How to Protect Your Margin When You're in Retail ft. Akash Raju

0:00Akash, what makes retail so freaking expensive? There's a lot of hidden fees, what we call deductions brands receive when they enter retail. So for every single retailer or distributor that they work with, there's anywhere from 100 to 200 different types of fees. So you're pulling out more of your margin by running the discount. A brand is typically losing up to 5 % of their revenue to invalid deductions. You know, we're very proud. We have a 91 % win rate on deductions that we submit. You can be losing half a million a year to invalid deductions.

0:39Hey, I'm Mike Gallup, and this is Consumer VC, where we break down what it takes to invest in and build scalable consumer brands and technology companies. If you're enjoying the show, hit subscribe on the free platform and sign up to the newsletter at theconsumervc.com. In the newsletter, you'll get a weekly roundup of the latest fundraisers, product launches all around the world, consumer, and new episodes of the podcast. Our guest today is Akash Raju, who is the founder and CEO of Glimpse. Glimpse is an AI-powered, end-to-end deductions management service that's focused on recovering revenue from Keihee, UNFI, Amazon, and Target for consumer brands.

1:13They centralize deductions with backups. They fully handle disputing on your behalf, the brand's behalf, and streamline the accounting process. They work with 100-plus brands that include Cure Hydration, Little Bucks, and Sobs, and much, much, much more. In this episode, we focus on the ins and outs of retail. So if you're a brand owner, I would highly recommend this episode for you. As we discuss the ins and outs of retail, what makes retail so expensive for brands, how Akash had the idea for Glimpse, and how serious of a problem is deductions, and which deductions are worth fighting for and which aren't.

1:45Without further ado, here's Akash. Akash, thank you so much for taking the time. How are you doing? I'm good. How are you? Thank you for having me on this. Oh, please. Thank you so much for being willing to come on. I really appreciate it. So, Akash, you're a brand. You just got into retail. What makes retail so freaking expensive? What are some of the costs that are associated in retail? Yeah, I mean, retail is a big black box for folks when they're first getting started. There's a lot of hidden fees, what we call deductions that brands receive when they enter retail. So for every single retailer or distributor that they work with, there's anywhere from 100 to 200 different types of fees that a brand can get hit with.

2:38there's two buckets so one is trade when imagine you're walking to a grocery store and you see a little hang tag discount that is a fee that you then get charged that's passed through or say you have a there's a so there's a fee to actually run a discount yes exactly wow so you're so you're so you're pulling out more of your margin by running the discount but as well as you're actually spending to in order to actually run a discount in in the first place okay exactly or say you're shipping a box to a retailer and your label is one inch off that comes back as a fee as well um you have a fee for getting data in exchange for um just to be even be part of the retailers a fixed fee etc there's hundreds of types but typically for a brand this can be up to 20 to 30 % of their revenue.

3:38Wow. 20 to 30. Okay. 20, 30 % of revenue. That's pretty wild. When, I mean, well, how did you find out about deductions? Did you, or think about it, did you come from the brand space? How did you kind of realize that this was a problem? Yeah, of course. So I previously built a company in the space with two co-founders. We would help brands sampled their products through airbnbs as a way to reach consumers imagine you're a coffee brand and the coffee was sponsored by i'm your brand in an airbnb so we had built that business got to meet a lot of brands in that process and as we were thinking about what's next we started talking to brands about their pain points um talked over 500 brands and deductions were just one of those things that kept coming up and it just seemed like there was no good way to actually solve the problem without putting a ton of human resources towards it for something that should not even take that much time away.

4:39And every brand wants to focus on the most important thing, which is growth. But having to spend a lot of time to actually deal with deductions, understand what they are, get money back, etc. was a super sharp pain point. So we decided to build our company in that space. I think the biggest black box for the industry is the fact that a brand is typically losing up to 5 % of their revenue to invalid deductions. So walk me through what are invalid deductions? Yeah, so we can use an example like this. Say you're a brand, you received a purchase order to ship 10 ,000 units to a retailer. You ship 10 ,000 units to that retailer.

