The current COVID-19 pandemic has taken a toll on the economy, affecting all businesses, including the chain of supplies for retail. Elliot Begoun talks with Mark Feinberg, the CEO of the OTHRSource, and Brandon Hernandez of Whole Brain Consulting about the supply chain and the pressures it is going through, the opportunities for improvement, and the risks and pitfalls that everyone needs to be aware of. Working with their own teams, they share their strategies on how they are holding up regardless of the lesser customer flow. They share their tactics in pivoting relationships with their teams and how they are leaning into eCommerce as the savior of retail. 

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Supply Chain Opportunities During The Pandemic With Mark Feinberg And Brandon Hernandez

What we’re doing here is using this opportunity to have an open conversation about all things going on, our take and answer your questions, and make this a casual, easy conversation. I’ll let Mark and Brandon introduce themselves as well. Go ahead, Mark.

I’m Mark Feinberg. I’m both the CEO of OTHRSource, an on-demand in-store support company, and then also, General Partner of Feinberg Capital, which is a boutique investment and advisory firm focused predominantly on food and beverage companies, mostly throughout the United States.

I’m Brandon Hernandez. I’m a Senior Partner at Whole Brain Consulting. We’re an outsourced operations firm focused in the food industry, mainly in the supply chain, QA/QC, command source and selection, and negotiation.

When the three of us chatted about doing this, we’re going to try to do more of these to create little simple windows of opportunities to share what we see and what’s going on but also to hear from you and be able to respond as well. What we thought was to talk about what we’re seeing is happening in the stores, where the stores are, and what’s happening around funding, both things that Mark can speak to. Also, the pressures on the supply chain, the opportunities potentially within the supply chain, and some of the risks, pitfalls, and things that everyone needs to be aware of. I’ll start with you, Mark, to get your feedback in terms of what you are seeing and hearing from your team out in the stores and how things are looking. Give us a view of where things stand retail-wise.

Some of it is you’re already seeing a lot of it on the news and I’m sure you’re experiencing a lot of it in your own business as long as the product is on the shelf seems to be moving. The challenge is that with store personnel being overwhelmed, not feeling comfortable working in the stores, and are understaffed, as a result, the product is not making it to the shelf as quickly as all of us would want to. Brandon might be able to talk to this as well, we are hearing that the product is not making it to the store as quickly as we would want it to. There’s a double whammy in certain situations that we’re seeing consistently across the United States. Our company covers the US, both traditional grocery, club, convenience, drugs, and across the board, we’re seeing it both that there are delays getting the product to the store to the shelf. In terms of categories, snacking is flying off the shelf. Candy, chocolate, ice cream, frozen, those can’t stay on the shelf quick enough. As soon as they enter the store and they get on the shelf, they move.

A couple of questions around that, are you still getting people into the stores? What are you doing with your team?

It’s getting more challenging. The retailers are happy to have us there, generally speaking. The fear factor though is playing a role and then we, as a company, do not want to put our people in harm’s way. We’re giving folks a choice. If they want to go to the store, we support that but if they don’t feel comfortable, then don’t do it. Our execution rates were hovering around 100% and they’ve definitely tailed off. A lot of that has to do with being comfortable going to the store. The responsiveness from store management has been remarkable. I know they’re overworked, they’re tired, and appreciative to have the extra set of hands. We are deemed essential by our brands in terms of the legal documentation that we have for our brand helpers to go into the stores. We’re not running into any issues in that regard. It’s around people making the decision not to go to the stores, which I certainly understand. I’m not sure I fault them.

It’s a tough time and it’s uniquely region by region. I would assume that it’s going to get tighter in the near term.

Taxes have particularly gotten tight. I knew as we started moving into deemed necessary to wear masks and gloves, that’s going to create another layer of potential change so we’re watching that carefully. There definitely is an interest from the community out there as we continue to recruit, train, and deploy. People who want to work. Some of our people might not feel comfortable going out. If we start to recruit and we start to train, there is interest out there. From a human standpoint, we’re managing it and try to make the best decisions because we don’t want to put our people in harm’s way so we’re balancing all that.

Brandon, one of the things we’re hearing a lot about is the pressure on the supply chain especially around co-man’s, how much they’re having to produce, and making decisions. Give me and give the folks reading a sense of what you’re hearing, learning, and any best practices that brands should be employing.

