, you know, what you're talking about right now. We're going to do that with the expert help of Abby Richards. Abby, thanks for joining us from the CPG. CFO, tell us a little bit about your business. And, you know, when you see brands performing well on shelf, like Lauren was, but still struggling financially, what's usually happening in the P&L that founders aren't necessarily seeing or don't expect to see?
[00:05:44] Speaker 1: I mean, it can be a lot of things, right? But Lauren mentioned it is like the cost of ingredients, right? The margins weren't there to absorb probably trade spend, I can imagine. and then also any like blips in the market. And then, you know, the expectations of pricing coming down, but I mean, under pricing, right? So one thing that I, I like to, um, idea that I like to share with founders is if you're really special, to charge a premium on your product. A lot of people get into business and think, well, I'm new, I need to be cheap, right? All the incumbents, they're established. I mean, I'm just trying to get somebody to try me. And it's like, no, you don't have to feel like you have to match or beat the incumbent just because you're new, because you're new and special, right? And if you're not special, really, what's the point of starting a brand? If pricing is off, you won't have enough margin left to fund, marketing or, you know, absorb ingredient increases or, you know, just supporting sell through and that will make a cash problem even worse.
[00:06:53] Melissa Traverse: Actually, Lauren, I'm curious about this. So when you were still in retail, how did you consider pricing? And at some point, did you run through a pricing model and realize that even if you raised your price X amount of dollars that you'd still be in a difficult position? How did you approach that?
[00:07:15] Lauren Chew: I was in the business of selling singles. And the reality is people are only willing to pay a certain amount for a single cookie. Liana sells a premium jarred pasta sauce. There's been several brands that have trained the consumer on paying more, like $10 or more per jar. So I think that's a different situation. The other thing that people don't really talk about really is the mental load that fighting chargebacks had on myself and my team and the stress that it personally caused me. And it made me kind of disengaged from the business and the industry because it literally made me so miserable. So that was a large factor in my decision as well.
[00:07:59] Melissa Traverse: You know, it's no surprise that I feel like every other AI innovation and CPG has to do with chargebacks. So, you know, it's, it's no surprise.
[00:08:08] Lauren Chew: Yeah. And now you can, I mean, look, I've been going deep on the AI stuff, like everyone else too. I think you can build your own tool pretty quickly as well. It's just sometimes the arguments get down to like, he said, she said, like a common chargeback is like, you know, let's say you ship less than pallet quantities. You know, you ship 20 cases. The customer says they got eight, they charge you back for the net. And it's like, we have our 3PL take photos, you know, but it comes down to he said, she said, and like, sometimes they don't get approved. And also you've waited, you know, 90 plus days to get paid plus the administrative overhead. Again, some of it can be automated with AI. I think we're in a little bit of a different game right now. I made this decision back in November and, you know, now when we're in May and it's a completely different game.
[00:09:00] Melissa Traverse: Well, Liana, you know, Lauren just mentioned Nudo and how you may actually be in a slightly different position because of the category that you're in and the way that the product is positioned. I met you and I was introduced to Nudo at Expo West and I was just so taken with the packaging. You have a really beautiful cutout right in the middle of the label that shows the sauce and it's a high quality product. Tell us about Nudo, please.
[00:09:29] Speaker 2: Yeah, so I'm Liana Krasnow, the founder of Nudo. We make tomato sauces with bone broth. So really big differentiator in the space. I know there's been a lot of flavor innovation recently in the category, but we really realized that there was a space in the market for something a little bit different. We initially took my grandmother's recipe that had white wine and we replaced it with bone broth for extra nutritional value. So it's really a little honed to my heritage, but also really realize that a lot of people are looking for the little boost of protein without hopping onto the protein trend. So as you may have noticed, there's no protein call out in the front of our jar, really just trying to go back down to the minimal ingredients, whole food ingredients, and food that actually makes you feel good.
[00:10:17] Melissa Traverse: And what retail are you in currently and how are you thinking about spreading your distribution?