5:22You have a signed document that shows that you shipped that in full. and three months later you get a fee for$5 ,000 saying that the retailer only received half of those units. That's an incorrect fee. A brand typically doesn't even have time to review all these fees and they go unreviewed many a times. If you actually reviewed that deduction and you compared it to the internal documentation, you would see that you actually shipped in full and you can file a claim to get that money back so for a brand um yeah up to five percent they're typically losing to fees like this got it got it got it um wow um so how so talk to me in terms of when you were when you were discovering that this was like a huge a huge pain point for brands and you maybe wanted to build what was your first kind of step in terms of building what what became of glimpse today because as you as you kind of said previously there's a lot of kind of manual manual um hours that kind of goes into it um who who also typically in the organization does that fall under is that usually like like like a cfo or even a factual cfo if they're small um what who's who's typically hands are trying to figure out of the deductions what are actually valid and and uh invalid yeah it's it's crazy so yeah this typically lives in the finance team because they're the ones that are receiving the payments and are tasked with reviewing this.

6:51But again, every single type of deduction could tie back to a different team. The finance team doesn't actually have context on the supply chain. The finance team doesn't have context on if a trade promotion activity ran properly. So then they have to ping the ops team, ping the sales team, wait to hear back and then make that determination. So it's a cross-functional effort and there's a lot of silo in that process which is one of the big pain points as well so it typically lives within finance um and to your earlier point um the first thing that we did was acknowledge the fact that every single retailer has different processes and it's a big build so we just hyper focused we talked to brands and realized that we wanted to start off uh focusing on brands that sold through distributors um namely khan unify the two big natural distributors because they were two of the trading partners that a brand had that had a lot of deductions.

7:55So we hyper-focused just working with brands that sold through Cake and Unify, and that allowed us to hyper-focus on the problem. Got it. And why is that the case with those, not to kind of call out those two retailers, but to also call out those two retailers? Why does it tend to be the case? Yeah, I mean, it's a blend of things. So, you know, ultimately, one, the issue with the distributor is that they're a middleman. The value of a distributor is that they're a middleman. So when you're a brand, you work with one of these distributors to get access to all the different retailers in the natural channel, all the way from a Whole Foods to a small independent retailer in the middle of Utah.

8:37And as a result, when a distributor passes back the deductions to a brand, a deduction can come in the form of 20 retailers being mentioned in one deduction document. So it becomes super teased to actually review and understand where the deductions are coming from. So it takes a lot of time. And the other thing is just ultimately they have a lot of different compliance programs, fees, and are a little old school in the way they do things. It's a lot of time for a brand to even get the data into one place to review the deductions. Well, and also, and also like in terms of fighting the brands, can you talk to me about how that communication even flows from brand to distribution distributors?

9:21Because if you're fighting it, even if you're a very small brand, right, and you're and you're fighting it, probably the distributor is like, well, I also don't want to waste my time either. Right. Interim by all the deductions. So how do you think how did you think about that process in terms of communication and fighting these and and fighting these deductions to make sure that one, they're they're paying attention to you, these distributors and these very valid concerns when it comes to deductions and and and be able to kind of also like move move swiftly. swiftly? Yeah. So I think one of the big things is that you can't really change the process that they have.

10:05So for Unify, you submit an Excel sheet with the disputes. For Kehi, you submit something in the portal. So what we did was we actually built a team of deductions experts that are on Team Glimpse that come from some of the biggest industry leaders like Body Armor, Impossible Foods, etc. And worked with them hand in hand with our engineering team to build out these automations with all of the retail specific expertise to become successful. So like what evidence do you actually need to submit each deduction? And how do you actually review a deduction? That was a hand in hand effort with experts and engineers here at Glimpse.

10:44That's what allowed us to build a full offering. Okay, got it. That makes a lot of sense. and how do you think brand i know that you say you know it could cost you you know 20 percent 30 percent of of your margins which is massive um massive savings in terms of fighting them uh fighting the deduction like that but at the same time to your also point it also is a huge time it also takes a lot of time in terms of fighting these deductions and looking over every single line item. How seriously do you think brands actually, like, how seriously do brands take this in terms of finding deductions at this moment in time?

11:27Yeah. I mean, I think the reality is aspirationally, every brand wants to do this, but a lot of times they just don't have the resources to handle this. You're focused on growth. You're focused on your inventory. You're focused on opening new accounts you're focused on closing the books a lot of these things become priorities just to keep the business afloat and then it becomes really hard to actually focus this so when we talk to brands all the time they tell us that they want to review all their deductions they just don't have the resources to do so and ultimately yeah a brand is losing up to five percent that means if you're uh 10 million say you're doing 10 million dollars in sales you can be losing half a million a year to invalid deductions.