The overall advice is everybody needs to stay calm for the moment. What we’re seeing and what’s being reported is that it’s not a supply issue but a demand issue. The internal tracking systems that Kroger’s and Walmart’s attempt to deploy were having problems keeping up because the demand is high, so every time they fill a store shelf, it gets wiped out. Realistically, what I advise people is don’t set in your next 90-day manufacturing windows to try and deal with the spike. Account for it a little bit but don’t continue to assume that it’s going to turn at this kind of rate. People go back to what they know and what is stable for them. That’s beans, pasta, and things that are shelf-stable and can be made in a huge abundance, but eventually, people will revert back to the higher-end brands.

I always pick on an $8 bag of granola and it’s not intentional, but eventually, I’m going to get back getting that because that’s what I enjoy. People are worried about the fundamentals but they are going to pivot back. Manufacturing will be going to do everything they can. I’m bullish on the fact that the manufacturing part of the supply chain is not going anywhere. Some of the trepidation in the supply chain was when they were talking about closing borders, but they did it for personnel traffic, they didn’t do it for commerce. Meaning that your fruits and vegetables are still going to get here. India is shutting down, that’s going to hurt. China only being 50% manufacturing, that’s going to hurt, but it’s not an impossible dream to continue to do what you’re doing.

This is a time to pivot into your supply chain partners, whether it’s raw material or manufacturing, and start to leverage whatever relationships you’ve cultivated over the years and start to talk about, “Can I get extended terms? Can I contract for something that maybe I should have been thinking about contracting for before?” It’s not an imminent concern. It’s one of those deals that you don’t get what you don’t ask for. We’re encouraging people to pivot a little bit and start to talk. They’re going to start to feel the pinch if you do, to their benefit to work with you and to try and help understand what they can do best with you as a partner because they are part of your company whether they’re manufacturing assets or raw material assets.

We’re encouraging people, don’t set your production schedule and everything based on the current demand. Everybody’s getting wiped out. Do some historical trending and do your year over year like you should be doing. Your sales team, finance team, and supply chain team should all be in each other’s hip pockets constantly. How are we going to do this? How are we going to deploy that? The big thing where people can see some savings in the supply chain is that the demand for trade spend is not going to be 90 days to maybe even the rest of the year. It’s not going to be what has traditionally been. Is there a way to convert that into either doing good or extending the life of the business? It’s something that people need to start exploring sooner rather than later.

Everybody was panicking in the beginning with good reason but it’s time as a business owner to pivot and say, “What does my 90, 120, 180-day outlook look like and how do I lay that out in a strategic way so that I can continue to maintain business as usual posture?” That is your supply chain and your finance team helping you navigate that. As a CEO, I need to know everything that’s going on in my business. We’re big but I don’t need to know how the watch is made. I needed to tell time. This is the time that there are certain parts of your business you need to know how that part of the watch is made. Pivot to it and see how best you can support those pillars of your business to make sure that you survive this 90 to 180-day window that we’re all on a wild ride for.

One of the things that are getting asked a lot, I’m hearing a lot of different advice and I vacillate between whether it’s sound or not and it’s specific to your co-man is that one school of thought is to get as much line time as you can, run as much product as you can so that you’re not at their mercy, if there is a further ratcheting down, or constraint on capacity later. Of course, the risk of that is that puts a massive taxing on your cashflow if you’re building a lot of inventory. There’s a lot of unknown of, what is demand going to settle? Is there going to be a precipitous drop off in demand as things normalize? There was panic buying for essentials but we have to also recognize that the vast majority of out of home consumption is gone so it’s moved to retail. I’m curious in terms of that. Are you advising your brands to build inventory to take as much line time as they can to be forward or are you taking it case-by-case?

In this instance, we’re going at it on a case-by-case basis. The reason being is that everybody is in a different financial position. That was the point of your sales team and your finance team talking to each other consistently. The fact of the matter is if I tell you to fill 90 days of projected POs that you have on hand and we’re seeing it in coffee chains and all that. They’re coming back and they’re revising POs 24 hours before you’re getting ready to execute against them. It doesn’t benefit me to tell somebody that can’t afford it, “Go and fill 90 days worth of inventory.” You have to sit down and you have to see from a cashflow perspective what’s beneficial and what isn’t to you. That’s something where we sit down with a brand and say, “If we pulled the trigger on 90 days’ worth of inventory, you need to do a crash budget. What would you survive at that crash budget if I told you to go and spend this much cap X on finished goods inventory?”