[00:10:26] Speaker 2: Yeah, so we did a soft launch at Expo West. We actually were a little bit back and forth if we should exhibit or not. We did all the R&D ourselves. There was no food scientists involved. We wanted to make sure that the product was exactly where we wanted it to be, and we wanted to get in front of as many people as possible to try it before we went to market. So when we had the opportunity to exhibit at Expo, we got an incredible amount of feedback on the recipe, on the product, and everyone loved it. So we launched last month on April 10th. We're in 21 doors right now in between Connecticut and New York City. So we're focusing on independence in the Northeast. And I would say I've also been utilizing FAIR, which has been incredible for us. Unfortunately, since we are a glass product, there is breakage, so we are not a direct-to-consumer product, which I wish we were. But that kind of just makes us really focus on retail a little bit more heavily, especially because our consumer, based on all the data that we've done, they really are looking to buy their tomato sauces at the grocery store, and having to retrain them to purchase online would be very difficult. So we're looking at retailers right now for the end of 2026 and 2027 that we could work directly with to try to avoid the distribution aspect that Lauren mentioned. Working with Kahey and UNFI has not been top of mind for me, especially because of all the chargebacks and scenarios. But I've also heard horror stories of working directly. So just trying to understand like what retailers make sense and make sure we're making the right decision moving forward.
[00:11:58] Melissa Traverse: Well, I think it's time to get into all of that. So, Abby, let's start with you. What are some of the most dangerous assumptions that founders make about retail? You know, we have folks from all over different industries starting up food and beverage brands, and oftentimes they just don't know what they're getting themselves into. Retail is incredibly compelling. If a Sprouts or a Whole Foods, asks you to come on in and jump on the shelves, it's really hard to say no. What are the assumptions that founders make and what are the key cost drivers that actually determine whether they make or lose money when they're on the shelf of a retailer?
[00:12:38] Speaker 1: So the number one thing would probably be to imagine that you're going to get paid a lot faster than you will and not having the cash to really float Right? Because you could have a distributor hold your initial payment, you know, looking for sell-through, looking for the actual orders from the retailers. And another thing is just assuming velocity will hold across accounts. So if you're in like a, you know, a specialty retailer that's really geared toward early stage brands, and got a lot of early adopters that shop there, you may sell through a lot faster than you will if, you know, you try to immediately translate that to, you know, like a grocery store. And then along with that velocity aspect, really assuming that reorders will happen faster than they actually do, there could be months between, right, as they're moving through inventory, also making sure that they're reordering when they need to. So the follow-up aspect can be really helpful. But having a down scenario, what if this doesn't happen the way that we expect it to? And having a cash buffer, ideally, to be able to absorb both the, we call it the conversion cycle, the time between the time that you purchase your inventory or have to pay for it, which is sometimes even just way ahead of time, right? Deposit, and they're not even going to start making it until you pay until you actually get paid from your customer can be months. And then you start to layer on all these different deals, all these different retailers. I'll also just mention, I mean, Lauren alluded to it and so did Liana, but the trade spend aspect, right? Like reading your contract, And ideally having someone who is really experienced in CPG and in sales with that distributor or that retailer to help you understand how much you're actually going to net per case.
[00:14:47] Melissa Traverse: How do you figure out what your cash buffer should be?
[00:14:50] Speaker 1: When we work with brands, they're typically omnichannel, right? So we are building out a financial model that takes into account All the different retailers they have, because they can have different deals, all the different channels, right. Whether it's DC, you know, going direct, like Liana mentioned, or whether it's a distributor, right. And the different terms and whatnot that accompany each one. So they really have to all be combined, right. Model out what does AR for my distributor, you know, accounts receivable, how much are they going to owe me based on the terms with them? And then how much, you know, obviously your DTC is a much shorter window to get paid. You're not going to have this big AR balance with DTC. And that, that is what we do. The way to get to cash is really through what we call in finance, the free statement model. Going from the P&L, which is where a lot of people will stop, even finance people, right? They'll say. okay, here's how much we're going to sell. Here's how much it's going to cost. Here's our overhead. There's our net, right? Okay. So we're going to be a negative a few thousand dollars a month. Well, those, that few thousand dollars, once you layer on buying inventory ahead of time and your conversion cycle with your customers from a cash perspective could be $3 million. You know, I mean, obviously it depends on your scale, but, We've done exercises where we actually go through and say, okay, here's all our deposits we need to make for all these different SKUs. Here's all these launches we've got going on. And I say, okay, it looks like it's, it looks like it's 3 million through, um, you know, five months from now. And everybody in the room experienced CPG professionals say no way. And I'm like, yes way, look at the data and tell me I'm wrong. And they're like, Wow. Okay. Yes, this is right. And it's a good thing. We've been building relationships with investors and we have some debt options because we're going to need a lot more money.
