What Are Sales Channels?
Once you identify your ideal customer for your farm business, next you’ll want to decide the types of sales channels you want to use to position yourself so they can find you. Sales channels are the paths a product takes from the producer to customers. They can be direct, meaning your business conducts the sale directly in contact with the customer. Examples of direct sales channels could be your own brick-and-mortar store, an online store, community supported agriculture or farmer’s markets. Business to business models, or indirect sales channels such as restaurants or grocery stores. We will address business to business models in a later post.
Before looking at the different options, it’s important to understand your customer. You should consider the choices your ideal customer makes before each business decision. When looking at the types of direct sales channels, ask yourself these questions about your customer.
- Where are your customers or potential customers located?
- Where or how far are they willing to travel to purchase products?
- Where do they currently shop for similar products?
- How frequently do they purchase similar products?
- How much product do they typically purchase at one time?
- How much do they value convenience? How convenient will it be for customers to purchase through a particular market channel?
- How much do they value an experience on the farm?
- How much are they willing to pay for products with various characteristics?
- Would customers value products with “organic,” “locally grown” or other niche characteristics?
- Which methods of communication will be most likely to effectively reach potential customers?
Producers should compare answers to these questions to the characteristics, advantages and disadvantages of the various market channels. Customers who are extremely busy and value convenience, for instance, are not likely to travel to the farm regularly to shop at a retail market or U-Pick operation. They may be more likely to shop at a farmers market,
Over the past few years, there has been a growing trend of farmers switching to direct sales models. Understanding the pros and cons of each option, will help you decide which types of direct sales channel is right for you.
A farmers market is a common facility or area where several farmers or growers gather on a recurring basis to sell a variety of fresh fruits, vegetables and other farm products from the farms directly to consumers.
Advantages of Farmers Market
Farmers markets have many benefits. Some of the advantages of participating in a farmers market are:
- Doesn’t require sales volume
- No standard for packaging or grade
- Access to market information
- Can help customer base or find other markets
- Advertising and promotion can benefit all participants
Doesn’t Require Sales Volume
There are no upfront requirements for how much a vendor sells, so this is a viable opportunity for experienced producers and inexperienced producers, who may not know how much they are able to produce or are uncertain about production
timing. Farmers markets are also great for producers that face challenges in production or wanting to market small volumes of product or test the response of a new product.
No Standard for Packaging or Grade
While it’s still important to have appealing, consistent displays and offer high-quality products, farmers markets allow producer to be flexible in quality of product and methods used to present products for sale.
Access to Market Information
Farmers markets make it easier to talk to your customers directly, so you can gather information about prices, supply and demand, even customer preferences and willingness to pay. You can also do testing for new varieties and products with the opportunity for instant feedback. This allows producers to experiment with products and the ideal price point.
The farmers market seller comes in direct contact with many consumers, creating the potential for growing additional markets for a farm’s products. For example, farmers market vendors who build a loyal following of regular customers might decide to offer customers the
option to participate in Community Supported Agriculture (CSA) or advertise an on-farm retail market at their farmers market stand. Others use the farmers market as a delivery point for larger volumes sold directly to restaurants or food service establishments.
Advertising and Promotion
The burden of advertising and promotions is shared between the different vendors and the farmers market organization. This will bring a diverse amount of ideal customers for your product. Additional promotions might include cooking demonstrations, music entertainment, customer appreciation day, vendor contests and other special activities designed to attract customers. This makes farmers markets an ideal way to build a customer base.
Disadvantages of Farmers Markets
Although farmers markets have several advantages, there are some disadvantages to consider.
- Face to face selling
- Many small transactions
- High marketing costs
- Inconvenient market schedules
- Limited space for vendors
Face to Face Selling
Depending on the vendor, they could see selling face-to-face as a natural advantage of the farmers market. It allows sellers to find out more about their customers and customers to learn more about them. However, face-to-face selling, requires more producer marketing time. It also requires that the person selling products at the market be skilled in customer service. Some producers who do not have the time, desire or personality to sell at a farmers market may recruit a family member or employee who has the passion and skills to interact with people and can represent the farm well, but this also includes additional costs to pay another employee.
Many small transactions
Farmers markets usually involve many small transactions, increasing the amount of labor and attention needed to make each sale.
High marketing costs
Marketing costs consist of the expenses incurred to make the sale, including labor at the market, market fees, transportation (the time, fuel and vehicle wear-and-tear for delivery to market) and packaging (the bag, box or carton for the product). The cost of marketing at farmers markets can be relatively high per unit of product sold. Depending on the market, there could be additional certifications required, such as organic labels or domestic kitchen certifications. This will also add to the marketing costs. The opportunities to add additional product sales can help mitigate this. Opportunities such as coordinating CSA or restaurant deliveries at the farmers market, is a good strategy for increasing direct marketing profitability.