This is the time to lean into people that you know at Walmart, Kroger, or Amazon. If for no other reason, they have the data linked to people’s spending habits, and they’re going to have at first. The more line of sight you can get into that and understand depending on what category I’m in, “When does it look like I’m going to start to see the tick back to either normal or whether that’s coming up to normal or coming back down to normal?” They should be able to help you understand that data and say, “Over the next 90 days, you’re going to see a drop off of 60%.” “Great. I didn’t need to fulfill 90 days of inventory at this level.” We’re trying to advise everybody as much as possible to be strategic in your thinking. Your supply chain team, finance team, and sales team, they all need to be interlinked at the hip every day. Whatever it was, you should be doing it twice as much. You need to know everything that’s going on in those three pillars because each one of them is going to live and die off of each other.

If I could add one thing to that, I knew in some of the conversations that I’m having with some of the companies I’m invested in as well as it buys and then also on the OTHRSource platform. If you are in an ABL inventory lending relationship, there are some lenders out there that if you have pre-existing relationships, they’re willing to work with you willingly. Depending on what category you’re in and the shelf life of your product, being able to leverage those relationships the right way is certainly helping in cashflow, and I am seeing it. What I can’t speak to is how readily ABL groups are taking on new business. It seems like some are slowing down and willing to establish new relationships but for those folks online that have an existing ABL, you’ll definitely want to get on the phone with them and see what they’re willing to do to work with you. That is something that is helping in the cashflow standpoint for certain groups.

Feinberg loves to talk in acronyms. ABL is an Asset-Based Lender in case you’re wondering. He’s too cool. 

Thank you for the decodering.

One of the things, too, Brandon that I’m curious about is it’s important to have this conversation with your co-man in a participative way. What’s your outlook? What are your concerns? What are your contingency plans? If you get an understanding of where their mind is at, then that can help guide you as to whether you build your inventory or not. You also want to be mindful of the impact that that has on them. It’s a good time to be good partners with your co-man is what I’m trying to say.

That’s a point on the supply chain. I’m not just referencing the raw material suppliers. I’m also referencing the manufacturing partners that you should be having proactive conversations. What’s your line utilization look like over the next 90 days? Are there certain terms that we can come to in a short window that says, “You were a turnkey solution, but this is an ingredient that’s specialized to us. Can we take it off your books for a little bit to help?” There are things that you can do to try and help pivot that relationship and having a proactive conversation is one of them. If it’s a capacity constraint, what is it that we could do to help? Is it a cheap piece of equipment that goes in line and all of a sudden, you can do twice as much? Are you having personnel issues?

You have to sit with them and understand what their pain points are. That way, you all can address it timely and as a team, because that’s where most manufacturing relationships fall down. You lose that ability of rising tide lifts all boats. For whatever reason, the relationship degrades over a singular issue. There are multiple reasons for those relationships to fail but more communication and not less. If nothing else with all these webinars and everything that everybody hasn’t had that face-to-face interaction. It’s easy to get spun up in an email. People take something different and they take it wrong.

We have all these web tools now. Utilize them. They’re relatively cheap and easy to deploy. You can have a face-to-face interaction with somebody. States with lockdown procedures, that’s something that people need. Having those conversations and being able to look somebody in the eye still and say, “How can I best help you? How can we help each other because we need to get out of this together?” These are conversations I encourage anybody to have, whether it’s a manufacturer or supplier or whatever.

This is a great tool. After a webinar, I had someone point out that I had a great face for a podcast so I had to get over that one. It’s also a good time to not fall on the sword for your tailing SKUs. The reality is that, what was once something that you’re measured heavily against, which was order fill, they’re not paying as close attention to it. If you can help your co-man and yourself by letting some of those SKUs go out of stock, then so be it. Mark, a couple of questions that came in and they’re similar. Any feedback on the traffic stores you are seeing? Is it beginning to tail off at all, is it still the stores are busy, or have peak rushes during the day?