[00:16:59] Melissa Traverse: I'm sure as a CFO you have a lot of hard truths you have to communicate to people. Lauren, Abby just walked through some of the factors that can, you know, help decide whether or not a retailer is worth doing business with literally. How do those resonate with you? You know, like, how did some of those things that she was talking about impact Love & Chew and, you know, the decision that you made?
[00:17:26] Lauren Chew: The cash conversion cycle is brutal. I think that entrepreneurs in this space really, myself included, underestimate how much cash you really need to operate in this business. I think that it's easier than ever to start a CPG brand with like co-manufacturing and you know, now AI, but, and there's just, you know, there's always some sort of white space out there, but I really think you need money to play the game, to be honest. Going back to like why we made our decision, like our velocities were great. Like we weren't getting cut. They were happy with us. It's just when I looked at the overall financial picture, so we're also an omni-channel business and grocery retail accounted for about 25% of the business. but literally took up 80% of our time. And again, going back to unhappiness of myself and my team, it just didn't make sense for us. And with this product and having only 50% gross margins, it was just hard to make it work, especially when we're being charged $12,000 for a TPR, and that's just the admin fee. That's not the clearinghouse and the other expenses. At one point, I had an in-house demo team of 20 people. They were all contractors going into stores and doing demos. It's not just paying the labor, it's the cost of the samples and the supplies and reimbursing them for tolls or parking or gas or whatnot. All of that kind of adds up. Also, yeah, the four TPRs a year, the couponing aspect too. There's just kind of like endless marketing that you can spend. And I think as Abby would say, well, trade should be a percentage of what your sales are. But yeah, it's really easy to go over that, especially when your buyer is like, hey, do you think you can get your velocities up to this? So yeah, it's a tough game. It's a very manual game too, especially in grocery retail. Honestly, we were making more profit elsewhere. It was cleaner business. It was easier to work with those particular customers. And so we decided to go that direction.
[00:19:41] Melissa Traverse: And so are you still selling D2C for Love & Chew right now?
[00:19:46] Lauren Chew: Yeah, D2C, Amazon, select direct retailers. And then we have a pretty large food service business as well. There's a lot of great customers out there that you can ship directly to, no chargebacks. I encourage you to think about that, Liana.
[00:20:05] Speaker 2: Yeah, food service has definitely been top of mind. I actually had a question, Lauren Chew you thought about, when you were entering retail, doing something besides singles? Do you think that would have possibly changed the outcome? I'm just curious.
[00:20:20] Lauren Chew: We were presenting to another large, well-known retailer a couple of years ago. And yeah, we did come out with a four-pack, and we presented it to them. And again, the price was too high. So often retailers, they will set a price. You'll be like, okay, this is what I'm presenting to you. And they'll be like, okay, we think that should cost $5.99. Like that's what's going to move off our shelves. And we just, we really couldn't get there.
[00:20:46] Melissa Traverse: Liana, with, you know, all of these factors that Abby and Lauren Chew mentioned, how are you thinking about mapping out your retail strategy? I mean, I know you alluded to it a little bit earlier. The product that you have is slightly different in that it's probably less well suited, of course, D to C, you know, as you mentioned, because of the breakage and the weight. How are you thinking about launching into retail considering all of these factors?
[00:21:11] Speaker 2: We have three opportunities for 2026 that came out of Expo that are mostly direct. So I've kind of been leaning into those. I am curious, Lauren, on your opinion going into different regions. I know so many people are like, focus on your backyard. Don't move too quickly, too fast. Be careful in which region you want to move into to make sure you can support that with sales and demo support. So I'm just curious as I start exploring like a Midwest region, just how I should strategically be thinking through that.
[00:21:44] Lauren Chew: That's a good question. We did start out regionally and we expanded from there. And yeah, that's a typical strategy. It honestly depends on how much cash you have in the bank at the end of the day.
