Food & Beverage Set Pace in
Trade Effectiveness Measures
By Lynne Cookie
A group of leading food and beverage makers that practice best-in-class trade promotion management are put-performing their non-food counterparts in trade effectiveness, according to a new study. The results present opportunities for all consumer goods companies that deploy trade promotions.
Lora Cecere, research director at AMR Research, said, “We believed that non-food CPG companies – which are larger and have significantly higher IT budgets and greater margins than the average food and beverage company – would be more effective at trade promotions. But we were wrong. Food and beverage companies are making better use of price and promotion optimization technologies than non-food CPG companies.”
Armen Najarian, senior director of product marketing for DemandTec, said, “This study outlines how the consumer products industry at large is focused on getting more return out of trade spending. Our customer success shows that pairing the right predictive trade planning tools with a capable and informed user base drives the right decisions to be successful at retail.”
The research was conducted by AMR Research and sponsored by DemandTec, provider of on-demand optimization solutions for consumer product companies and retailers.
According to the study, six of ten (59%) food and beverage companies give top ratings to their ability to evaluate price discount promotions, as compared with just 35% of non-food CPG firms. Also, half (51%) of food and beverage firms rate highly their ability to evaluate buy-one-get-one promotions, compared with 29% of non-food firms. Finally, half (49%) of food and beverage makers give top ratings to their ability to evaluate their coupon/in-store promotions as compared with 21% of non-food firms.
The AMR study analyzed input from 100 executive-level respondents to a detailed quantitative questionnaire to better understand process maturity and technology usage of food and beverage (44 respondents) versus non-food CPG companies (58 responses). After analyzing the results of the survey, the researchers then interviews six Wall Street equity analysts covering the CPG sector and ten North American grocery retailers to identify who they felt did trade promotions best.
Food and beverage firms recognized by Wall Street analysts and retailers as best-of-breed at trade promotion optimization are setting the bar for shareholder value. Most mentioned in this regard were good and beverage firms ConAgra Foods, Heinz, General Mills, Kellogg,
and Kraft.
Comparing aggregate stock performance of this group against the most-mentioned non-food CPG companies (Clorox, Colgate, P&G, Unilever and Kimberly Clark) revealed that the food and beverage firms had achieved far stronger shareholder value performance over the trailing six-month period – a gain of .52% vs. a loss of 5.02% for the non-foods companies.
When the study began, the researchers believed that the non-food CPG companies would outperform their food and beverage counterparts. Three findings from the research contradicted this expectation:
- When Wall Street analysts were asked which companies do trade promotions best, the most frequent mentions were General Mills, Heinz and Kellogg.
- When grocery retailers were asked which companies do trade promotion best, they most frequently mentioned General Mills, Heinz, Kellogg and Kraft.
- When asked in quantitative surveys to self-assess trade promotion effectiveness, food and beverage firms more frequently measure ROI an indicator of more developed trade promotion effectiveness practices.
The study findings suggest that the use of predictive technologies, paired with the proper focus and discipline, can help make the use of trade dollars far more effective,” said Najarian of DemandTec.
“Differences in shareholder value may be impacted by many factors and the use of different promotional tactics for different businesses may be perfectly appropriate,” he said. “However, the directional findings of this report and unique data points suggest that the use of technologies with the right focus and discipline can help firms to outpace the competition.”
He said these findings suggest the following best practices for consumer products manufacturers looking to make their trade funds investment more effective:
- Think beyond trade promotion management, which is generally a rear-facing accounting of promotion activities.
- Commit to measuring promotion event ROI and do so with care.
- Start improving trade effectiveness somewhere today and show value.
- Don’t overlook the importance of change management when deploying solutions.
“Taken together, these practices suggest that with the right focus, executive ownership and adoption of predictive planning tools, manufacturers can lay the groundwork for a measurable transformation in trade promotion effectiveness,” said Najarian.
OCTOBER 2008
Tough Times, Competition
Call for TPM Metrics
By Al Heller
Industry efforts to standardize trade promotion metrics are more essential today since distressed consumers are shopping and purchasing differently at the shelf, as well as responding differently
to promotions.
Against today’s backdrop of fiercer brand competition, growth of private label, a roiling economy and higher costs of goods and transport for CPG and retailers, Michael Kantor of Trade Promotion Management Associates (TPMA) is calling for the “measurement of every aspect of trade promotions, from planning to supply chain to execution on the selling floor. This includes coupling the use of in-store media and impressions throughout the store to proof-driven sales. Only with better ROI will companies be able to improve their market share, customer traffic and loyalty,” said Kantor, managing director of the Parsippany, N.J.-based trade group.
What better place to apply new metrics than to refine trade promotions, on which CPG companies spend an average of 17%
of sales?
Recent TPMA research indicates that:
- 61% of trade promotions generate incremental volume. “This suggests that many programs are modestly successful at the margin, yet not necessarily at the core of the execution and performance,” said Kantor.
- 61% of displays actually get implemented at the store. “There are so many unrealized plans and opportunities missed,” he said.
The latter figure also underscores that trade promotion optimization is completely in line with sustainability strategies.
Kantor’s goal is for CPG to “optimize supply chain and promotions with greater in-stock ratios, full truckloads, fewer packings in transit yet more facings at retail, and be able to measure the direct correlation to a smaller carbon footprint.”
Tying his group’s metrics efforts over the last two years to broader supply chain issues being introduced by the GS1 Trading Partner Performance Management Council, Kantor said “good trade promotion management practices begin with accurate sales forecasts and an understanding of the costs associated with poor in-stock percentages during promotions….The risk for under-performance affects both manufacturers and retailers, specifically in lost margins, brand switching, and decreased market basket size, trip productivity and
trip frequency.”
CPG companies such as ConAgra, Procter & Gamble, Kraft, Cargill, Johnson & Johnson, and Schwan’s are helping TPMA further refine the metrics initiative and advance the concept of consumer-centricity. A sampler of other figures from the TPMA White Paper, “Extracting Greater Value from Trade Promotions,” issued earlier this year:
- Companies used an average of 7.6 full-time employees to manage $100 million in trade spend. Range was 2.2 to 32.0.
- Average annual fund overspend was 3.9%.
- Average out-of-stocks were 4.3%, which rose to 6.6% during promotional periods.
Al Heller is co-author, Consumer-Centric Category Management (Nielsen/Wiley, 2006) and president, Distinct Communications, LLC.