The panic buying has generally subsided and it seems as though it’s returned back to some sense of normalcy. A lot of stores have put restrictions on the number of people that are allowed in the store at any given time. Not only does it seem like it’s returned to some semblance of normalcy, but there’s also an expectation that it’s going to go in waves. Whether it be different news that hits that sends people quicker into a store or for example, Georgia finally decided to issue a shelter in place. The expectation and what we’re also seeing is that there seems to be another rush to the stores.

Some of it is also in terms of what the government and what the regulatory environment is looking like. If the president issues a national shelter in place, there’s an expectation that that will cause an increase. Also, what we’re seeing is that the grocery stores in many categories have run out of things, the whisper will come out that a shipment of XYZ has hit the store and then there’s another rush. A lot of the bare essentials that we’ve seen on the news, those are the ones that get out real fast. There seems to be a big push and things settle down for a little while.

Let’s switch gears a little bit. When the three of us got on a call and rifted on things, we’re talking a lot about the opportunities that exist in the market. This interruption and disruption, what was normal is causing, and the type of seed chains that are happening from it. One of the ones that is important to communicate is the fact that there’s going to be a continued premium on capital efficiency. I see that some of the gambling money is going to be off the table going forward, brands are going to have to be smarter and more efficient with the use of their capital which means that this movement towards eCom is likely to stay. If you’re not prioritizing or not eCom enabled, that’s something that you should likely lean into. There’s been a lot of contra logic in terms of, “I’m refrigerated. I’m frozen. There are eCom growth opportunities.” I see that changing rapidly. I see economics coming down and becoming more affordable. I see logistics improving. Brandon, specifically, what are you hearing around that? What are you guys working with on brands in terms of that eCom enablement? Give us some feedback.

Bringing on an eCom channel, it comes down to your distribution methodology. Amazon still is prioritizing food and staples. That pivot will go back to general brands. For us, what we’re letting people know is make that part of your sales plan and as you pivot, you get to recoup some of your distribution margins. There are certain things that are advantageous in being able to make that pivot. The cadence from a supply chain manufacturing standpoint doesn’t change for you. It just becomes another channel to fill. I keep harping on the same team that your sales team, supply chain team, and finance team all need to be in lockstep with one another. As you’re reviewing and bringing on those, you need to be able to make those pivots quickly and add them to your manufacturing numbers or your raw material numbers.

When you’re also looking at D2C, especially in an Amazon platform, what may become a choke point is frozen and refrigerated distribution. We’re encouraging everybody that if you haven’t already started to find a partner that can help you do that, this is the time to put the pedal to the metal when it comes to finding that distribution partner. Those assets are going to start to dry up probably quicker than anything. The encouragement is to look at your distribution patterns and look at your own distribution networks. Where do you need to be putting the pedal to the metal? Make sure that if your Amazon platform takes off or when it does, your Walmart platform or your general direct consumer through your own website, when that takes off, you’ve got to make sure you’re able to take off with it.

Mark, anything to add there?

Nothing to add on the eCommerce side per se. I do agree that the eCom component of this is here to stay. I don’t think retail is dead by any means. It’s going to take a little time for things to normalize. I see a question that came up here. I don’t know if now’s the time to address it in terms of low fill rates. To revert back to retail, I would keep the pedal down on making sure that the product is getting to the store. More often than not, we see the products in the store it’s either in the aisle or in the back room. It’s not necessarily on the shelf because the personnel is focused on bare essentials.

Whatever you can do to keep pushing to try to get it to the store is your best promotion but at the same time, do keep an eye on eCommerce because this is going to accelerate the move to eCommerce. For anybody who had been considering it but hadn’t gone into it, it is a good time to put some added focus on it. As long as you keep your attention on the store side, you don’t need to promote and discount products. You just have to make sure your products are on the shelf and it’s moving, and it’s one of the best trial mechanisms that you could have. Demos are mothballed for a little while, so the best thing you can do is have your product on the shelf and it’s moving. Don’t take your eye off that ball.

Let’s switch gears a little bit and talk about fundraising. Mark, this is something that you’re close to. One of the things that I’ve shared with a lot of people is that there is still money in the market. In fact, there’s quite a bit. I realized that there are concerns and uncertainty in the marketplace. Therefore, there’s a premium to that uncertainty but it’s in the market. I’ve been a part of a couple of successful fundraising rounds. One of the things that we’re advising and I would like to get your feedback on is that because of that uncertainty premium, brands take a hard look at what cash they need. They look at this being a short-term bridge and then build from there.