[00:21:56] Melissa Traverse: Yeah, OK, that makes sense. Abby, from a financial perspective, to help founders hopefully make decisions beforehand that will eliminate some of the difficulty that we're talking about today, what structurally makes one retailer more of a margin drain versus another? And, you know, I don't know if it's easier to break that down. you know, into some of the most popular retailers that folks go to, or whether it's direct, like Liana was talking about. Can you give us a way to help founders assess, you know, whether or not a retailer would make sense and what kind of margin drain they should expect?
[00:22:36] Speaker 1: We talked about regional, we're talking about independence, right? That can help because you're not, you know, paying for the distributor fees on top of everything else through your net revenue, right? You're not actually paying them usually. When it comes to specific retailers, I'm going to zoom out a little bit. So really that's going to be first and foremost about your sales channel strategy, right? So making sure that you have demand within that retailer, right? Making sure that's where your customer is or that you can create the demand, right? That you can afford to create it, making sure that retailer really wants you because they can make money through slotting free fills, right? I mean, I've had brands who may have sold, um, $30,000 worth into a retailer and they get charged back 40, right? So they literally at the end of the day, Oh, um, you know, the distributor money for the privilege of having sold on their self shelves, um, through spoilage through, you know, different things. And so making sure that you're going to have that sell through there. And that's the absolute best place that you can be right now because To Lauren's point, your emotional bandwidth is limited and also there's only so many hours in a day, right? And that these retailers took up so much of her and her team's time and attention. Making sure that's where your customer is, that's how you can get the best deal, right? You might be able to negotiate no slotting. You might be able to negotiate fewer markdowns and kind of say, look, I'm an emerging brand. I'm not doing OIs. I'm not doing BOGOs. I'm just not going to do it. And if they say no, okay, like that's okay. I don't need your validation because I know that there are customers out there that want me, um, that are, that are the right people for me. And so I think that, um, strategy really comes down a lot of times to say no, which is what Lauren has done now. Right. And saying, no, this is not working for me and my business. I'm going to continue. Um, but I'm going to continue without UNFI and KD. And really you, you want to look at that case price. What do you anticipate trade spend being based on your contract? Is there anything in there that's negotiable? Obviously subtracting your carbs, which is. Everything that it takes to get the inventory ready for sale, right? Like, so that's freight in tariffs, you know, all, all the things, the raw materials, the processing, the, you know, uh, if you're working with a co-man, the freight to get it to your fulfillment center, right? Like you have to include everything otherwise. It's like, where is that? Where do those costs go? And the answer is they go in inventory. So looking at how can I break even from a profit standpoint, right? Like let's take the cost that it's going to be to even get in and let's figure out the profit over time. You could be six months, you could be 12 months to even breaking even on like slotting fees, right? Based on your expected velocity. And so knowing that at a minimum, And then also looking at what that means from a cash standpoint, like we mentioned.
[00:25:47] Lauren Chew: And also keeping in mind that the buyer can cut you at any time. And you have to be okay with that. The buyer could change. Yes, it's actually the most disruptive when the buyer changes.
[00:26:01] Melissa Traverse: And you've already paid all that slotting and it doesn't go anywhere. Lauren, Abby was just talking about, you know, saying no to things, which we hear about all the time. What would you, in retrospect, what would you have said no to? And it might be, what would you have said not now to? Is there anything that you would have done differently retail-wise if you had known then? What do you know now?
[00:26:23] Lauren Chew: I mean, I think that if there are certain retailers really do require that distribution. So I think if there were a way to string together regional distributors to work with large natural grocers, I think that would be the way to go or to just launch, you know, three, four regions at a time via those regional distributors. I mean, your product will be more expensive on shelf because typically, and I'm just talking in generalizations, like they just add more margin and that's how they make their money versus the Kahey and UNFI model is they add less margin, but then they charge the brands on the backend essentially. So the cost does end up, I mean, typically being more to the customer because it's just a higher margin. But I think I would go that direction is regional distribution.
[00:27:10] Melissa Traverse: Liana, hearing all of this, as you look at potential partners, how are you hearing the information from Lauren and Abby? How does that coincide with the strategy that you're putting together in order to build your retail?
