My suppliers are threatening to pull their trade promotion funds for display programs because of low store compliance? What can my vendors and I do to improve in-store display execution?
So your vendors are screwing up promotional programs by shipping promotional merchandise late, not being flexible on ad/display date changes, and skimping on promotional funds that don’t allow you to hit attractive promotional price points. Now several of them are threatening to discontinue investing in display programs because of lack of store execution compliance. What is a reasonable level of store compliance? How can we structure future display programs so that they are easier to execute and forecast?
Many display compliance issues start with supply chain service problems. Accordingly to a recent GMA study, manufacturer to retailer DC and retailer DC to back store fulfillment rates are in the 98% -99% range. The problem lies in the last 50 feet from the retailer back room to shelf/display, with only a 91% -94% fulfillment rate. In addition, many promotions do not achieve the forecasted volumes for a variety of reasons at the store level including:
- Display space not available – 16% of stores
- Short of skilled labor – 42% of stores
- Signage not deployed – 22% of stores
- Displays put up late – 33% of stores
Overall, display compliance averages 59.4% across all grocery categories, with the highest display compliance rates in dry grocery at 77%. Typically, display compliance peaks at 61.1% of Wednesday, and declines to 56.3% on Saturdays. With most food & beverage manufacturers building in 80% plus display compliance rates into the trade promotion financial models, there is clearly a gap between expectations and reality. How can you improve on this process to maximize your trade promotion funding? Here are a few steps that can improve the display compliance rates:
1. Agree on the promotional goals, merchandising expectations, and sales/profit objectives up front. Make sure there is clear, succinct communication on how the promotion will be executed and what the desired results are. Make sure to document this in the promotion contract. In addition to the ad & display planner, a letter should go out to all stores specifying these execution elements and expectations.
2. Does the vendor have amply production capacity to supply the promotional product being merchandised? Many vendors are eager to feature and display (F&D) new products right after they hit the shelf. Invariably, new product production are plagued with start-up problems. Make sure that these bugs have been worked out and there is ample supply to support a major F&D program.
3. Make sure that the promoted product has significant and consistent baseline volume. In order to forecast properly, is important to have good baseline and promotional sales history on a product under consideration for a display program. Many chain retailers require a certain threshold level of promotion sales in order for a product to be given primary feature & display space. Niche products and new items are notoriously hard to forecast promotional volume. Therefore, make sure they fit your promotional theme as well as drive customer traffic or related item sales before considering.
4. Are the gross margins and total margin dollars attractive enough? Make sure that the promotional item has strong baseline volume as well as promotional gross margins before considering it for display. Also, consider the promotional sales lifts for the brand and the category. For example, let’s assume that grocery chain Z is considering two different product lines for an upcoming Back to School F&D promotion. Product Line A has $200,000 per week baseline volume, 20% promotional gross margin, and typically has a promotional sales lift of 150%. Product Line B does only $75,000 per week in baseline volume, but has a 30% gross margin, and a 500% promotional sales lift. While Product Line A ($200,000 X 20% X 2.5 = $100,000 margin) is a larger turn volume item, Product Line B ($75,000 X 30% X 6 = $135,000 margin) is more impulse oriented and delivers better total margin dollars. Therefore, Product Line B may be a better merchandising choice, particularly if you have exclusive distribution in the market.
So if you vendors are balking at future F&D programs, implement these simple steps to improve the effectiveness of your merchandising plan. If you can get your in-store display execution above 80% compliance, you will be outpacing the industry and providing your vendors with a better trade promotion ROI to justify future display programs.
Kevin Janiga is president of Winsights Marketing, a Tampa, FL-based marketing, sales, and strategic planning firm. It specializes in helping small and medium sized CPG food and beverage manufacturers develop winning new products and marketing communication programs.
This article was originally written for Refrigerated & Frozen Foods Retailer magazine.