In that way, they can raise what they need, understanding that those terms are likely to be a little bit different than the market would have allowed. I’m somewhat calling it an apocalypse round. Raise as little money as you can, make the terms exciting to get investors off the sidelines, and willing to take the uncertainty on. From an investor’s perspective, what are you looking for and what are you wanting to see in a brand that comes to you?

I can talk to how I’ve approached it. I’ve got a number of brands who need some cash and I’m doing what I can to step in and bridge them. Along those lines, if you’ve got existing investors, they’re going to be the ones who are going to be able to pull the trigger the fastest and help you raise the money to get through this period of time, whether you call them apocalypse round or bridge round. I would agree with that. I would also say that raising money is just one way of raising cash. Back to my conversation in terms of, can you advance cash on inventory? Are there other things that you can do?

Equity is expensive. You’re giving away pieces of your company. If there are other ways that you can get cash as cash in the coffers, look at those things. In terms of capital raising, I’m sure you know this and this is common sense, but if you have relationships already with existing investors, they’re going to be the quickest ones to be able to help you through this. You have the relationship. Chances are they believed in you when they invest in you in the first place and hopefully, they still do. They’ll be there to help you through it. In terms of new financing and new investors, it’s going to take longer. I can speak to my own mentality and I know a lot of folks that invest in the space. A lot of us are taking a wait and see.

We’re not saying no. We’re looking at deals and I see deals still happening. If things are going to take three months or you thought they were going to take three months, it might take six months. That’s a natural human behavior that any crisis or shock like this, there’s a certain slowing as we all decide how our behavior should change or shouldn’t change, but don’t stop trying. Don’t think that everybody’s not paying attention and people aren’t looking at deals. I’m a small-time investor generally and I still review 10 to 15 decks a week. There are two deals that I’m still looking to go forward with and then in terms of deals that I’m already invested in, I mostly provide bridge money to help them through this period of time.

I’m happy to talk to anybody on the call about the technical mumbo jumbo speak of ABL and what that all means, but there are some things that you can do there. There are some groups that are open for business that might be able to get you some quick cash. The other thing I would say and it’s the last thing, and I know you all heard this, I’m just reiterating but I don’t want to not mention it, is take advantage of what the CARES Act and the SBA have to offer. There is real money there. How much? It depends on your situation. What I would say there is take advantage of it. If you have an accountant that you can rely on, they can help you. Any of us could help you navigate you to the right place but definitely just chalk it off. If it’s too overwhelming or not enough money, look at that because that could help bridge you as well.

I’ll add to it because I don’t want to make this into a funding conversation. In terms of takeaways and actionable next steps, the first thing that I would recommend is if you don’t need to be raising equity, don’t, but that’s a luxury that many of you don’t have. Don’t give up and don’t feel like it’s not there because it is. If I were to give actionable steps, look at your cashflow, optimize your capital efficiency, make hard decisions, discernment around what can be funded and what shouldn’t be funded. Pull back on your trade expense dramatically, if not completely. Lean into some of the more capital efficient channels like eCommerce. When you have that and you have your 6 to 9 months of runway, certainly exhaust all other funding options. CARES is number one, asset baseline being number two, even traditional, but don’t do anything that puts your personal financial health at risk. It’s not worth it. It never is.

When all that’s done and you have to raise, don’t pretend that this uncertainty premium doesn’t exist. The greater your urgency to raise the money, the higher that premium because as Mark said, I’ve heard this from an investor after investor, “I’m taking more time. I’m being more cautious. I do have money. If I’m going to act, I’m going to act because I see a sweetheart of a deal.” Get a sweetheart of a deal. If it’s a small enough raise, the impact of that raise, that amount in terms of dilution and everything else is going to be relatively nominal versus not having the money you need to survive to thrive because that’s your number one objective.

If I could also add one thing, I had a conversation with a group that I’m looking at making an investment in, and then also, I’ve been advising for a period of time. To your point, Elliot, there are groups that are going to be looking for the premium for obvious reasons given the uncertainty. It’s normal to feel pressured into doing a deal. It’s okay to do the deal if you have to do the deal. To live another day, in this particular case, an entrepreneur is looking at potentially having to sell the company where they would stay on as the CEO, but prematurely sell the company because the options are limited. My advice was even if it’s a sweetheart deal for whoever the investor is, try to work with your advisors and your attorneys and any of us on the phone to have clawback mechanisms if you can.