12:16It's something that a lot of brands overlook or don't have the bandwidth for and is one of the big reasons that we exist.

12:27That makes a lot of sense. How do deductions typically evolve at all as a brand scale? Meaning, do you find that brands as a scale, they actually might get deducted less or percentage less just because they're a lot bigger? Or are there any changes from that standpoint or not really? Yeah. I mean, I think the meta point is that deductions scale linearly as business scales. If you're a brand doing 10 million, you'll probably have 500k in invalid deductions. If you're a brand doing 100 million, that can become 5 million. So it's a linear process that scales as your revenue scales. I'd say that as you scale, there's a lot more supply chain complexity.

13:20So you can have a lot more non-trade deductions. And your trade programs might become more sophisticated. Deductions typically evolve a little bit more as you expand retailers. every single retailer has their own guidelines so the root cause of the deductions can be completely different so walmart for example is obviously one of the largest retailers a massive account for brands they have one of the most rigorous programs for their shipments their trade programs etc and a brand has to learn the retail complexities each time they launch a retailer what time what kind of recovery rates do you typically see when when brands start using glimpse to be honest like had obviously in terms of the manual side you've also um you've also kind of sped up the process when it comes to from the line items but what kind of but but also have have you also been able to speed up for example when um like on the communication side in terms of when brands would actually be able to receive back that money from the distributors.

14:25Yeah. So, you know, we're very proud. We have a 91 % win rate on deductions that we submit, which is, you know, one of the industry leading metrics. We've seen companies that try to approach things quite aggressively of disputing every single deduction, et cetera. But we have a very rigorous approach with our AI to do so. It gives us high confidence in every deduction we dispute. The other big hero metric that we have is we're able to increase dispute rate. So one of the big issues with deductions, especially when a brand has labor towards it, they set a threshold. Only if a deduction is greater than$5 ,000 will our team review it.

15:06Anything under$5 ,000, we won't review because it's not worth the time. But with AI and with Glimpse, we're able to review every single deduction that a brand has in that same time at a fraction of the cost. We're able to increase the rate of disputes that a brand has. Got it. That's really impressive. That's really impressive. And I mean, what on the invalid deductions side or the part, what are some really easy wins that brands can even just make sure that, hey, these are ones that you can dispute? Yeah, so I mentioned this earlier, but there's two big buckets of deductions for a brand. There's trade deductions and non-trade deductions.

15:53Trade deductions come from the promotions that you agree to, etc. Those are typically valid a lot of the time. Our benchmarks show about 15 % are invalid, but overall, a lot of times the trade promotion activities are things you've committed to. On the non-trade deduction side, those are things tied to compliance, supply chain, etc. There's a lot more errors. There's one category called short shipment where you ship 10 ,000 units. A brand says you only ship 9 ,000 units. You try to reconcile the difference. We see up to, we see 50 to 75 % of those being invalid. And it's a great opportunity for brands to recoup funds.

16:36And yeah, you know, there's a lot of other categories like that, but that's a good example. Do you ever advise brands, hey, we like on the supply chain side, we're - This episode is brought to you by Glimpse. Glimpse is an AI powered end-to-end deductions management service that's focused on recovering revenue from KEHI, UNFI, Amazon, and Target for consumer brands. They centralize deductions with backups. They fully handle disputing on your behalf, the brand's behalf, and streamline the accounting process. For more information, check out tryglimpse.com and let them know that Mike sent you. Seeing there ain't a lot of kind of invalid deductions right here, but we actually maybe could also improve things operationally a little bit in terms of maybe whether it's, you know, putting the QR code maybe on, maybe where it needs to go and not be, you know, what one is different to actually then the next run of inventory, it actually, you actually get less deductions.

17:39Is that something that you all also could do or not really? Yeah, no, a hundred percent. I mean, I think one of the biggest value props of investing in a system like Glimpse is the fact that we centralize all the data and make the data usable. You know, one of the biggest challenges is these deductions come in a variety of formats like Excel, CSVs, PDFs. It's hard to harmonize that data into one centralized format. We do that. We pull all the historical data as well. And this allows for strong insights on, you know, the most common types of deductions your business receives. Were there any spikes in certain periods of time, et cetera?

