New Distribution Channel

April 13, 2006

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Existing businesses can often expand by offering their products and services through a new distribution channel. Many businesses that once sold goods strictly by mail order have now opened retail outlets in fancy malls. For example, certain brands of franchised fast food can now be bought, pre-cooked, in grocery store freezers. The decision to exploit a new distribution channel presents risks and opportunities that must be carefully weighed in advance. A business plan gives you the vehicle for that analysis.

A few years back, one of the first fast food chains considered making its hamburgers available in the frozen food section of grocery stores. Up until that time, the chain had marketed its products exclusively through its retail outlets. A business plan provided the framework for assessing whether this new sales channel was worth considering.

The marketing sections of the plan explored issues such as who (and how large) this new customer base was, how to package and price the hamburgers, and what the impact would likely be on the chain's existing restaurants.
The financial portion of the plan analyzed the potential for profitably exploiting this additional sales channel. It contained estimates relating to number of units sold, expenses of production and distribution, and how long it would be before the costs were recovered through sales revenues.
The action plans provided a mechanism for organizing and evaluating the myriad operational issues that the expansion created. It answered questions such as: who cooks the burgers that are frozen and sold at the grocery store? How do they get to the stores? What impact will the higher volume of business have on costs, staffing, relationships with suppliers, etc.?