What do I mean by that? That means if you have to give away a bunch to get through this period, give yourself a chance to get it back. I understand it’s a scary time in a lot of cases and you end up doing a deal because you feel backed into a corner and you have no choice. Try to read for half a second, leverage your attorneys and advisors by saying, “We have to do this deal.” If these certain things happen, you end up climbing back parts of your company, whether it be through the compensation plan, the way the deal is structured, retaining a piece of the deal, and any combination thereof. At the end of the day, none of those things may come to fruition, but at least try. There’s going to be a group of investors out there and unfortunately, it’s just the way it is. Some of it, they’re looking for that risk premium and some of it, they’re looking to take advantage of the situation.

There’s a fine line between an uncertainty premium and a predatory practice. It’s hugely important to lean on your advisors and your attorney more than ever. It’s also important to have that open dialogue with the investor because you’ll quickly learn if you have an open dialogue and to say, “I understand there’s an uncertainty premium in the market. There are less known than there were six weeks ago, but I want to make sure that not only can I survive, but I’m positioned to be able to raise the capital that I need down the road and do what I need to do to build this business. Let’s have a conversation around that.” If they’re not willing to do it, walk away. There are plenty of other funders and things out there. You’re going to have to be creative and resilient, even if it means, for your business standpoint, sheltering in place, saying no to POs, and doing things because you don’t have the cash.

That is better than making a bad deal. It’s all about surviving to thrive if you’re in that situation. It’s not just those of you who are concerned about your sale is starting or you’re hoping that this was going to be your Expo West and this was going to be your spring of growth. This is as impactful maybe more so on the brands that are having unprecedented sales because the most voracious consumer of capital and cash is growth. For those of you who are growing quickly, your cashflow is under the most stress so be mindful and be willing to say no to the wrong orders, to the ones that aren’t going to make a positive impact on either cashflow, your business strategically, or your EBITDA.

Changing gears again, we had a couple of questions come up about things like driving discovery or what about more unique or specialty products, and what do we do in this climate. I’ll give you an opinion and it’s only that. You can discount it and then I’ll let the other folks here give their feedback. First of all, acknowledge the fact that this may not be the time to drive discovery. If you are an immune product, health product, well-being product, or personal wellness, this certainly can be a great moment not to be opportunistic necessarily in a bad way but in a smart way to use that narrative. If you’re something that is probably going to fall down, lower on the attention level, acknowledge that. More importantly, find ways to be empathetic and top of mind. Create awareness for your product and live to fight another day.

Long-term, what is going to happen is that retail is never going to go away. It’s here and it needs to be here. We all will shop there and it still will be the preponderance of the way we buy most of our food, beverage, personal care, and pet care. It’s still going to be there, but it may not be the most effective or efficient way to drive discovery. A lot of younger brands, specialty brands, they’ll find their home on eCommerce or specialty channels, whether that be colleges and universities, corporate campuses, and travel. It could be in boutiques and in places along those lines.

What I would encourage you as you think about discovery is to, one, think about where the problem you’re solving is most pronounced. The need you’re feeling most acutely or where people are living working plane when things normalize a bit. Get your product closer to those things and use retail more as replenishment than discovery because as a discovery mechanism, retail is expensive, crowded, and it isn’t adept at driving that. There aren’t that many mechanisms to do that, but that’s my input on those two things. Brandon, do you have any fill there?

From the perspective of discovery launching of new SKU, I know a lot of large CPG. Their big push to any brands in the portfolio is to can whatever new SKUs you have and it’s time for SKU rationalization. For brick and mortar retail, go with the old dogs that work for you and maintain a tried and true. With respect to discovery and all that, it’s going to be difficult in this climate if you’re a wellness brand or you’re a lifestyle brand. It’s hard to have an Instagram or a Facebook pitch that is geared towards your outdoor lifestyle and all that. That’s going to be a difficult play to make. Discovery is going to be difficult. This is the time to rationalize, hunker down, and go back to your budgets and what has been working well for you. The industry as a whole is going to be looking for a little engine that could and that’s what brand responsibility would be to gear up for that.