Grueling market schedules
Market schedules can be grueling and inconvenient, especially if selling multiple days or at several markets. There are things to consider such as travel time, often early set-up times, serving customers, can make for an exhausting and complicated schedule.
Limited space for vendors
Successful or smaller markets may not have enough space to accommodate all of the producers who would like to sell at the market. Some markets have lists of producers waiting to get in on the action. This is one another disadvantage at selling at a farmers market.
On-farm retail describes the various ways in which producers sell their products directly to consumers at the farm. These on-farm retail markets may range from simple operations, such as selling pumpkins and bales of straw for fall decorations at a farm stand, to more complex operations, such as an orchard with a retail store.
Advantages of on-farm retail
On-Farm Retail options have many benefits. Some of the advantages of setting up an on-farm market are:
- No transportation costs
- No standard pack or grade
- An experiential buying experience for the customer
- Instant credibility for locally grown products
No transportation costs
This is probably my favorite aspect of my on-farm retail. The customers come to the the farm and purchase products directly off the farm. The customer covers the transportation time and fuel needed, thus reducing product marketing costs.
No standard pack/grade
Although, it is important not to overlook product presentation, having your own on-site market, there is no standard pack/grade is required. Well-displayed products can lead to greater sales, so consistency, generous quantities, cleanliness, and superior products in attractive displays are important aspects to customer loyalty. To increase customer traffic, offer diverse, value-added products, give samples or serve fresh food, and offer on-farm activities for visitors.
The experience of purchasing farm products at the farm different from any other retail experience, even farmers markets, and that alone is a value added aspect of an on-farm retail. Shopping from the farm will give a deeper connection for those looking to connect to where their food is grown. A well-managed, on-farm retail experience creates a unique buying experience with the sights, smells and sounds of a working farm.
Provides instant credibility for “locally grown”
“Locally grown” is a popular word these days, but it doesn’t get any more local than buying right from the farm. Selling products from the farm where it’s grown provides instant credibility.
Disadvantages of on-Farm retail
While there are many advantages of on-farm retail markets, there are some challenges too.
- Face to face selling
- Setting firm boundaries
- Location challenges
- Many small transactions
- Capital intensive
Face to Face Selling
Similarly to farmers markets, on-site retail could require face to face selling. There are some self-serve farm stand options, but that could present it’s own challenges.
Setting Firm Boundaries
Customers tend to stretch boundaries by showing up on days and times that you might not be open, or wanting to explore the entire farm. It’s important to set firm boundaries and make customers aware of the hours and that you’re not open 24 hours a day, 365 days a year.
If your home is also on the farm, make sure the farm stand is located away from the residence.
Decide sooner rather than later, how far you will go in the name of the customer service to reserve the boundaries between the retail business and your personal life.
As in other retail businesses, location is vital to success. Much more effort will have to be put in marketing to overcome a less desirable location. The location should include an inviting environment for customers- aesthetically pleasing and a comfortable place to shop. The other option is create a “destination” and offer unique products or other attractions, so people would be willing to drive a few extra miles.
Before opening an on-farm retail market, producers should assess the risks and develop a risk management plan. This should include a visit with the farm’s insurance agent to inform the agent of the plans for direct marketing on the farm and to determine if additional insurance is needed. It’s also important to reduce any potential sources of liability risk that exist at the onfarm retail outlet and provide a safe environment for shoppers and their families.
It can require additional money to set up a proper selling space. Also as with a farmers market, on-farm retail usually require many small transactions with higher marketing costs per transaction.
A roadside stand is a temporary facility set up to sell product at a roadway or other heavy traffic area away from the farm or organized farmers market.
Advantages of Roadside Stands
There are many advantages to roadside stands including:
- No volume, packaging or grading requirements
- The possibility of serving test products
- Ability to set the schedule
- More convenient location
No volume or packing/grading requirements
Although, it is important not to overlook product presentation, having a roadside market, there is no standard pack/grade is required. Well-displayed products can lead to greater sales, so consistency, generous quantities, cleanliness, and superior products in attractive displays are important aspects to customer loyalty. To increase customer traffic, offer diverse, value-added products, give samples or serve fresh food, and offer on-farm activities for visitors.
Test market for products
Similar to a farmers market, a roadside stand can be a good way to test product. If people are willing to stop along a road or in a parking lot to purchase a product and come back again those products may also sell well elsewhere.
Producers set schedule
While, the producer can control the times when products are sold at a roadside stand, consistency is important. Regular days and hours of operation that are convenient for the customers are helpful for building a base of repeat customers.
