 |
Mail-Order Sales, Part I
Catalogs: A Calculated Risk
by Susan Craig
It started with Richard W. Sears, who nearly doubled his firm's sales in two years' time by sending out a 532-page catalog that allowed people to send in their money and receive their hearts' desires in return. In recent years, with the exponential rise in computer graphics software that anyone can master, mail-order began to seem like the golden road to riches.
Offering goods for sale by means of direct mailings, catalogs, or display ads in magazines and newspapers promises lower overhead (no stores to maintain) and a larger market. In fact, a glance at mail-order how-to books published during the past twenty years would give the impression that all one has to do is launch a mailing and then sit back and wait for the dollars to pour in.
Not so, say experienced mail-order businesspeople. You have to work at it.
Do Your Homework
"My wife Wendy and I started our business in our garage, sending out our first catalog in 1989," says Mo Hotta-Mo Betta's co-owner Tim Eidson. "We worked fifteen to seventeen hours a day. We were the first company to sell hot and spicy foods exclusively via mail-order; we chose mail-order because nobody else was doing it." By being the first, he says, and by getting "great press," the company grew quickly. "But had we researched the catalog business more carefully, we probably wouldn't have done it," Eidson continues. He urges anyone attempting to enter this market to "seek advice from people who have done it rather than from those who would have liked to have done it."
Bill Penzey, owner and president of Penzeys, Ltd., says that before launching a catalog, "Spend your time learning. Once you could learn as you go, but it's far more difficult to do a catalog now. Learn how your own products will do with mail-order. Work your own mailing list because it's impossible to buy appropriate mailing lists. And don't bet the entire farm (on your venture)." Even though Penzeys manufacturing, importing and catalog company is 90 percent catalog sales (five or six mailings and a couple of million catalogs per year), Penzey says he's "not optimistic about the catalog business in general."
A lot of yellow caution lights. What are the obstacles here?
A Few Considerations
One of them is cost. The cost of direct mail is rising along with postage rates and printing costs. Charles Jentzsch, founding member of C.C. Edwards Co., a business solutions company with a division of Internet and mail-order marketing, says that although a company certainly can be successful and cost-efficient with mail-order if it's properly presented and marketed, it's getting harder to do. "If you mail a thousand catalogs for $1,000 postage, you'll be lucky to get seven returns," he says. "Since customer response rates are dropping, the industry trend is for big companies to mail more often, sometimes every two weeks. Catalogs can cost $2 each delivered to the customer. You need to be able to realize $250 per customer to cover everything." Jentzsch observes that Internet sales, the subject of Part Two of this series, have caused a big drop in mailed catalog sales during the past 18 months, and he thinks that it's difficult to sell commodities by mail-order when the customer can get them at the store. In order to help offset these problems, Jentzsch makes the following suggestions: create your own lists, don't rent because the cost of renting lists is going up; and consider one of the more recent trends of placing ads that ask readers to request a catalog.
Some hot foods companies have added catalogs to augment their retail store sales, while others are decreasing their catalog business in order to brand their own products and go the wholesale and distribution route.
"We're so specialized that we wouldn't have enough day-to-day business through the door, so mail-order is a way to increase our business," says Dave Doolittle, owner of Chile Cauldron. "We've gotten into it in a big way during the past year and a half; today it's about fifteen or twenty percent of the business, but ultimately we'd like it to be forty to fifty percent." Their catalog, which features a large variety of hot and spicy products, is sixteen pages, tabloid size. It costs about 20 cents each to produce it and 55 cents each to mail it; they mail 5,000 each time. The company places ads in both Chile Pepper and Bon Appétit and has had articles in Food Distribution Magazine. In addition, he says that people power helps cuts the cost of advertising the catalog. "We leave our catalogs everywhere and hand them out at shows," says Doolittle. "People who travel take them with them." The prime requisite for putting out a catalog, he says, is patience.
Some catalog producers name shipping costs as their biggest concern. Though customers will pay top prices for interesting and premium products, Penzey feels that they "will pay only so much to have the products shipped." Their catalog costs about 50 cents apiece to prepare and 27 cents apiece to mail. Jeff Marcil, president of Hot Spicy Foods Company Ltd., agrees that "customers put no price pressure on the products, only on the shipping." Despite that, he says mail-order is growing, with over 45 percent of the population of the country being mail-order buyers.
