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 importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Front end and back end in the retail world
The front end is essentially the cash registers. When you hear someone in retail refer to the front end, that means the place in the store where consumers complete the purchase transaction. There are many important points along the food and beverage value chain, but the front end is right up there. It is the point the consumer votes with their wallet and pays for the product. It is also the point in the journey where the retailer records which items are going through at which price. It is also an important point of contact with consumers. Up until recently that was all in person, but with the introduction of self-scanning, some consumers can shop for hundreds of dollars worth of groceries and never interact with a store employee.
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.
Loyalty programs
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.
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 importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Front end and back end in the retail world
The front end is essentially the cash registers. When you hear someone in retail refer to the front end, that means the place in the store where consumers complete the purchase transaction. There are many important points along the food and beverage value chain, but the front end is right up there. It is the point the consumer votes with their wallet and pays for the product. It is also the point in the journey where the retailer records which items are going through at which price. It is also an important point of contact with consumers. Up until recently that was all in person, but with the introduction of self-scanning, some consumers can shop for hundreds of dollars worth of groceries and never interact with a store employee.
Suppliers need to think about what happens at the front end. Your products must scan properly, or you will not get credit for the sale. We recommend you test your UPC codes with any new packaging and buy your items regularly to ensure they scan properly. It is a good practice to do this with every customer as they all use different systems and have your items set up differently.
We have seen many examples where a product will scan properly with a test of packaging, but something changes with printed versions. You always want to know there is an issue before your customer calls you.
You will be judged on sales, so you need to get credit for every item that goes through the front end. There is nothing worse than doing all the work and convincing a consumer to buy and then not get credit for the sale.
You can also talk to people who work on the front end to see what they say about your products. They see hundreds of consumers each week so they hear things and see things. They can also tell you how easy it is to scan your products. You should also scan your own items at the self-scanning registers. This will show you how easy it is to scan your items for consumers and cashiers. Placement of bar codes can make a real difference for some items.
Front end fees
The term front end fees is another important one to understand. This is a term you will hear in the franchise world. Front end fees are a method of charging franchisees for all of the services the retailer/wholesaler supplies. This would include distribution of products, advertising programs, support for perishable departments, signage and marketing, etc etc. Essentially the franchisee reports their sales and the retailer/wholesaler charges them a percentage of these sales. The reason I say retailer/wholesaler is because it could be a company like Loblaw or Sobeys supplying franchised stores or it could be a true wholesaler focused on buying a re-selling.
The reason a company like Sobeys or Loblaw would charge a front end fee is to keep franchisees loyal to buying from them. If they only charge a back end fee (we will define that shortly) they only make a profit on the items they sell to the franchisee. If the franchisee decides they can get a better price from a different wholesaler, Loblaw or Sobeys will make money when the product goes through the front end. It is designed to force franchisees to stay loyal to their retailer/wholesaler. A second benefit was to encourage franchisees to focus on the retail, store side of the business and not be shopping around to save .10 on sugar.
Back end fees
A more traditional model was to charge back end fees. This is where a wholesaler would buy products, add margin and re-sell the products at the back end or back door of stores. Many wholesalers operate with this model, especially if they do not have retail banners.
Even the large retailer/wholesaler businesses were set up with this method, but once franchisees started buying from different wholesalers the front-end fee became more popular.
I can remember sitting in the office of one of our Loblaw franchisees when the truck from our competitor pulled up to the back door. I am sure the franchisee had a reason for ‘buying outside the program’ but it was definitely not the best time for that truck to pull up to the back door in front of us. Even if they were saving .10 on sugar which might add up they would forfeit some or all of it to Loblaw with a front end fee.
Pay attention to what happens at the front end
This is the moment of truth. We recommend if you have any over and above programs in place you should check to see what happens at the front end. Just because there is a sign on the shelf does not mean the price is right at the front end. You can also check your receipt to ensure it is going through the system properly.
Your customer will appreciate your interest and knowledge of the business when you can talk in their terms.
If you have any questions or require help with how your product goes through the front end, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
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!
Online shopping numbers for food and beverage-13% of U.S. sales!!
We have just been talking about the front end in grocery stores and we know there are many products that do not go through the front end, when they are purchased online. With the pandemic online shopping for food has changed considerably.
Willard Bishop in the U.S. and Brick Meets Click are great resources in the food and beverage industry. Thanks to Norm Purdy from PCX advisors for sharing the article with me. Who would have thought 13% of sales in the U.S. would be online.
For all of you Oreo fans…the cookie is celebrating it’s 110th birthday
We all don’t have the marketing budget of the Oreo brand but they obviously justify the spend by generating sales. They create events and keep the brand fresh and in your face. We could all learn something from that.
To celebrate their 110th birthday they are selling their original flavour for a limited time starting January 31st. The actual birthday is March 6th, who knew! Watch for special packages and displays as the Oreo marketing machine rolls on. If you see any interesting Oreo ideas let us know. People on our SKUFood list love the Oreo stories!
When is Peter speaking?
Food & Beverage Atlantic Masterclass
Sales & Marketing for your food business Feb 3-Feb 16
A weekly course with Norm Purdy and Al Archibald