You will need to be strategic about creating demand in 2022
We know there have been many challenges to getting products produced and into the market. With so much focus on these issues you cannot lose sight of how important it is to create demand for your products. Within your business, you might feel there is so much more required to actually get it produced and shipped, but that does not build demand or generate the sales. Your customers and consumers do not see all of these impediments. They just want value and products that meet or exceed their needs. You still have to invest and execute with your trade spend and marketing spend.
Between now and the end of 2021, we will share 10 SKUFood insights to help you make the most of 2022. We try to help you see the entire value chain and prepare your business to respond to changing customers and consumers. Each week we will share a different theme and some ideas and opportunities for you to consider.
Create demand strategically
If you heard me speak at a conference or event you would hear me say:
“Success in this industry is not just about producing great products to sell; it is about selling the great products you produce.”
Creating demand with customers and consumers remains one of the most important things you can do in food and beverage. Overall, you need to consider the investment you need to make in trade spend and marketing spend. Trade spend is the money you invest with your customers, to drive sales. This can include pricing discounts for ads and in store specials, loyalty programs, in store demos and other money you spend with retailers and distributors. Marketing spend is the money you invest to communicate directly with consumers. This includes social media, mass media, public relations and sponsorships where you can reach consumers directly.
We include the word strategically for three reasons:
1. These investments can be significant and you need to focus on the opportunities that deliver sales and the results you need.
2. There are a lot of fluctuations in supply and execution right now. You need to make sure the product will be on the shelf for people to buy when you are creating demand. It can be very frustrating for everyone involved when people want a product and it is not there.
3. There will be pressure on your selling price as input costs increase and your customers try to keep pricing low. It can be tempting to reduce trade spend and marketing spend to maintain your internal margins.
Given the complexities of the market, you will probably have to devote more time to ensure your efforts are affordable and delivering the results you need.
Your customers will push for trade spend
Retailers and distributors will always tell you the decision to purchase is made at the shelf and that is where you need to invest. There is some truth to this, but you do need to create awareness and demand before they even get to the store. The right answer is you need both, trade spend and marketing spend.
With the price of food rising, there will be more pressure on suppliers to invest to reduce the price even temporarily. Retailers will be looking for items they can promote to drive traffic. You will have to watch the percentage of product being sold at temporary price reduction. If it increases as a percentage of your total sales, it will impact your margins.
Explore options with your customers and it is even more important to understand the impact on your sales. Most retailers have loyalty programs which can be effective tactics to drive tonnage with a lower investment. The perceived value of points, from consumer’s perspective, can be more than the .25 it costs you.
Make sure you know the facts as to how much you invested in previous years. Your customers will know the number and this will be the starting point for the negotiation. They are experiencing increased costs, just like your business, so they will have more pressure to generate over and above (o&a) from suppliers. In your business you consider reducing marketing spend to maintain your bottom line, they think about generating more o&a dollars to maintain their bottom line.
As mentioned earlier execution is a challenge these days for many reasons. Check to see your customers are executing when you do invest. If they are not and you held up your end of the bargain challenge them. Get compensation or other opportunities at reduced prices when you can prove they were not able to execute. Try to take an objective approach as to opposed to an accusatory approach. It might not be in their control but they can still find ways to make it right in the future.
Marketing spend must deliver
Now is a great time to consider how you are communicating directly with consumers. A lot has changed in the last 18 months so it makes sense to confirm your message and method of delivery are resonating. We see millennials shopping in grocery stores, people are still cooking more at home and many are working remotely so does your message address these changes? If not you need to make change to get the return on the investment.
Challenge your social media people, internal and or external, for results. One of the big benefits of social media is you can tell when consumers react. Review the numbers and continue to improve to generate the sales from all of the hard work.
This is one of the first places producers and processors look to cut costs. It can be a challenge to justify the investment, but it might be more important than ever. If your product is available, then you need to tell people about it.
In food and beverage we think innovation is limited to production and processing. There is a lot of innovation happening in marketing as well. Packaging, online and even mass media are changing so fast. Explore the options that fit your budget. We can’t all have a 3D hologram display but you can add a QR code to your product that tells your story. As we have said before people want to know where their food is coming from so look for innovative ways to tell your story.
Be ready to negotiate on both ends
With so much changing you need to challenge your suppliers for every piece of your marketing budget. Your customers will respect you when you can tell them your packaging supplier was looking for a 12% increase and you negotiated it down to 9%. You will also need the facts to negotiate a plan with your customers for trade spend. My experience is when you go in with a plan you are much more likely to get what you want. If you let them figure it out, they will pick your pocket. Unfortunately, they see it as part of their job and a means to delivering a bottom line.
Your products must sell. The best products in the world do not sell themselves. It takes so much work to get it to the shelf remember to save some money and energy to get it off the shelf and into the shopping cart.
If you have any questions or require help with trade spend or marketing spend, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
As we approach a new calendar year, we will continue to share insights to help you position your business for increased success in 2022.
“Success in this industry is not just about producing great products to sell; it is about selling the great products you produce.”
Peter Chapman
If you see things happening let us know so we can share them with our community. We also want to hear if you find this helpful and benefits your food and beverage business!
What is a bagel without cream cheese?
Last week we talked about the importance of inputs and being able to produce your products. Now we see an example of this in New York City. There is a shortage of cream cheese! This will lead to oversupply of bagels, then the bagel people will cut back and when the cream cheese does arrive there will no bagels….and so on and so on.
What I find interesting is there is no reason for the shortage. I appreciate the pain sells papers more, but I am interested in why. The quote from Kraft really does not say anything. My guess is last year they cut back because food service declined and now that demand is increasing, they are not making enough.
What will be interesting to see is if some company can jump in to fill the void and take share from the large companies. Perhaps there is an opportunity like this on the horizon for your business?
A commodity becomes a consumer packaged good
Recently the CalGiant brand of berries launched a new label and website. This is not revolutionary but some of the pieces are great examples of where producers and even processors can get better.
We know consumers are interested in where their food comes from and sustainability. They share what they are doing, the benefits and even how to track your package back to the farm where it was produced.
One feature that usually drives me crazy on food and beverage websites is the ‘find us’ tab. Often it is out of date, difficult to navigate or just blank. Check out the tool they are using. I can’t confirm it is correct because they are all in the U.S. but if it is right they really are good. You can select the product you want and they will give you the store where you can find it. Pick a U.S. zip code and try it. For some retailers they also link to their e-commerce platform so you can add the product right to your order. Now that is innovation in marketing!
Time to visit the stores
The next 3 weeks are critical to most food retailers to make their numbers for the year. If you can, try to visit stores to see what is happening and how your products are being displayed. You will see new things and ideas you might incorporate into your own business.