The Heatseekers Marketplace catalog is Marcil's primary focus, constituting 80 percent of his business. Recently, however, the company has branched out into manufacturing, wholesaling and distribution, developing its own brand-name products. "When I started, there were seven or eight (hot products) catalogs," says Marcil. "Now there are over thirty. Mail-order is a demanding and precise business. You must maintain your lists. Our 50,000 names come from purchasing lists from manufacturers and generating leads via catalog directories; we also acquire names by word-of-mouth. We produce an 8-1/2 x 11" forty-eight-page, four-color, glossy catalog which goes out two or three times a year; it costs about a dollar each to produce." He says the costs are almost the same as those associated with a retail operation, so why does he continue to do it? "If you send out 50,000 catalogs," he says, "you can assume there is more than one person per household. Your 50,000 can become 150,000 or 200,000 contacts."
Marcil feels that it is important not to try to be everything to everybody; the Heatseekers Marketplace appeals to segments of the mass market--this year, he's putting out a special barbecue issue. Some products, he says, are meant for collectors, some are new, less-widely-distributed products, and some are old standards. New products appear in each issue, partly because of the fact that Marcil finds that "endemic to the business is the fact that manufacturers come and go." Marcil says that people buy what they buy because they like the label, it's been recommended by a friend, they recognize the name of the product, or they like the presentation in the catalog. "My job is to make the product look like a star," he adds. "I strongly believe that food is entertainment; I want it to be fun as well as informative. In the catalog we use recipes and include bios and anecdotes about manufacturers and products." Doolittle lists three types of customer: "collectors, the biggest spenders, who look for cool labels; those looking for taste; and those looking for hot."
Cautiously Optimistic
Almost any kind of hot and spicy foods and related products can sell well by means of catalogs. Salsa Express, according to Gloria Rosales, assistant director of marketing, says their hottest salsas sell best. All Salsa Express products, foods as well as other products like T-shirts and salsa bowls, are sold by mail-order. Though she sees mail-order as a tough market, she's bullish on it: "I'd say the trend in mail-order is up; a lot of mail buyers are looking for hot foods."
Eidson isn't so sure. "Hot sauces, once a specialty item, are now a commodity. In 1989-91 the only hot sauce available in stores was Tabasco®; last week I saw twenty-four different hot sauces in a little market in Montana. Mail-order can't compete with the grocery stores. Our catalog has fifty pages and 700 products, but we are dropping our catalog sales percentage from seventy percent last year to about sixty per cent this year. We're developing our own products including six new hot sauces, tamale kits and a kids' line of spicy sauces. We're looking to the future and branding ourselves more." Penzeys, on the other hand, says that their products vie with the supermarkets because they are of better quality and sell for a lower price.
Hot and spicy mail-order foods run the gamut from the ordinary to the exotic. The number one seller for Penzeys, which offers spices and seasonings, is plain black pepper, followed by Hungarian paprika. But besides carrying everything the typical customer might need, they offer exotic seasonings and seasoning blends including eight or nine Indian seasonings. The Chile Cauldron, says Doolittle, has "weird little sauces you don't see elsewhere: Egyptian sauces, Barracuda Bites, and Smokin' Oakland Scooter Juice (an habanero hot sauce)." And here's a new one that's catching on with Salsa Express customers--hot and spicy dog biscuits.
Catalog sales continue year-round, but take a big jump for the holidays which include Fathers' Day and the Fourth of July, as well as Christmas and the New Year. About 30 percent of Heatseekers Marketplace sales can be attributed to the various holiday periods; the Chile Cauldron sees a rise of 20 percent at the end-of-the-year holidays; Salsa Express sales go up for all three holidays. Penzeys theory is that "when it gets cold and dark outside, people read catalogs, cook and eat. Sixty to seventy percent of buying is for special event cooking (the rest is for replenishing the pantry). Our November sales are 1.7 times non-holiday months; December sales are twice the others."