[00:27:27] Speaker 2: Yeah, I think from this conversation, I really realized to stay as regional as possible for as long as we can to make sure the velocities make sense. Before expanding, I would head into one of the questions I had, which is, I know Lauren you've mentioned like the unit economics may not make sense as you scale as you were hoping they would because so many people say as you start getting these larger accounts then your COGS can go lower. I've actually been signing contracts with suppliers and co-manufacturers to guarantee that at certain pricing tiers. So I'm just curious, is there something that you would have done differently in order to do that? I know you mentioned you did order like 20 truckloads and there was no price break, but is there anything that could have happened differently? I know our categories are very different, but just wanting to hear from your experience. Because from my experience so far, I definitely see an opportunity where our COGS could be exactly where they need to be for a healthy margin.
[00:28:27] Lauren Chew: Yeah, I mean, I think that goes to, you know, we use different ingredients, like my two main ingredients, like the economies of scale are a bit tougher. I had pretty aggressive co-packing costs, or I do have pretty good co-packing costs. I've priced out the country. It came down to formulation for us, I think, which is also why I'm working on a new brand that basically has 20% more gross margin on day one, which blows my mind if I'm being really honest because that brand has no scale because it's pre-launch.
[00:29:04] Speaker 2: Speaking of that and your co-manufacturing. Did you operate on a turnkey basis or on the tolling basis? I'm kind of starting to have those conversations. And I know every co-manufacturer does things very differently based on what I've learned so far with the turnkey. Typically, there's a little bit more of a markup since the co-packer really is eating a lot of that initial investment to source all the ingredients. So just curious on how you handled that as well.
[00:29:30] Lauren Chew: For years, I've been working on a tolling basis. I have worked on turnkey in the past and decided to move away from that. That being, yes, you pay an additional margin, but also the co-man is incentivized to swap out ingredients if they get a better deal. I have a little bit of a finicky formulation. If you swap out ingredients, it just doesn't work. It depends on your formulation. The other pro is it helps your cash conversion cycle significantly. I have a lot of ingredients on my balance sheet right now. It just depends on your funding situation and if you have access to debt and things like that or VC capital.
[00:30:13] Melissa Traverse: Abby, you know, you were just going through some of the factors that brands could use to evaluate whether or not a retailer is right for them. Is there a way for you to be able to throw out, you know, sort of like a verbal checklist of things, like, I should check trade spend, I should check what my shipping costs are. Like, what are the things that brands should evaluate every retailer with, if there's a way for you to throw something like that out there?
[00:30:43] Speaker 1: Yeah. I mean, when you get to, you know, your channel contribution margin, you're starting with your case price, right? That's your, you know, times the number of units sold. That's your like top line gross revenue. If we, if we think about the anatomy of a P&L from a channel or customer perspective, then you're going to one thing that brands don't always completely understand is that trade spend is not an expense in your financials. It comes off of the gross revenue to get to net revenue, and that is your actual revenue. I'm a CPA. I'm not going to try to get too technical, but revenue recognition is that the rules are that you can't recognize revenue if you had to pay your customer to get it. Right. So if I have to pay you to buy something from me, it's not truly revenue. I can't report it that way. And some brands do, um, because they don't understand that that is not, it's, it's not the proper way to report it. And that can end up, um, inviting them in like due diligence with investors and whatnot. Right. Because they'll see that you recognizing trade spend and what we call selling general administrative, like an overhead and, and that's in, in operating expenses and that's not proper. So. you would take that trade spend off of your gross revenue to get to net revenue. And really, you should do it right away when you sell it or when you agree to a specific promo, not when you get the chargeback. So I'll just say that. So you're classing it back to the month that the chargeback occurred, essentially. and estimating it, right? You're not, it's not that you have to go back and fix your financials constantly. That's not, that shouldn't be the way that your monthly close works. You should estimate what it is based on your, you know, you or your sales team, depending on how big your team is. You are coming up with an estimate. Hey, we're shipping this one with an OI. We have a promo this month and we expect it to end up being $10,000. So we book that and then when it actually comes back, we reverse it so that the net effect in the month when the actual credit memo or the cash impact occurred is not when we actually see the impact in the P&L. Ideally, we have it when we actually agreed to it or when it occurred. Like I said, not to get too accounting nerdy on you, but that is how we get to net revenue, right? Which is a really important number because that's what your, um, you know, your forward net revenue is typically what a multiple would be based on, right? That's where you're kind of anchoring a lot of your conversations around how am I doing? And then coming off of that, like I mentioned before, making sure