There are a lot of challenges to producing, packaging and selling food and beverage products. It can be very frustrating to get through the entire process and then realize you must invest with your customers to ensure the product sells. Trade spend is a reality and one that you can manage. Investing to differentiate your product might be more important than ever in a period of high inflation. More on that later. Google and dictionaries can provide definitions, but they do 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.
Trade spend is the total amount you invest with your customers. This can include discounts to support ads, in stores or multi buy offers, money you spend on loyalty programs, demos when they can happen, over and above money, trade shows to meet with customers and any other money you spend with your customers to build your brand or drive sales.
Next week we will discuss marketing spend which is the amount you invest to reach consumers directly.
Trade spend can get your products off the shelf
Getting your product to the shelf is a great accomplishment. Getting it off the shelf is what will make your business successful.
We know your customers, retailers, need to deliver sales. They will have a sales target in mind for your products and you need to meet or exceed this to stay on the shelf. You will need to plan for investments with customers and consumers to drive your sales. At least 30-40% of your selling price needs to be re-invested in trade spend and marketing spend if your product is a consumer packaged good. If your product is a commodity you will require significantly less but you still need some money to invest.
Trade spend is the total amount you invest with your customers. This can include:
- Discounts to support ads
- In-store or multi-buy offers
- Money spent on loyalty programs
- In-store demonstrations
- Over-and-above money
- Trade shows to meet with customers
- Any other money spent on customers to build your brand or drive sales.
We have trained consumers to look for deals in this industry. Every category is different so you need to study the promotion activity and learn the level of discounts you must compete against.
Often it is the sign and over and above merchandising that will deliver the sales you want. The .25 or .50 discount might not be the key, as much as the chance to stand out from the crowd.
In a period of food inflation trade spend is even more critical
We know prices are rising and almost everyone in the industry is looking for a way to keep prices in line. Increases can impact volume and consumers trade down when they are trying to save money. It can also be very tempting to reduce your trade spend at this time. You are looking for every penny out there which is understandable.
Before you slash your promotion budget consider everything is increasing and you still need to consider the value you deliver within the category. Consumers will look at all of the items and make a decision. They do not look at your item in isolation.
Prior to this period of inflation, you were able to invest with in-store specials and loyalty programs you should be able to now as well. This assumes you were able to get the price increase you need.
Consider the following example:
Prior to increases and inflation:
Your product 3.99
Competitor A 3.79
Competitor B 4.49 (larger size package)
Private label 3.49
New category line up
Your product 4.49
Competitor A 4.29
Competitor B 4.99 (larger size package)
Private label 3.99
The value you deliver is still the same within the category so you need to promote and get attention. The one change that might happen in our example is private label might increase because they are the only item under $4.00. Consumers would notice this more than they noticed the gap before.
Your multi buy or loyalty program offering is still delivering value relative to other items so you have to stay on the path to investing in trade spend.
Perhaps you need to be more strategic but you still have to find opportunities to illustrate value and get attention on the shelf.
Your customers will be looking for people willing to invest
There will be suppliers who pull back on trade spend. You might find better opportunities and return on your investment right now. You should always calculate that return on your investment. You should get a lift in volume but the real win is to increase your baseline sales. That is success with trade spend.
If you have any questions or require help building a trade spend plan, you can always send me an email firstname.lastname@example.org or call me at (902) 489-2900.
A great overview of our industry
McKinsey are a large consulting firm, offering guidance to many big players in our industry. They share research from time to time and this is a great overview of our industry. They identify 5 key trends for retailers going forward:
1. Rise of the value-conscious, healthier-eating consumer
2. Elevated consumer expectations for omnichannel
3. Increased emphasis on sustainability
4. Strategic workforce planning and investment in tech and analytics
5. Growing importance of ecosystems and partnerships
This is a longer read but there is some great information for you. The suppliers who understand their customers best will have the greatest chance of success
Produce prescription programs
I have always been aware that our health is directly related to what we consume. I am not perfect and probably should be more disciplined. That being said, we do try to include the right amount of fruit and vegetables in our diet.
This is an interesting approach to really reinforce the importance of the right food in your diet. We trust the medical community to give us a prescription to deal with health issues. It would be great if more people saw that prescription right in the grocery store.
When is Peter speaking?
Learnsphere Supply chain 1-2-3 Food & Beverage Manitoba
Sell successfully to retail- May-June
London, Ontario - May 24
Association of Municipal Administrators of NS- Jun 16
With the Kilted Chef
To help promote the Atlantic Canadian companies participating in SIAL I had the opportunity to create some videos with Alain Bosse, the Kilted Chef. We had a great time putting the videos together and they should be a valuable tool for these companies to help build their brands in the market.