A roadside stand is an option for a producer whose farm is too far off the beaten path to be convenient for customers. Roadside stands may also offer farmers with easily transportable products a method to create satellite locations to provide consumers more convenient access to products over a larger geographic area.
Disadvantages of Roadside Stands
Similarly to farmers market and on-site farm stands, roadside stands has similar challenges. These disadvantages include:
- Location challenges
- Many small transactions
- Higher Marketing Costs
- Requires face-to-face sales
A roadside stand must be located in a high-traffic location where it is safe and easy for customers to park and shop. Make sure to know who owns the property and ask permission to use the property and address any concerns. Owners may also require a fee for setting up a stand on their property. Some cities or counties may require a permit to set up a stand. You can contact the county clerk and recorder office to determine whether local regulations exist.
Many small transactions and high marketing costs
The disadvantage of having many small transactions is true for roadside stands as well as previously discussed methods. Marketing costs may also be relatively high due to labor and transportation costs for moving products from the farm to the roadside stand.
Requires selling face-to-face
The nature of a roadside stand is a usually less involved because people are usually stopping on their way somewhere, so they could be more in a hurry. This factor could mean that there will be less face-to-face time than other types of direct sales channels.
U-Pick/Pick-Your-Own farms are set up for customers to visit the farm where the product is grown and they can go to the field to pick, cut or choose their own product. Common u-pick products are berries, fruit trees, pumpkins and Christmas trees.
Advantages of U-Pick Operations
U-Pick operations have many advantages for both the farmer and the customers. These advantages include:
- Opportunities for community involvement and education
- Reduced need for product harvest and handling labor
- Lower equipment costs
- The potential for larger transactions
Opportunities for Community Involvement
U-Pick opportunities are great options to educate people in the community about where their food comes from and how to get more involved in the process. It’s a great avenue for family activities and making your farm more of a destination place.
Reduced harvest and handling labor
U-Pick operations are often used to reduce labor requirements for crops requiring labor intensive harvest. U-Pick can also eliminate time needed to pack, grade or prepare crops for retail sale. Saving in labor costs can be transferred to land management costs for healthier plants and land.
Lower equipment costs
U-Pick operations may help reduce equipment costs. Fruit, for example, will not need to be stored in cold storage. Some producers use a u-pick as a transitional system in the early years of a perennial fruit crop. Once the plants reach full-bearing age the invest in purchasing cold storage equipment.
Potential for Larger Transactions
U-Pick customers enjoy the experience of harvesting or choosing their own product. Coupled with the fact that U-Pick prices are usually less than on-farm retail prices, some customers to buy a larger volume of product. U-Pick customers may also pick inferior fruit or have more tolerance for “seconds.” In this way, produce may sell through U-Pick that may not have retailed or wholesaled at full price.
Disadvantages of U-Pick Operations
While there are many advantages for u-pick operations there are still some things to be aware of. Disadvantages include:
- The need for an excellent location or superior advertising
- Liability risk of having customers on the farm
- The need for customer supervision
- Potential for crop damage or reduced yield from improper harvesting
Requires excellent location or superior advertising
U-Pick operations require a location easily accessible to customers. However, depending on the availability of other U-Pick options in the area, simply offering a U-Pick product may compensate for a less-than-ideal location. It’s an opportunity to do something unique and make an experience out of a customer’s shopping experience, so marketing will be especially important to inform potential customers about the operation.
As with the on-site farm retail option, u-pick farm operations have an additional risk with their customers. Visitors might venture onto unsupervised farm areas, if the picking areas aren’t clearly marked.
U-Pick operators should consult with their insurance agent to determine if additional coverage is needed and areas should be clearly defined and supervised.
Staffing and supervising customers
Staff that is trained in customer service, farm safety and other issues for serving u-pick customers are essential to running a u-pick operation. There will need to be a dedicated staff member available during the hours the field is open.
Potential for crop damage and reduced yield volumes due to improper harvesting
U-Pick customers might damage crops through improper harvesting. For example, customers new to berry harvesting may break canes or branches that experienced pickers would not, or customers new to picking green beans may damage the plants for future harvest. There might need to be a short introduction class, so customers new to harvesting their own crops may need to be instructed in proper harvest techniques.
U-Pick may also affect crop yields. U-Pick customers may not get the entire crop off the plant. This can create the need for additional harvest labor to “clean up” the plants. To address the potential for damage to a Christmas tree cut improperly, as well as concerns over liability from customer injuries, many Christmas tree farms adopting a “Choose Your Own” policy. This would also increase need for staff, as customers select their tree and are then aided by a farm worker in its harvest. This preserves the quality of the product and minimizes the risks for customers.