Placing Your Product in a Catalog
But what if you don't want to have your own catalog, but only want to place your product in somebody else's? John Ollman, general merchandising manager of Signals, a general-interest catalog, put The Hot Sauce Lover's Kit into their holiday 1997 issue. "It was the first hot sauce kit we'd seen, consisting of a 132-page soft-cover cookbook, three bottles, an array of ingredients and recipes for creating your own hot sauce. The salsas we tried five years ago didn't do well, but this kit was a sleeper hit and we're still carrying it. Hot sauce, says Ollman, has evolved into the gift industry to take its place alongside chocolate and coffee.
The kit has a good gift price point, selling for $26.95. Items for sale in Signals need to sell for a minimum of $20 to be viable, adds Ollman. He cautions that anyone thinking of submitting a product for inclusion in a catalog should have a firm fix on all the upfront costs involved in marketing that product, and have figured "generous" margins. The product must be unique, well-packaged and photogenic. "Think about how the product will look in a 3"x 3" photo in a catalog," he says. "Is the type going to be readable?" Marketing the product to a catalog includes sending sales information, photos or samples (samples will not be returned) and an explanation of the pricing, availability and turnaround time for orders. "Make your product stand out," Ollman says. "Think of its impact."
Marcil says that, unfortunately, small manufacturers in the hot foods business rarely understand what they must do in order to place their products in a catalog. Check out the sidebar to this article for some of his tips for a successful approach.
Confused about the effectiveness of mail-order for your hot 'n' spicy foods? Don't be; just get to work and do some serious homework. Mail-order is obviously a sales vehicle in transition and, like any other sales approach, it must be thoroughly tested and evaluated for your own product and your own intended market. "Test first," says Jentzsch. "It's a numbers game."
Susan Craig is an Albuquerque freelance writer and business consultant. She writes for a number of local, regional and national publications and publishes several business and trade guides each year.
In Part II of this series on mail-order sales we will cover the growth of business on the Internet.
So You Want To Be in a Catalog?
Advice to Manufacturers from Jeff Marcil of Heatseekers Marketplace
Understand timing: Let the catalog know six months in advance what products will be available. Don't miss deadlines.
Understand pricing: Your margins will be the same for catalog as for retail.
Send regular product announcements: Only 3 to 5 percent of manufacturers do.
Create programs to assist the catalog people in marketing your products.
Provide appropriate artwork: Supply it on disk. Send recipe cards. Don't send anything
that has to be returned.
Follow up: Find out what can you do to help the catalog company sell your product.
Some Web Sites on the Subject
Best Businesses of the 90's: Mail-Order
25 Steps for Building a Successful Mail-order Business
Sources
Chile Cauldron
Dave Doolittle
667-A Plumas St.
Yuba City, CA 95991
PH: (800) 987-8512 or (916) 674-5330
FAX: (530) 674-2362 or (916) 674-2362
info@chilecauldron.com
Mo Hotta-Mo Betta
Tim Eidson
P.O. Box 4136
San Luis Obispo, CA 93403
PH: (800) 462-3220
mohotta@mohotta.com
C.C. Edwards Co.
Charles Jentzsch
P.O. Box 490
Page, AZ 86040-0490
PH: (888) 866-6060 or (520) 645-5741
FAX: (520) 645-0317
sales@ccedwards.com
Heatseekers Marketplace (Hot Spicy Foods)
Jeff Marcil
P.O. Box 1986
Morgan Hill, CA 95038
PH: (888) 547-7429 or (800) 647-7429
hotspicyfoods@worldnet.att.net
Signals catalog
John Ollman
1000 Westgate Dr.
St. Paul, MN 55114-1007
PH: (800) 669-5225 or (651) 659-3700Penzeys Ltd.
Bill Penzey
P.O. Box 933
Muskegon, WI 53150
PH: (414) 679-7207
FAX: (414) 679-7878
info@penzeys.com
Salsa Express
Gloria Rosales
100 North Tower Road
Alamo, TX 78516
PH: (800) 437-2572 or (956) 787-9971
FAX: (956) 787-4041