Every industry has their own language and it can be a challenge to really understand some of the terms. Google can provide definitions, but it does not always help you understand the pros and cons or the reason for one option vs. another. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Temporary Price Reductions (TPR)
The food and beverage industry has done a great job training consumers to look for temporary price reductions (TPR). Consumers love a deal and we continue to offer a steady stream of price reductions and added value. A TPR is defined as any reduction from the regular retail price and this would include loyalty program offers such as Air Miles or PC Optimum.
When you walk the store and stop to review specific categories you will see the number of products that have some form of TPR. We know consumers are influenced by a sign and they associate it with a reduced price or added value. Often it is the sign that comes with the TPR that is more effective than the actual price point. Your customers will be more focused and knowledgeable about the price point.
My experience has been consumers do not know as much about price as they think they do. When I was at Loblaw, we would do consumer research about price and the knowledge about specific retails on specific items was not very accurate. Some price conscious shoppers would know retail prices on top selling items, but it most consumers were not as sharp as they believed they were. This is probably even more pronounced right now in a period where we see a lot of retails changing.
Although this is a few years old, this statistic from Nielsen’s State of the Industry Report illustrates how prevalent TPR is.
“36% of sales and 48% of tonnage are items with a temporary price reduction”
Every category is different, but this does illustrate just how dependent many items are on TPR to drive volume. You should understand the promotion activity in your category as well as your customers do. This does not mean you need to promote the most, you just need to understand where you fit and what is required to generate the sales you need.
You can only understand the promotion activity if you visit stores regularly. This ensures you see everything from ads to loyalty. There are apps for your phone like Flipp which give you good visibility for advertised items but you will not see in store specials, multi buys and other forms of TPR. We suggest you set up a spreadsheet to track what is on TPR and when.
Examples of TPR
There are many options to offer discounts or extra value. Retailers are usually more than happy to have suppliers reduce their selling price to allow the retailer to drive more volume. The entire discount does not have to be funded by the supplier. Retailers should invest some margin in these promotions too. After all the ad items drive traffic and the shelf promotions drive tonnage.
The most obvious form of TPR is the flyer or advertised items. Each week retailers create an ad to promote their business. The front page of the ad is created to drive traffic. These specials are timely and at discounts that should entice consumers to pick that store, that week. Believe it or not there are many shoppers who will pick their first stop based on the front page of the ad. The retailer is counting on them to pick up more items while they are in for the front-page specials.
The inside of the ad can do many things. It can promote complimentary items to the front page which allows the retailer to sell something with the front page item at a better margin and help them “mix back” or give them a more palatable margin when both items are purchased. For example, if laundry detergent is on the front page at cost then fabric softener or Bounce sheets are featured in an inside block at 20% margin. The retailer would build a display and hope for every 2 laundry detergent they sell consumers pick up one complimentary item allowing them to mix back and make some margin on the total order.
The inside can also be designed to illustrate quality in perishable departments, selection in departments or drive incremental sales with themes. There are many opportunities to be in ads where the investment is not crazy.
You will also see vendor sponsored space where the entire block is created by the vendor. These blocks are sold to suppliers and they usually include some guarantees for volume and merchandising at store level.
In store specials or offers
Most retailers will want to offer an instore program to consumers. These are items where they deliver some discount (usually about 10-15%) reduction in price. These items have signs on them and give the impression of value and savings to consumers. They can be effective for many brands because the level of discount is not severe and they can be items that are not listed in every store.
In store items can take many forms. They can be simply a cents off program with a sign or they can be multi buys where the consumer must buy more than one to take advantage of the savings. At Walmart they call them Roll Backs. You can call it whatever you want but in the end it is a temporary reduction from the regular retail. Most retailers require suppliers to participate in a certain number of in-stores per year to ensure they have a good level of activity in the category.
A new form of in-store specials are on line specials. Although it seems odd to think of on line as in-store but the reality is these are lower level discounts only available when you are shopping on the retailer’s platform, similar to shopping in their store.
Most retailers, with the exception of Walmart, have loyalty programs. Consumers sign up and in exchange for their personal information receive special points or in the case of Sobeys Air Miles. Consumers like to believe they are getting something extra and I would admit to feeling good when we can make a purchase with Air Miles or PC points collected during the year. We do not see we really do pay for it.
Retailers like loyalty because it is unique to them and they have the chance to do a deeper level of analysis on consumer behaviour. I am not convinced many actually do this, but the potential is there.
Most programs are like a bank account. The vendor deposits an amount of money and the cost of the points or air miles are deducted from the balance as products are purchased. One of the benefits of this form of TPR for suppliers is you only pay for what actually goes through the cash register as opposed to ads where retailers can forward buy at the cheaper price.
Loyalty is also a program that will work for regional listings because it is promoted in store.
Suppliers need to invest to drive the sales of their products. Retailers expect a minimum level of trade spend. This level is determined by the category and the supplier’s ability to invest. Obviously the big players have more to spend than smaller regional producers and processors. Have the conversation and understand the expectations for TPR. Whether we like it or not it is a part of the business.
If you have any questions or require help with TPR, you can always send me an email firstname.lastname@example.org or call me at (902) 489-2900.
As we start into the new year we are going to focus on some terms in the food and beverage world for upcoming weeks. I am going to select a different term each week and give you a good definition and also some insights into why it could be important for your business. If there are any terms you would like me to focus on just let me know.
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!
More uncertainty for 2022
There has been a lot in the media about stores closing. This could lead to panic buying like we saw in 2020. Suppliers should watch purchase orders carefully and stay in communication with customers. This will be very regional so one part of the country might see it and another avoid it.
I do not expect to see stores close and I think we should be celebrating the food and beverage industry for the ability to produce and distribute what is realistic. Try to buy an appliance lately? We have thousands of food and beverage SKUS available every week.
When is Peter speaking?
Food & Beverage Atlantic Masterclass
Sales & Marketing for your food business Jan 12-Feb 16
A weekly course with Norm Purdy and Al Archibald