Trade spend is an important tool for sales
Your sales people need to have a budget for trade spend
There are so many great products out there. Some brand owners are able to develop a program to maximize the opportunity and others never reach their full potential. Often, the products that do not deliver the sales required to stay on the shelf, lack the investment in trade spend. You do need to have the ability to promote your products where consumers are going to buy them. It is a busy space and you need to find opportunities to stand out from the crowd.
Your sales team need to have some money they can invest in trade spend. We can define trade spend as the money you invest with your customers to drive sales. Notice we used the word invest, we will come back to that. If you want to build your volume in the retail channel, you need to take advantage of the different tactics that can be deployed in the retail environment.
Your sales people need to have a budget to work with. You have to see this as investing where you will get a return. It is the job of your sales people to find the best rate of return for the investments. You need to get past thinking trade spend is the retailer taking money out of your bank account.
How much should trade spend be?
A question we get asked a lot is what should be invested in trade spend? The answer is not a simple one. There are a lot of variables:
Where is your product in terms of evolution?
If you are launching a new item or even a new SKU, you probably need to invest more at the beginning.
What category do you compete in?
Some categories your competition are over spending. This is a challenge because every week consumers are bombarded with messages of savings and offers from your competitors. Look at the cheese in grocery or premium frozen ice cream. If consumers are not brand loyal, they can find a deal almost every week. If you are trying to compete in a category like this, you need to be able to get some attention.
What channel are you selling in?
Some channels like discount expect some deep discounts and an everyday low price. Other channels, like conventional stores will have more opportunities for trade spend, because it is usually a high/low strategy. Shelf pricing is higher but they need some discounts, in-store specials and loyalty programs to drive sales.
What is the history?
Your customers will expect you to spend at a certain level. They subscribe to the philosophy that if you could invest 10% last year, you should be able to do that again. They also compare the level of spend for your products to your competitors in the category. In other words, if your competition is investing 12% in trade spend and you are investing 8%, they will probably expect you to spend more to get that 8% closer to 12%.
Is your product delivering the sales your customer expects?
You have heard us say many times you need to know what your customer’s expectation is for your sales. If they believe it should be selling 50 cases per week across 50 stores and you are only selling 35 cases, they will expect to see you invest in trade spend. There might be other reasons, but their first reaction will be, ‘you need to spend more to get volume going’. On the flip side, if you are selling more than they expect you might be able to dial back the trade spend. Be careful with this as momentum is huge in the retail environment. When your customer perceives your product is over delivering and you are investing to keep it going you will get opportunities. If they perceive you are trying to harvest some profits they might put their focus elsewhere.
So, we have dodged the question long enough…there are considerations but people do need guidelines to work with. We believe the big brands invest 30% of their selling price in sales and marketing. This is not just trade spend, it is everything they have for item and price, loyalty, demos, themes, social media, mass media, trade shows and any other sales and marketing. If the delivered price of a product is $4.00 then we believe they invest +/- $1.20 in these initiatives. That is a big number and your customers will not expect you to outspend Coke or P&G but you do need to be prepared to invest.
Your business needs a budget for trade spend
To finalize the budget for trade spend, you need to determine what you can afford to spend and what you need to spend. To figure this out you need to approach it from the bottom up and from the shelf backwards.
The bottom up: You need to understand your economics and what is affordable in terms of investment in sales and marketing. You should know your cost of goods and the other expenses in your business and your selling price. No doubt, sales and marketing is one number that can fluctuate. Usually, your rent is your rent or your ingredient costs are what they are.
The shelf backwards: You also need to be a student of the category to understand what your competitors are doing. 3 rotations of in-store specials at .50 off and 2 rotations of loyalty program are examples. Multiply this by what you estimate their volume to be and you will start to learn about their level of spend. Try to get an understanding of the expectation from your customer for spend. They will probably be on the high side!
Once you know what you can afford and have an idea of what you should spend compare the two numbers. If they are close, great! If the amount you can afford is less than what you believe you need then you need to dive deeper. Are there any places in your business where you can shift some investment into trade spend? Perhaps your product has more established baseline sales so you can do 3 rotations of in-store specials as opposed to 4. This is work your sales people need to do.
Trade spend is an investment
We mentioned you need to perceive trade spend is an investment. When you invest money in your personal life, you expect a return. Trade spend should be the same. When you invest with your customer, you should see a lift in sales. Some of those people need to be new to you and turn into long term buyers.
For example, your baseline sales (average weeks with no promo activity) are 100 cases with a customer. You invest .80 per unit to participate in the in-store special program for 4 weeks. Over the 4 weeks your volume increases to an average of 125 cases. Great, you sold 25% more. Some of that was your existing consumers taking advantage of the deal and some should be new consumers to your product. The existing people might consume more because they have it in their cupboard or fridge, which is great. The challenge is…can you convert the new consumers to your brand. You will see this in your baseline sales. If the 4-6 weeks after the special see your baseline sales climb to 110, then you did get a return on your investment. You spent .80 per unit on 500 cases of product. Now you are selling 110 cases per week. Was the investment worth it? Your sales people need to be working on this every time you invest in trade spend.
Often, we get asked how to calculate the Return on Investment (ROI) for trade spend. We just outlined one component of the ROI but it can be more complicated. Next week we will explore the ROI more in depth.
Peter
SKUFood Recipes for Success Podcast
In this episode of Recipes for Success, we sit down with Han Yue, co-founder of OHME! Foods. OHME! Foods is a Vancouver-based brand redefining what healthy snacking can be.
With backgrounds in healthcare, Jenny and Han witnessed firsthand how small, daily habits can transform long-term well-being. As busy professionals and parents, they struggled to find snacks that were both nourishing and truly enjoyable, so they made their own. What began as a kitchen experiment with freeze-dried fruit quickly grew into a brand with a mission to make healthy snacking joyful, convenient, and delicious.
Today, OHME!’s signature Yogurt Crunch snack, made simply with Greek yogurt and real fruit, are available in over 450 stores across Canada and the U.S. and have even earned recognition from Good Housekeeping.
In this conversation, Han shares how they turned a family passion project into a fast-growing, award-winning brand. We discuss the power of purpose-driven entrepreneurship, the realities of scaling production while staying true to your values, and how OHME! continues to bring joy, health, and heart to every crunch.
Listen and subscribe wherever you get your podcasts.
If you would like to be a guest send us a note. We are always working on the upcoming episodes.
One of the best parts of my job is the opportunity to moderate peer groups for FCC. We meet once per month and discuss issues in the industry, challenges people have and opportunities. This is a great format for food and beverage entrepreneurs to talk with other people who are trying to accomplish similar goals. I have been fortunate to be part of the program since its inception. If you are interested give me a call or use this link to register.
Problems with pistachios
Retailers and suppliers are working to eliminate exposure to pistachios identified in a salmonella outbreak. A number of people have been hospitalized as a result of the dangerous bacteria. It is a tough time of year for this as nuts do get much more exposure in the holidays. If your product even contains pistachio as an ingredient (which we see more all the time) volume might be impacted as people become leery of buying when they hear it on the news.
Where is Peter speaking?
With the focus on Canadian food and beverage we wanted to share a program we have developed with Alain Bosse, the Kilted Chef. We partner to share insights about Canadian food and beverage at conferences and events. We talk about where products come from, share insights about some hidden gems and of course Chef Alain has great tips for using the products at home. This is designed to be entertaining and engaging. Not just for food industry audiences, it works for everyone.
I do have travel coming up to Toronto and Fredericton so if you want to connect or have an event in any of these locations give me a call or send me an email.