This is the first installment in a two-part series on major changes taking place in the US foodservice industry. In this installment we look at some of the key challenges, stemming from current industry practices, that impede optimal performance by manufacturers, distributors and operators in the sector. The second installment will examine converging technologies that are poised to challenge the industry status quo, and present an opportunity to benefit through improved sales and marketing analytics for those who are prepared.
It's a new world for FAFH, but the industry remains stuck in unproductive practices
The foodservice industry, comprised of the food prepared away from home (FAFH) sector of the food & beverage market, accounts for about 46% of all consumer dollars spent on food and beverage products in the US. Over the past twenty years this business has changed considerably as American lifestyle habits, choices and spending propensities have evolved with regard to food and beverage consumption. Yet manufacturers, distributors and operators in the foodservice industry have in many ways been slow to adapt their sales and marketing practices to better serve the evolving preferences of the end consumer. As a result there are considerable inefficiencies up and down the value chain resulting in suboptimal performance for all parties. Trade spend management, campaign marketing and other critical activities suffer from an absence of data-driven input for decision-making, as well as the inability to effectively monitor and evaluate performance. Relations between trade partners are often characterized by mistrust and a lack of willingness to work together for win-win outcomes. Continue reading →
Quantitative modeling is a creative process. There is as much art to modeling as there is science – choices about what relationships you want to express and how to express them. And just as with anything creative, the authors of quantitative models can take pride in the beauty of their creations. In the words of my colleague Ali Mahani, Sentrana’s senior quantitative modeler, models can be truly elegant – they can be things of beauty. But he adds that they can also be irrelevant – irrelevant to the particular business goals they are intended to serve. That presents a problem for enterprises seeking to elevate the role of quantitative insights in their decision making processes. Data and analytical methods are important tools in the arsenal of a modern enterprise. But decision makers would be wise to heed my colleague Ali’s advice: in using these tools, make sure to avoid the trap of “irrelevant elegance”.
Elegance does not always lead to the best outcomes
Elegance in modeling is expressed in the appearance of simplicity – rendering sprawlingly complex interrelationships in the real word into the clarity of precise mathematical formulae. Simplicity and elegance are all well and good, unless in the quest for this holy grail you wind up dramatically misrepresenting how things actually work in the environment you are trying to model. This can result in not only failing to solve the business problem at hand, but actually making matters worse than status quo ante by facilitating decisions based on incorrect assumptions. We have a real world example of just how much worse this can be in the financial markets debacle of 2008, when the elegant models crafted by the best and brightest quantitative experts Wall Street had to offer proved to be fatally flawed in the assumptions and heuristics they used to express the variables affecting housing prices, interest rates and mortgage payment trends. Perhaps modelers need to live by something like the Hippocratic oath taken by medical doctors: first of all, do no harm. Continue reading →
What marketing decisions are most critical for your organization? Are these priorities predictable or do they fluctuate with day-to-day changes in your market? Do you have the right data, tools and support systems at hand to make the best decisions on an ongoing basis? Is your organization wired to optimally deploy these tools to enable different organizational silos with access to a common view of your demand environment?
Unique challenges require customized solutions
Increasingly, sales & marketing decision makers find themselves in need of highly customized solutions to the problems that are specific to their organizations and their place in the value chain. Manufacturers of food and beverage products may primarily be concerned with making more productive trade spend decisions, while CPG producers might focus on shoring up brand equity for premium products facing competition from substitute offerings. Wholesalers may prioritize increasing the value of each transaction basket by inducing customers to purchase products from them that they currently purchase from competitors. And retailers might want to better understand how their promotional campaigns resonate with target customers and what they can do to earn a better return for each campaign dollar. Continue reading →
In large organizations pricing is everybody’s problem, but everybody looks at the problem in a different way. Salespeople earn a livelihood by offering their customers prices that result in completed sales. Account managers have to keep track of tens of thousands of price rules governing products, brands and customers. Bean counters in the finance department are concerned about the relationship between prices and costs. C-suite executives are motivated by how price contributes to the market share, revenue growth and profitability numbers they have to report to their shareholders every quarter. And somewhere in the organization somebody is clamoring for a “just this once!” exception to some pricing policy in order to achieve an immediately pressing milestone.
These are all valid concerns. The problem is that the decision makers are sitting in different parts of the organization, their objectives are often in conflict with each other (or at the very least require trade-offs and compromises), and they are not armed with sufficient information to understand the broader impact of each price decision on firmwide performance. Continue reading →
Veteran marketing managers can tell war stories of battles fought to secure marketing budgets – the pitches and cajoling to focus C-suite attention on the strategic and the tactical importance of effective marketing campaigns. Getting something close to the budget you want may be just cause for heaving a big sigh of relief, but these days few marketing managers will be found clinking glasses of Veuve Clicquot in celebration. Once the budget is in hand the real work begins. The economic downturn has put constraints on the total number of dollars you have to spread among competing projects, but it has done nothing to constrain the nearly limitless ways those dollars can be allocated. “Do more with less” is the mantra of the day. To make those scarcer dollars go further means relying on more than traditional finger-in-the-wind gut instincts to tell you what campaigns will work and what campaigns won’t work. Campaign marketing – the art of pulling together targeted messages for specific geographic markets, consumer segments and product types – is in need of a healthy dose of scientific rigor. Continue reading →