Maximizing Margins:
A Strategic Guide for International Food Producers Exporting to the USA
For food producers located outside the United States, exporting products to the US market represents a massive opportunity for growth and revenue.
However, unlocking this market requires strategic choices relating to various logistics, marketing, and distribution options.
Although the United States tariff landscape changed significantly, most countries exclude exports from Value Added Tax (VAT) requirements.
This means food producers outside the United States often do not have to pay VAT on export sales to customers in the United States. The absence of VAT obligations can completely or at least partially offset the costs of the United States tariffs.
In fact, recent studies show that the amounts of goods exported to the United States actually increased following the tariffs. The American consumer continues to demand quality, and remains willing to pay for it.
The most cost-effective way to test and evaluate US demand for your products is by selling and shipping directly to the American buyer from your home country, if discounted shipping rates can be obtained. Otherwise, the best way to expand your business into the US is through the use of a US fulfillment center or “3PL” service. The traditional distributor route is usually only desirable once your brand is established in the US and can justify the heavy costs of this model.
This article provides the industry analysis and discussion of these points.
1. Using US Importers, Distributors, and Brokers
The traditional distribution model is the gold standard for achieving national retail placement in physical supermarkets. However, it is also the most demanding and the most expensive model.
Traditional Distributors: How It Works
In this model, a US-based importer buys your product, clears customs, and acts as your importer. Often this company also acts as the distributor — such as Gourmet Foods International, Grante Foods International, KeHE, Gourmet International, M5 Corporation, or Sysco — to warehouse and deliver the goods to grocery retailers.
Distributors handle logistics, and at times also provide sales and marketing in the US. If not, food producers are required to hire commissioned sales brokers to pitch the products and win retail authorizations.
Traditional Distributors: What It Costs
The primary drawback of this route is margin stacking. Distributors typically take a 20-30% margin on the landed cost, while retailers take an additional 30-45% markup on the wholesale price.
Brokers and sales consultants typically charge a commission of 3-7%, which can rise to 10-12% in the natural and specialty food sector. If you use a completely separate importer, they may add another ~25% markup.
Food producers are also often responsible for slotting fees to secure shelf space at the grocery store or other food retailer, which cost $50 to $300 per SKU at most stores, and can reach $5,000 to $75,000 for a chain-wide rollout.
In addition, emerging brands often must budget 20-27% of their gross revenue for trade spend and promotions, while dealing with inevitable and mandatory chargebacks and deductions that consume another 3-8%.
Ultimately, an exported item will usually have a retail shelf price of as much as 3 to 4 times the price paid to the food producer.
Traditional Distributors: How to Reduce Costs and Earn Greater Profits
To keep more margin, a food producer should budget 30-50% of its wholesale export revenue to cover these channel costs.
Consider launching conservatively by targeting 3 to 5 specific regions in the US rather than attempting a national rollout immediately. Negotiate to pay slotting fees as “free fill” (free product) rather than cash outlays, and routinely audit every distributor deduction, as data indicates that 10-20% of variable deductions can be successfully disputed.
2. Selling and Shipping from Your Home Country
For artisanal or premium food products, shipping parcels directly to the US business or consumer from your home facility is an excellent way to test the market with minimal inventory risk.
Direct Delivery: How It Works
You process orders through your own e-commerce website and ship individual parcels via courier or postal services directly to American buyers. Your company acts as, or appoints, the importer of record.
We offer business-to-business (B2B) sales and marketing services through our affiliated company called ShipGourmand, which can act as your importer of record.
Our ShipGourmand company provides internet-based marketing and sales for your products to smaller business customers, on a non-exclusive basis and for low commissions and no monthly fees.
ShipGourmand can therefore be used to supplement the efforts of other service providers, to increase sales in the United States. The company has its own online store, and can assist with listings on other online marketplaces such as Faire.
We also offer direct-to-consumer (B2C) sales and marketing services through our RudiGourmand retail channel.
Like ShipGourmand does for B2B sales, the consumer-focused RudiGourmand channel (B2C) provides internet-based sales and marketing on a non-exclusive basis and for low commissions and no monthly fees, and can also be used to supplement the efforts of other service providers. RudiGourmand also has its own online store, and can assist with listings on other online marketplaces such as Amazon.
Direct Delivery: What It Costs
Selling and shipping directly to the person or business in the US allows you to bypass distributor markups. However, per-parcel shipping can be expensive if you simply use the normal retail carrier rates.
Direct Delivery: How to Reduce Costs and Earn Greater Profits
To make the direct sales model profitable, food producers must utilize discount shipping platforms such as Easyship, Shippo, or Sendcloud, which offer negotiated carrier discounts of more than 75%.
Because most shipping providers charge based on dimensional (volumetric) weight, you must right-size your boxes and eliminate air-filled void space to avoid unnecessary expenses.