18:19That's all stuff that Glimpse provides. So for an ops leader, not only does it become actionable in terms of recovering funds, but also becomes a source of insights on ways to identify areas of improvement and process improvement overall. Do you think with the rise of Glimpse and the overall kind of industry in terms of AI deductions, that it's making it so much easier for brands to fight deductions? Do you think at all distributors or retailers might even change some of their habits? Because, hey, we're actually now becoming, I'm sure they're now getting a lot more inquiries than probably what they used to at a much faster rate.

19:02But do you see it all like this market maybe evolving into, hey, we're actually kind of cleaning up the market for deductions? Yeah, you know, I'd say there's two perspectives on this. I think probably one of the bigger difficulties ultimately is just the power imbalance of retailers and brands. At the end of the day, the brands sell through the retailers, etc. And they could get to control a lot of their policies as a result. I think the aspirational hope here is that the policies do get better. There's more visibility, at least more direct to resolve issues, etc. And then the more cynical take is it's an industry that has been unchanged for a long time and can continue to kind of stay in that way or maybe combat this on the other end, for example.

19:57But yeah, I think the goal here is that the policies get better over time and this becomes a cleaner ecosystem and Gloom hopes to be a part of that. Do you think that on the deduction process that actually you can make a case, right? That they're invalid and you actually can get some or all of your money back. Do you think that all of it, do you think just in terms of deductions in general, do you think that actually everything can be automated? Or do you think there still needs to be like a human touch moment for times that maybe you can still win back some of the bloody, but there kind of needs to be more of like a human involvement because it's just a bit more nuanced?

20:44Yeah, I think there will definitely be cases that require human escalation. You know, sometimes the brand has to work with their buyer, etc. But I do think that 99 % of cases can be automated with AI in the coming years. And that's kind of how we're building things. I think that a business like this can only exist with the right blend of retail expertise. And it's really important to have folks on the side of Glimpse that come from the retail industry, the CPG industry. but a lot of the tasks, I think, can be automated with AI, and it allows a business just to be more effective in general. It makes a lot of sense.

21:29It makes a lot of sense. It makes a ton of sense.

21:37What do you think are maybe some of the other big financial blind spots that you feel like brands might be having when they're selling in wholesale? yeah there's definitely you know a couple of buckets um i think so outside of deductions there is this whole concept of trade and trade optimization right are your promotions actually effective it's a big area that especially when a brand is ramping up quickly they just want to unlock velocity in retail and a big part of that is committing to promotions etc deductions help provide actuals but i think that's one area for sure um and i think the other area is an inventory and where you get inventory from the way i like to think about it is if you go to a public cpg company's 10k and you look at their pnl and you kind of stack rank by what are the biggest drivers of costs and what are trending those you know typically are the biggest areas of opportunity in a day and age with AI today.

22:45So I think it all boils down to do you have an efficient way to grow your business and do you have an efficient way to keep streamlining your bottom line? Do you think that obviously 20, 30 % is huge savings if you're able to get that money back on the deduction side. In terms of growth, do you think that if a brand um using glimpse or just being able to to win back deductions and get more money when they actually go into retail from the run do you think then if this is actually it's it's enough you're making enough more money that you're actually going to be expanding to read to to additional retailers faster because you're actually have more money in the bank or do you think that still it might not be as significant enough to actually make those those decisions yeah i mean i think ultimately yeah so if we can yeah i think when you are on top of your deductions yeah you can get up to five percent of your top line back that can be reinvested into so many different things um the finance term here is gross to net and um and that delta that 5 % can be the difference in five new hires and two growth initiatives that are increased by 5 % in spend, et cetera.

24:16So I definitely think that it's a way to one, stay on top of everything that allows you to have the infrastructure to scale to net new retailers, but there's so much use for funds like that. That makes sense. That makes, that makes total sense. And obviously it's Much more like, what are you finding when you actually talk to companies? Because usually it kind of falls into the, maybe the CFO or, or the finance team's job. What, like, what has been, you know, how has this been on an unlock? Because I mean, yes, it's money back, but also I'd imagine time is just such a huge saver. Like talk to you about, about, about some of the stories that, that, that it's a lot of like these, some of their teams in order to, to do.

