A New Approach to Trade Spend for Foodservice Manufacturers
There is no shortage of quantitative analysis in the trade spend practices of foodservice manufacturers. Unfortunately, very little of this analysis helps give decision-makers insights about the effectiveness of their trade spend programs. The numbers being crunched do not relate to signals about actual downstream demand, but rather to the formidable mountain of claims from their distributors. These claims come in all manner of data formats and accounting entries and it typically takes armies of brokers, salespeople and financial staff to figure them out. After all the cumbersome and error-prone line-by-line calculations to validate claims are said and done, you are no more informed about the profitability or the potential risks associated with any given program. No wonder there is widespread dissatisfaction with the effectiveness of these programs. Over 75% of manufacturers in this sector consider their trade spend initiatives to be inefficient, according to the 2010 MarketIntelligence Foodservice Trade Survey.
Decision-makers at foodservice manufacturers need a new approach: one that creates greater visibility throughout complex information chains; and applies analytical methods in order to better align and optimize trade decisions with pricing and other key marketing levers. Abundant data exist, as do the analytical methods to gain insights from them. Better measurement and analysis can lead managers to more profitable decisions for themselves as well as their trade partners. This can help turn trade spend into trade investment.
Low-tech, non-standardized processes generate waste
The hodge-podge of disparate programs scattered around the organization with a variety of process and data formats do not easily lend themselves to effective measurement, performance tracking, or coordination with other key marketing and pricing decisions. Programs tend to have non-standardized and duplicative contracts, cumbersome claims and dispute resolution procedures, and generally low-tech operational processes. Manufacturers have little way of knowing whether the dollars they are putting into these programs are having measurable impact at the operator and patron level or whether they are simply staying in the pockets of the distributors. The complexity of the information chain creates a tremendous amount of waste in the system over time that negatively impacts profitability throughout the chain.
New trends in distributor pricing mean opportunities for manufacturers
Such archaic practices stand in sharp contrast to a sea change taking place in distributor pricing: namely, the growing trend of setting prices according to downstream patron and operator demand rather than based on an arbitrary mark-up on the zero sum negotiated price between manufacturers and distributors. Scientific pricing, an increasingly prevalent practice in the food services wholesale space, offers predictive demand insights for each potential product and customer combination. Prices thus contain more information about actual downstream demand, enabling products to be pulled through the channel rather than pushed downstream based on the subjective outcomes of manufacturer-distributor negotiations. Manufacturers have an opportunity to use the same demand signals that inform scientific pricing to guide a more accurate allocation of their trade funds to drive greater overall volume and profit.
Let the Facebook Generation work for you
These demand signals are especially relevant because technology has thoroughly transformed the way that retail operators (such as restaurants and caterers) and their patrons communicate. Digital social networking is now an established way of life for a rapidly growing group of Americans, the majority of whom fall within the most desirable demographic segments of the consumer market. Sites like Yelp, Urban Spoon and TripAdvisor ensure that salient details about a given restaurant’s menu, prices, food quality, social environment and numerous other attributes are readily available at the fingertips of smartphone-wielding prospective patrons preparing to decide where to gather and dine for the evening. Clearly, operators have strong incentives to match demand with available supply. For manufacturers this means abundant information coming from points downstream that can help inform smart trade promotion and pricing decisions. Decision-makers can gain insights about demand as it relates to geographic and demographic segments; further refine this understanding as it pertains to product categories; and experiment with alternative what-if scenarios to predict the effect of various trade promotion and pricing decisions on demand.
More about trade spend on Sentrana’s blog
In the coming weeks we will be spending some more time on this blog site looking in detail at different aspects of the trade spend challenge and the opportunities we see for foodservice manufacturers to improve performance. Forthcoming areas of focus include: collaborative campaigns to create win-win programs with trade partners; trade program design; issues related to program execution; and other topics that can help reveal active ways to turn trade spend into trade investment.