that you are looking at all the costs of your product, right? And that could be even kidding fees, right? Let's, let's say that you come up with a new way that you want to, put your product together and your 3PL does that and charges you for it. I mean, that's your inventory getting ready to sell. So that's another one of those kind of sneaky ones that people don't always think about whenever they're considering how much inventory is going to cost them to sell. And so once you take off the cost of your inventory and it is cost of goods sold, right? So we recognize it when we sell it, not when we pay for it. That's the difference between cash and accrual accounting. And then you will get to your gross margin, right? Your gross profit. And the percentage of your gross profit of your net revenue, that's your true gross margin, right? From a financial accounting, financial reporting perspective. Then you want to take off your, fulfillment, like a lot of omnichannel brands, they have fulfillment that is below the line, right below gross profit. And I like to also take out like, um, demos and other things, other costs of being in the channel, your broker, your demos. So you put players and demos above the line is what you're saying? No, not above the line, but within the channel profitability. Oh yeah. Yeah. By class view and exercise. Yeah. Yes. So that's the thing is I like to, I just like to look at the whole channels. Like what's the cost of actually being in that channel so that we can get like a bottom line for that channel. Um, you know, we do the same thing in DC, right? Like what is the Shopify fees and all that stuff, which that's not what we're talking about here, but. um, looking at each channel sort of, um, a little my optically, right. And seeing what is that channel really doing for me? Um, and, and, you know, demos.
[00:35:46] Lauren Chew: That's what we did, um, for each distributor that we decided to pull out of. Um, and it was honestly, it was eyeopening.
[00:35:56] Speaker 1: Yeah. Yeah. That's what we. We do. And a lot of times, the financials are not set up that way to report on that and be able to actually see. I'll just say, QuickBooks can do that. You can do it by class. That's how we do it. Exactly. I've done it by class and by customer. So sometimes we can even do it by customer in addition to class. So class can be channel, and then customer, you can see the individual people. So it just depends on the brand. But yeah, just making sure that you can really get to that sort of bottom line net profit for each channel or each customer.
[00:36:38] Melissa Traverse: This is the exact kind of nerding out I always hope for on these shows. So, so thank you for that.
[00:36:43] Speaker 2: I know you both are speaking about experiences that have obviously happened, but I'm in that stage of like, this has not occurred yet. So as I'm starting to like plan and I do a P&L based on like each retailer, like, how should I kind of maybe, Abby, this is more of a question towards you, but like, how should I do those exercises to obviously like estimate what if that retailer makes sense? Um, is it more looking at like the amount of cash to support it obviously, but is there anything else that I should look at? Because obviously I don't have that data to like do that full analysis.
[00:37:19] Speaker 1: I mean, if I am you, I am working with a sales strategist. I'm working with somebody who, um, even if you don't hire a broker, you know, there are people who, um, can help you with what's typical in this retailer. And I mean, I've had brands who. A lot of times they'll work with a broker and we'll get this sort of like channel P&L, expected channel P&L, at least from gross to net revenue. And they'll say like, oh, typical is like new item fee, DC opening fee, like all these different fees. This is typical, but this is what we're gonna try and negotiate for you, right? So to know what those sorts of, where that kind of wiggle room is per retailer or per distributor, right? talking to somebody who really understands it, and making sure that it's not just somebody who's like incentivized to get you in there, right? But really, and maybe just paying for it, right? As opposed to being on commission. I mean, if I'm going in, that's what I'm doing, right? If I'm starting a brand, I'm finding someone who has either worked at the distributor or retailer, or who has worked with them often. And I'm just saying, hey, can I just pay for your time? and you walk me through this and I can understand what's reasonable, where's the wiggle room, where can I redline the contract? So you start with your sales channel strategist and look at what's reasonable, take the P&L, the sort of projected P&L, what do you expect to happen each month based on sell through and all those things that we mentioned, and taking your spin up fees, So your slotting, your free fills, your DC opening fees, all those different new item fees, right, new vendor fees, whatever the case may be, and figuring out when could you break even from a profit standpoint with that deal. And then, like we talked about layering on the cash piece. How long is your cash going to be tied up? How long, you know, based on inventory AR and whatnot, AP too, And then where are you going to be able to get to and how much money is that deal going to cost you from a cash perspective? And that can help you if you do end up wanting to fundraise, that can help you fundraise because you're like, look, I'm going to be profitable, but I need this money. to fund what I'm trying to do and look at my traction metrics, my velocity. Don't you want to work with me and give me a really great multiple on my forward revenue? And I do obviously have to say, this is what we do for a living. So what my company does is help with that financial modeling and cashflow forecasting.