25:04yeah definitely i mean i think the core is ultimately freeing up time to focus on more valuable things a busy team has so many more things they like to do so a couple of examples um a finance team right ultimately the goal of a controller and a finance team is to close the books if you don't have to deal with deductions you can close the books on like by day one by day too. Right now, teams have day 10, day 15 because of deductions. Operations teams, they get a focus on S &OP improvement and improving their processes and tackling bigger issues as a brand is growing and not on reviewing deduction claims.

25:48Sales teams, their job and what they get paid for is to increase revenue of the business. any minute that's not focused on growth and is focused on deductions is a loss of money to the business because their job is to grow the business so those are just very tangible ways of right now i've spoken to sales teams where the 20 of their time is going into validating deductions that 20 time brought back could be focused on opening new accounts focusing on targeting new retailers etc so um every single person we've talked to always has 10 more things they'd love to do but can't because of the deductions problem no that makes a lot of sense i mean talk a little bit too about the differences working on the deduction side with with um e-commerce retailers versus um brick and mortar retailers i know for example you have an amazon product um well what typically are the deductions pretty similar across the board that you're dealing with when it comes to e-com versus brick and mortar?

26:55Or can they be quite different? Yeah. So I guess ultimately deductions primarily exist when you sell your products to a third party because deductions come in the form of B2B payment reconciliation. So in the case of Amazon, it is an e-commerce retailer but the relationship with the brand is still in the format of a third-party channel party channel yeah um yeah and a lot of the core deduction types might be the same the same short shipments late fees etc every single retailer has their own sets of compliance that's completely different you need to bridge the expertise for but at the core a lot of the behavior is similar at the end of the day.

27:44But I think using the example of Amazon specifically, they actually are one of the bigger culprits and have more sophisticated systems on the other end. So it's a little harder, honestly. We've seen brands struggle even more with Amazon. But at the core, I think the concept of deduction, validation, and recovery is pretty similar outside of all of the retail-specific nuance. In terms of the biggest, why are they the biggest culprits? What are one or two of the line items that they really challenge brands on? Yeah, so they have a very tight process with receiving inventory and shipping an inventory, etc.

28:25So there's a lot of supply chain related deductions that come about as a result. So shipping windows, how long they're holding your inventory, etc. So usually that and on the compliance. side are there are there also differences when you work for example with a beverage company versus a durable product uh company you know in target what are the some of the differences when it comes to um when it comes to deductions to look out for yeah so that categories is quite interesting because some of the challenges across every category is so different. So for example, with beverage, one, I mean, the pallets and stuff are a lot heavier.

29:13So then there's fees that can kind of merge from there. Every single category has different best buy dates. So for example, higher moving perishable goods. If you're out of the window of the best buy date, that's a deduction or that's unsellable inventory. If you have like a glass jar product, those may break. So there's more like spoilages and inventory like that. And then I think the overall meta point is every category has its own level of competition. So you have to invest in different types of promotions to stand out in the crowd. And those then come up as different formats of deductions as well.

29:55So I think the type of product matters a lot because shipping it is a lot easier or harder. And then on shelf, competition makes you invest more in promotions for snot. How did you think about this overall in your own product? Because I know that you started off with UNFI, KEHI. I'd imagine that's mostly you're dealing with CPG companies. Not that you don't have non-CPG companies in Olds, but it's predominantly. And then you moved over and launched your Target product and then also our Amazon product and then your Walmart product. Walk me through in terms of when it makes sense for you all to expand to a new retailer, just like a brand, right?

30:39Expanding your product to a new retailer and some of the considerations you have to take when you also do expand your product. Yeah. So the way that we've expanded our retailers is in two ways. So one, we just ask our customer base, like what other retailers are you selling in that are big pain points? And the good thing about like Target, Walmart, Amazon, also very CPG heavy. But then each of those retailers opens up net new categories of brands that like in consumer electronics, beauty, apparel, etc. And I think the overall thing is the types of trade activities might vary, but a lot of the supply chain and compliance fees end up being quite similar.

31:30And that then creates an overlap in our offering across these customer segments. So today I say that Glimpse is category agnostic. We're constrained by the retailers that we automate deductions for. When you keep opening up new retailers, for example, in beauty, we have a handful of beauty companies now. This episode is brought to you by Glimpse. Glimpse is an AI-powered, end-to-end deductions management service that's focused on recovering revenue from KEHI, UNFI, Amazon, and Target for consumer brands. They centralize deductions with backups. They fully handle disputing on your behalf, the brand's behalf, and streamline the accounting process.