In addition, we suggest selling your products in assortments, collections, packs, or bundles of several products sold together, in order to reduce the per-unit cost of shipping.
We suggest that you should always ship using the “Delivery Duty Paid (DDP)” option to ensure that customs duties are handled seamlessly, without risking refused deliveries.
In addition, commercial food and drink shipments to the United States require FDA Prior Notices for each product in each shipment. Our PriorNotify app automates this process, saving extensive manual overhead costs and makes the shipping process easy.
Finally, to lower costs dramatically, consolidate your daily orders into one bulk freight shipment sent to a US injection point, where it can be handed off to local carriers for cheap last-mile delivery. Many providers offer this service, often called “parcel consolidators” or “package consolidators”.
Examples of such services include United Parcel Service (UPS), Landmark Global, SEKO Logistics, APC Postal Logistics, and Warp. But there are many other companies that also handle these types of deliveries, and that can be found on the internet
3. “Fulfillment” and “Third-Party Logistics (3PLs)” Services
The most profitable way to expand your business into the United States is by utilizing a fulfillment center or “3PL” service in the United States. This is definitely true after a food brand has proven its online traction.
Fulfillment Services: How It Works
Instead of sending expensive single parcels overseas, the producer makes larger shipments – which could be as small as a few kilograms, or as large as full shipping containers — to the location of a fulfillment center in the United States.
The fulfillment centers then assemble, pack, and ship individual orders to domestic customers for delivery within 2 to 5 days, utilizing low domestic postage rates.
You can direct the fulfillment center to deliver the products immediately, or at a later time as orders for the products are received in the future.
Fulfillment center services can be used with either or both B2B or B2C sales channels.
As previously noted, with our ShipGourmand and RudiGourmand options, we can help with your sales and marketing efforts to all types of US purchasers.
What It Costs: The Example of “Amazon FBA”
Amazon Fulfillment by Amazon (FBA) is a large and popular example.
Amazon FBA gives producers access to Amazon’s massive customer base. As of the date of this article, Amazon charges a $39.99 monthly fee, plus a referral fee of 8% on grocery items priced up to $15, and 15% for items above $15. Fulfillment fees for standard items under 1 lb range from roughly $3.32 to $3.96. Amazon also applies a 3.5% fuel and logistics surcharge. Storage costs $0.78 per cubic foot from January through September, but spikes to $2.40 from October through December. Food producers must ensure items have over 90 days of shelf life on arrival (most sellers target 105 days).
Additionally, Amazon does not prepare your product packaging for delivery, and you must apply FNSKU labels at your own facility before shipping the products to Amazon FBA. There are many services that will do this for you, such as AMZ Prep, IDL Prep Center, France Prep FBA, and FBA Prep Center Italy. You can find more more “Amazon FBA prep” services by searching on the internet.
What It Costs: An Example of an Independent Fulfillment Service
If you prefer to use companies other than Amazon, many independent fulfillment and 3PL companies offer their services for food and drink producers. One example of such a service is ShipBob, but there are many other similar companies.
To demonstrate, and as of the date of this article, ShipBob charges $5 per bin, $10 per shelf, and $40 per pallet for monthly storage. Extra order picks cost $0.35 each, and fulfillment entails a $275 monthly minimum plus a $975 onboarding fee. For a brand processing 150 orders a month, the total cost averages $7.40 to $12.40 per order. If your products are perishable or frozen, you must use a cold-chain specialist where pallet storage runs $25 to $70 per month, and insulated packaging adds $5 to $15 per order.
There are many “fulfillment” and “3PL” companies that serve the United States market. Examples include ShipWire, Flowspace, ShipMonk, Prep Partners Group, or Fulfillment.com. You can easily find other examples of such services on the internet.
Fulfillment Services: How to Reduce Costs and Earn Greater Profits
Fulfillment centers and 3PL service providers drastically reduce your per-order shipping cost by leveraging cheaper per-unit freight for the initial international leg.
To keep margins high, we suggest that Amazon FBA might be used exclusively for high-volume goods to avoid Amazon’s significant aged inventory surcharges and holiday peak storage fees.
For non-Amazon sales, an independent fulfillment or 3PL service provider protects your customer data and helps you avoid the 8-15% referral fee charged by Amazon FBA.
In summary, the most successful international food producers follow a sequential strategy:
First, they test the market demand for their products in the US by using direct shipping with discount platforms.
Second, they scale their online presence utilizing fulfillment service centers in the US to lower per-unit freight costs.
Subsequently, after they are sure they are ready, the successful company uses their tested and proven sales data to win US distributor and retailer listings on much more favorable terms.
Please consider that PriorNotify, ShipGourmand, and RudiGourmand are specifically designed to help your company to implement each step in this sequential strategy, in a cost-effective and elegant manner.