Community Supported Agriculture (CSA)
In a CSA, the farmer sells shares or subscriptions for farm products to
customers. A diverse selection of products is delivered to or picked up by customers at designated sites regularly for a specified time period.
CSAs are typically used to market produce, but can also be used to market other products such as meat and flowers or a mixture of products. I don’t recommend CSAs for beginning farmers as it crucial to have a well-planned crop list and extensive experience with weather and growing times. This can only be figured out with several years of experience.
Advantages of CSAs
Although there are some challenges, there are many advantages of CSAs including:
- Reduced grower risk and need for operating capital
- Reduced customer sensitivity to cosmetic defects of products
- Building a sense of community and farm brand
- Pre-selling and reduced marketing during production season
Can reduce grower risk and operating capital needs
Many CSA producers require subscribers pay for all, or at least part, of the subscription before the growing season begins. This results in two advantages that help CSA producers manage financial and production risks:
1. Provides cash before the season begins to purchase supplies
2. Helps estimate product volume needs before planting
Reduces customer sensitivity to cosmetic defects
The potential CSAs members usually have a different mentality and motivation for joining a CSA. Subscribers typically are interested in both supporting local food production and in obtaining the freshest food possible. Some are interested in knowing the farmer responsible for producing the food and the production methods used. Because of the relationship with the farmer, CSA members may be less selective about minor defects in products. It is still important for producers to deliver high-quality produce to their customers.
CSAs build sense of community and farm brand
The typical CSA customer is often very interested in connecting with how and where their food is produced. Successful CSA marketers have appealed to such consumers by using methods to build community around the CSA enterprise. Examples include publishing newsletters with recipes from other members, offering updates through electronic and social media, and conducting special events at the farm for CSA subscribers/members.
Frequently, CSAs offer customers recipes featuring the produce or products in a given week’s “share.” Having access to simple recipes using the food a CSA is producing and distributing can enhance the CSA experience for customers.
Reduces selling/marketing time during the production season
One of the best parts about a CSA is that most of the produce is pre-sold during the off-season. This leaves more time for producers to focus on production, harvesting, assembling CSA shares, delivering products and building relationships with members during the production season.
Disadvantages of CSAs
While CSAs offer some unique advantages for producers, there are some barriers that need to be carefully considered before starting a CSA.
These disadvantages to CSAs may include:
- Intensive marketing to recruit members
- Heavy reliance on word-of-mouth advertising and potential negative word-of-mouth referrals
- Requires careful crop planning and season extension
- Possible issues with season long agreement entered into with customers
Requires intensive marketing
Although there is less in-season time required to market CSA production, the CSA usually requires intensive marketing time out-of-season to obtain subscribers or members. This most often includes electronic advertising (like websites), presentations to community groups and brochures or other print advertising.
Marketing efforts will be required each year due to annual turnover in CSA customers. Many existing CSAs maintain waiting lists for future customers, to reduce out-of-season marketing needs. The member agreement and terms used by some CSAs may also require considerable time and expertise to develop. As CSA marketing increases beyond the initial core CSA consumers, producers could potentially find less enthusiasm for members to pay the total membership fee before the season begins. Many CSA have begun to provide agreements for installment payments over the season.
Heavy reliance on word-of-mouth – risk of dissatisfied customers
Because of the intensive commitment, a CSA may appeal to a smaller customer demographic than a farmers market or on-farm stand. The impact of disgruntled customers creating negative word-of-mouth referrals for a CSA operation may be greater than for other direct market channels. CSA operators will need to be vigilant to identify concerns of disgruntled customers before damage can be done to the farm’s reputation.
CSA operators can encourage positive word-of-mouth referrals by asking customers to recommend the program to their friends, providing them with materials to share and offering incentives for new recruits.
Requires careful crop planning & season extension
Careful crop planning and experience with season extension are necessary with any CSA. A CSA contract establishes that each member will receive a share of the harvest at specified time periods. To attract members, many produce CSA operators employ season extension techniques that help them deliver products earlier and later than members might otherwise be able to purchase locally grown produce. A week’s share consisting of only tomatoes, for example, would not be exciting for customers. it’s important to make sure there is a mix of products available for each week. You can also network with other farmers to make sure there is a variety of produce available.
Season-long agreement with customers
The development of a legally binding customer agreement for CSA shareholders may take significant time and expertise. Enforcement and compliance of the agreement may be a hassle at times. While the agreement has benefits for planning purposes and bringing in income before the growing season, it also reduces producer flexibility to change the price received for shares as costs of inputs or market prices increase.
These are the types of direct sales channels available to small farmers. It’s exciting to think about, but each one has potential downsides and upsides to consider. Look at your business strengths and weaknesses before making a decision of which sales channels to pursue.
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