At SKUFood we are all about helping suppliers create great working relationships with retailers and distributors. Part of building trust is speaking the same language. We will continue to define food and beverage industry terms in 2023. Baseline sales are the sales on your product, reflected in cases, that your product sells in a period of time with no promotion activity. In other words, the sales of your product at regular price.
Baseline sales are very important to understand. This is one number your customers, retailers, will use to determine if the product stays on the shelf and it is the number you need to determine the effectiveness of your trade spend investments.
You need to know your sales
For suppliers who are providing direct store delivery (DSD), this is an easier number to determine than if your product goes through the warehouse. If you deliver direct to stores, you should monitor sales during the weeks when you are at regular retail to understand the average weekly volume. If possible, you should track this sales number by store. Some stores will perform better than others. If you are in a select group of stores you might need to put more emphasis on low performing stores to improve the sales.
For suppliers who are going through the warehouse this is more challenging. Your volume goes into the warehouse and you do not know when it is shipped to stores and sells through the front end. You do have options, but they might require more work or money. The obvious answer is to purchase Nielsen data or the sales data from the retailer. These are often prohibitive for small to medium sized suppliers. Big suppliers complain but it is necessary for them and they can absorb the expense.
If you can develop your relationship with people in the merchandising department there is the chance they will share some sales data with you. Often it is easier to get the sales during promotions. You would have to subtract the promotion sales from your total movement and then divide by the number of weeks to provide an estimate of weekly sales. For this to make sense we have to assume the beginning and ending inventory in the stores is the same.
You can also try to get some sales numbers from stores, but it is getting more and more difficult to do this. People at store level are executing more and looking at sales less.
A fourth option is to focus your promotions on opportunities where retailers will bill you for amounts that go through the front end. If you can negotiate programs where you are billed the discount amount based on sales as opposed to what they buy you will know what the promo sales were.
If you are participating in loyalty programs, you should understand the amount they are charging you for the program. These sales are only to loyalty program members but it does provide some clue to what the units are at a certain level of discount.
If you are through the warehouse, you probably need to consider all of the options and use several of them to determine your sales when the product is at regular price.
Using baseline sales
Once you do the work to determine your baseline sales you need to use the information.
As we stated earlier baseline sales are a very important number in your relationships with retailers. They will look at total volume but also baseline volume is important. They want to see items sell at regular price and full margin. They are ok if suppliers invest and drive sales, but they also want to see items perform at regular price.
You should understand what your customers believes the baseline volume should be. It is only fair if they are going to judge you on this number that you know what they expect.
Track baseline sales and measure your year over year results. The best results happen when your sales out-perform the category and the total store. You can include your baseline sales number in a presentation to your category manager and often you will get some information from them. If you tell them you believe your baseline sales grew by 10% they will often start talking about the category or where you rank compared to other suppliers.
Every time you invest in any trade spend you should do everything you can to determine if it had a positive impact on your baseline sales. Aside from driving some volume and making the retailer happy, your investment is only delivering a return if you are improving your baseline volume. Chances are you make less when you discount your product so the return on your investment only happens when you develop more sales at regular price.
If you have any questions about baseline sales, you can always send me an email firstname.lastname@example.org or call me at (902) 489-2900.
H Mart store visit
It is great to have a chance to see different stores and learn about items consumers want to buy. This week I was speaking in Calgary and Edmonton and Sue Oguchi took me into the H Mart store in Edmonton. A real treat to see this store that caters to consumers looking for items from Korea, Japan and other Asian markets. The complexity of operating a store where so many items need to be imported amazes me. They even had Oreos from Korea on the shelf here in Canada. A few photos for you to enjoy.
Where is Peter Speaking?
Food & Beverage Atlantic
Build the plan Jun 15th & 16th
De Sedulous Women Leaders
Pricing and positioning Jun 23rd
De Sedulous Women Leaders
Finding the perfect distributor Jul 14th