Mark, anything to add there?

I would agree it all comes back to cash preservation. You’re not going to get the attention you want from the retail category managers. Back to what I said, if you have a product in distribution and it’s able to get to the shelf, the best thing you can do is get it to the shelf as fast as possible. It’s going to cost money to come up with new products and get the eyeballs that you need. I would preserve that cash for when things fall out a bit.

What are the hot categories that investors are looking for that have been made more relevant or relevant by COVID? Mark, I’ll toss that to you first.

To be honest, I’m not sure I could speak to those hot products. I don’t think people are getting too fancy. If you take my own eating patterns, I’m only N equals one. I’m seeing it across the board that they’re eating a lot of Kraft Mac & Cheese, which is a reversion back to my childhood and there have been a few articles about that. Cereal sales, comfort foods, and things that are basic like snack foods, chocolate, ice cream, and anything that’s comforting. I don’t think people are getting too fancy. I don’t think people are going out on a limb on trying new things, which gets back into that discovery. People are sticking with what they know and whatever their comfort pieces are.

With that said, some of those products aren’t on the shelf. You have an opportunity where you’re in a snacking category and people haven’t tried your particular brand. My son and I were in search of Doritos and there weren’t any Doritos but there was something else. We bought them, we liked them, and we’ll get them again. There’s a lot of that and I wouldn’t get too fancy. I don’t think investors are in a position to get too fancy and chase things in other categories. Science and medicine are a different story and I’m sure there’s a lot of chasing going on but in our category, it’s a revert back to providing the customer what they’re used to, what makes them comfortable, and not get too fancy on anything. This thing will fall out. We’ll get through this and the consumer will start looking for more innovation again. Focus on SKU rationalization, what’s selling the best, make sure it’s available to the consumer whether it be online or in the store, and focus on cash preservation.

I’ll add a little bit of a slightly different thought there. This serves as a tipping point to trends that were already in place. I mentioned the one word. I do believe more sales will happen eCom and more discoveries there, but the other ones are immune health, gut health, and personal wellness. People are taking ownership of that for themselves, want that, and are craving that. Anecdotally, I can point to the brands that we know and work with that have seen significant growth in sales. I don’t think it’s necessarily COVID only. These are trends that are only exacerbated or accelerated by this reality and they’re tipping points for behaviors that are going to happen. One trend for sure is that robotic mentality where food is medicine and gut health, immune health, personal wellness, sleep, stress, and all of those things will be there.

One thing I want to say on this subject is because I’ve seen a tremendous uptick in it. I would put this out there only as an advisory warning to people that I’ve seen, heard, or talk to at least a 6 to maybe 10 companies that want to launch hand sanitizer or want to launch health and immunity or whatever. Let me be clear that the FDA only loosened the guidelines for pharmaceutical companies to make hand sanitizer with label claims. I encourage everybody, as you’re trying to fast track and develop these products because they are coming to private equity firms rather quickly that are trying to get on board with this, you have to be exceptionally careful what it is you’re attempting to claim on the label. The FDA is only paying attention to three things. Hand sanitizer and the label claims made by people that are new to the market are going to be number 1A or 1B on their list. I encourage anybody that’s thinking about it to make sure that you’re getting technical or whatever to make sure that it’s all put together appropriately because that’ll get you hammered faster than anything.

We had this conversation on our call. We’re all three entrepreneurs and it’s important that we share how we’re using this time to look at our own businesses and what we’re doing with this period of disruption. Brandon, I’ll start with you. What are you working on and what are you thinking through?

For us, we were a remote service certainly to begin with, but we’ve started to try and turn into that way with that wave even more. We’re having more teleconferencing and making sure that we’re interacting with our own internal teams at a higher level. We’ve started interacting with our own CFO and our internal marketing sales team. We’ve tried to pivot our online platforms, whether it’s our Instagram or LinkedIn, or even our personal webpage. We’re trying to pivot that to more educational. We’re trying to keep as much real-time data and information flowing through those, whether it’s SBA loans or events like the one that you had. We’re trying to bring everybody as much up-to-date information as we can because realistically, as a service provider, I’ve never shied away from letting anybody know that I’m an incredibly lucky human being. This is the opportunity to give back to an industry that’s given us so much.