[00:40:14] Melissa Traverse: Lauren, I know you're going to be doing a lot of that. And it strikes me that you're the perfect person to shed a little light on this question of which retailers to go into, because you've already done it and you're about to do it again at some point with the new product. What questions are you going to ask yourself? And, you know, maybe you're also asking the retailer, what questions are you going to ask, knowing what you know, to decide whether or not that partnership is right for your brand?
[00:40:44] Lauren Chew: Yeah, I mean, I've changed my mentality towards it. Again, my new brand won't be retail native as well, but we will eventually go into retail because you have to truly scale. But I would like to be in a position where retailers come to us and they want to bring us in. You have a stronger seat at the negotiating table because that's really what a conversation is with a buyer. The buyer sits down and says, OK, what marketing are you going to offer me? You know, how are you going to show velocity. But I do think if they come to us you know we can negotiate things like slotting and the amount of TPRs, etc. It also heavily depends on the retailer. Do we think our customer shops at that retailer and vice versa? Will we have the velocities? What's the cost of doing business? What is the relationship like with the buyer? Are they going to give us a good place on the shelf? How many facings are we getting? That's very important. I often tell other founders, If the buyer is just giving you one facing, it's probably not a good use of your time and money, you know, unless, you know, you have enough money to run that experiment, of course. So, yeah, there's just a lot of different factors involved. And then, you know, we would prioritize retailers where we could ship direct to them. Another thing that people don't talk about as much in the industry but can be very profitable is private label. The industry is heavily going private label. Consumers like it because it's a better price. On the brand side, you don't have to pay as much marketing, right? And your velocities are often much higher. So it's another thing to consider. But the sales cycles are long, and it's kind of a different ballgame. So yeah.
[00:42:39] Melissa Traverse: Well, this has been so much food for thought, certainly. And, you know, in closing, I have a question for each of you. Abby, I'll start with you. What needs to be true in the numbers and, you know, maybe true in the situation for a brand to confidently say yes to retail in a nutshell?
[00:42:58] Speaker 1: In order to have a path to profitability for your brand, you need to make money on every case. And that needs to be enough to cover your overhead at a reasonable level of scale.
[00:43:13] Melissa Traverse: That was a great nutshell. Lauren, you know, you are about to embark upon another adventure and another brand. Knowing what you know now, based on what you learned with Love & Chew, how are you thinking about rolling out these products to retail and to, you know, the greater CPG world?
[00:43:37] Lauren Chew: I've kind of changed my mindset towards CPG in the last seven years, learning by doing, I guess. And really at the end of the day, CPG is the right packaging at the right place at the right price. And it's honestly as simple as that. Yet, you know, it's also very difficult for founders to meet that at the same time. And I honestly failed at that too.
[00:44:04] Melissa Traverse: And Liana, you know, you're just starting out with Nudo and you really do sort of have like a blank canvas in many ways. After hearing from Lauren and Abby, is there anything that you're rethinking in your strategy or anything that you're thinking now about how you'd like to take the next steps?
[00:44:24] Speaker 2: Yeah, I think I gained a lot of insight from both of them and really trying to hone in on the regional distributors I think is something I'm going to be focusing on and just really making sure that we perform really well regionally and that the margins make sense before we continue to expand.
[00:44:42] Melissa Traverse: Well, I really can't thank the three of you enough for coming on here and being so open and forthcoming with all of this information. Lauren Chew of Love & Chiu, Abby June Richards from the CPG CFO, and Leanna Krasnow, founder of Nudo. Thank you so much for joining the Non-Based Podcast. It's been such a pleasure to chat with you. For everybody else out there, thank you for tuning in, and we will see you next time. That concludes another episode of the Nambase podcast. If you enjoyed the show, please leave us a review and follow us on your listening platform of choice. You can also watch and listen to past episodes on nambase.com. And don't forget to join our Nambase Slack at slack.BevNET.com for company updates, industry networking, and community discussions. See you next time.