I know all three of us on this conversation definitely do along with everybody that’s joined in. This is the time to get it with your stage ones, propellers, OTHRSource, and with the TIG group, have industry conversations, and try and help the industry push through this. In the end, all we have is what we have and we have to be appreciative of not only that, but we also have to appreciate that if much is given, much is expected. We have a high expectation of ourselves to pivot and try and give as much help as we can to everybody out there. It’s an internal edict that we switch and flip almost immediately prior to shelter in place and prior to any of that. There was a pivot we decided to make because it’s important to everything and everybody, and that’s how we feel about it.

Mark?

I would echo a lot of that. The OTHRSource team and my mindset from an advisory and investment advantage point are all hands on deck. It doesn’t matter that OTHRSource provides in-store support. We’ll continue to do that. It’s a valuable service that will continue to be valuable, but with my networks and with our networks, it’s whatever we can do to be of value. Where are you experiencing the most pain? Who could we connect you to? We’ve moved into that role and will continue to. It doesn’t matter to me what OTHRSource does. How could I be a service in connecting dots or being somebody there to listen to and be an ear because we all need it?

OTHRSource is in a unique spot. We’re not a food company. We’re a service provider. There have been a number of things that OTHRSource wanted to bring the market to be in service to the industry for quite some time. We’ve had a roadmap that is lengthy. Frankly, we were focused squarely on building out a national in-store support field team and that was our focus for a number of years. We had other things on the horizon that we want to bring to the market to be in service. One of those is a multi-vendor online store, analytics and mobile targeting platform, and a number of other things as well. We will be accelerating some of those things. For example, we will be launching the other store here to be another platform for brands to sell their products online and we will help promote those products.

These are some of the things that we are going to bring to the market to be in service to the industry. In my eyes and it’s the same theme that we’ve all talked about and we all share in this conversation is cash. How do we get cash in your pockets as fast as possible? Whether it be fundraising, ABL, advancing contrast, eCom, or whatever it is. We are launching the other store as another way to hopefully help you and help the industry get cash in your pocket. Those are some of the things that we’re doing in OTHRSource. For all the companies that I’m advising, it depends on where they are in their lifecycle. Someone is just saying hunker down, don’t spend another dime. Someone is saying you’re in a position and maybe push here and push there, it’s dependent on each situation. There is no one size fits all but cash is definitely king.

Part of why we’re doing this is because all three of us and many of us in the industry feel the same way that we’ve been blessed and fortunate by what this industry has given, and it’s good to give back. Let’s not bullshit. It’s also comforting ourselves to be able to see each other, talk, and be able to share what’s going on. That’s key for all of us. We all have uncertainty and we’re all feeling some degree of vulnerability in our businesses, and we shouldn’t deny that. The key thing that I see is to take action and look for the opportunity amidst the chaos. There is an opportunity for everyone in this conversation. There’s an opportunity for everyone in this industry and be thankful that we’re in an industry that can weather a storm like this better than many others.

What we’re doing is the same thing. One is we’re trying to find a way to be a part of the information sharing. You certainly don’t have the answers. I don’t know that anyone does but we have the platforms from which to help share, disseminate, communicate, and build some type of virtual community. We have put together a think tank mastermind group, so forth of people in the industry from all different aspects and all service providers. Making sure that we’re not missing opportunities or looking past better ways to serve the brands in this space because there are things that have been pushed or accelerated or changed that aren’t going to go back. It would be foolish and unfortunate to miss those and also misguide anyone that looked towards as providers of advice and solution.

There’s a part of it that’s super exciting and there’s a lot of upside. There’s a part of it that’s scary. I’m cool with acknowledging both and that I sit with both. I would say the same. I’m glad that we’re able to do these and continue to have more of these kinds of conversations. I know all of us mean it. We’re happy to take your calls and your emails, answer any questions, and spend the time. As we can share what we hear, know, learn, and have acquired in our experience, we’re learning and getting the same back from you. It’s completely reciprocal and cool. It’s one of the many reasons that we all feel fortunate for what we do and who we get to do it with. With that, I’ll let everyone off the hook. Thanks for joining us. We have this recorded and we’ll share it. I’ll make sure as we do, we also share everyone’s contact information so that you can reach out to myself, Brandon, or Mark as needed. Stay healthy, be well, and take care.

Important Links

• OTHRSource

• Whole Brain Consulting

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