Trade investment is spiralling out of control because suppliers have failed to take control of their spending at boardroom level. This was the stark message to emerge last week from a seminar organised by The Grocer to explore one of the industry’s hottest topics.
The seminar, attended by 150 delegates from across the supplier community, threw up plenty of useful tips for companies looking to get a tighter grip on their spending (you can read some of them on the right).
But one of the key themes of the day was the need for much better leadership at the top of organisations in the fmcg sector.
Keith Hogg, MD of Scottish Courage Brands, said the only way to develop effective trade investment strategies was by having strong board-level support for what you were doing.
“There is no point in coming up with models, processes and numbers without the right leadership and understanding of brand principles,” he said. “Suppliers know that there have been problems with trade investment and tough decisions need to be made by chief executives to achieve long-term gains.”
Hogg said the problems experienced at Bulmers, which Scottish Courage bought in 2003, provided a clear example of what could happen to a business when it was poorly led. Bulmers drove volumes of its market-leading brand Strongbow in the off-trade at the expense of profit, and lost control as a result.
Ominously, the Scottish Courage executive warned that the lessons of Bulmers had not been learnt and the story could yet be repeated elsewhere in the grocery sector.
With the right leadership, businesses can focus on building what several speakers referred to as “virtuous market share” - volume delivering profit, rather than volume at any price. This is key to any successful trade investment strategy. But for it to happen, suppliers will find themselves taking brave decisions that sometimes led to them losing business in the short term. And that’s why good leadership is critical.
Aidan Bocci, chief executive of Commercial Advantage Consultants, explained: “Process and technology can help trade investment but they must deliver clear objectives.”
To achieve sustainable benefits, Bocci said chief executives needed to set financial targets to deliver strategic objectives and they had to get commitment from everyone involved. You needed the right people, a clear strategy and the right systems in place, he added. No matter how well planned and targeted trade spend was, there was always room for things to go wrong, so suppliers needed to be flexible enough to adapt to what was happening.
Achieving all this was not easy, even if you had the right strategy and leadership in place, conceded Jack Sinclair, the former group marketing and trading director at Safeway.
But he said one mistake suppliers often made was trying to persuade their customers that their strategies were wrong.
“I think the winners are manufacturers that manage to flex their trade spend carefully, rather than trying to change a retailer’s strategy to match preconceived trade investment plans,” he said. “I have seen so much wasted effort by manufacturers trying to convince retailers to change their strategy.”
Sinclair agreed that it was vital to drive profitable activity rather than sales volume alone. “It is important for manufacturers to invest in basket-building activity rather than transaction building activity,” he said.
Putting all your promotional eggs in one basket merely benefited the retailer in question, he said, rather than your own business. He added: “Spending significant trade monies helping one retailer win customers from another retailer has no long-term benefit to a manufacturer unless they are heavily dependent on that one retailer.”
As a number of speakers pointed out, there is a temptation in all businesses to engage in short-term activity to meet their next targets. But the message from the seminar was clear: those CEOs who did not have a clear view of what they were spending, and who allowed their businesses to chase unprofitable volume, would eventually pay the price.
Some suppliers may baulk at the idea of saying ‘no’ to their major customers - but it is vital.
Timothy McCreery of US baby food company Milnot Holding said suppliers had to focus on the promotions that worked for each customer. He said: “By learning from our promotions we developed performance-based programmes that we knew would generate the best returns.”
And you must be prepared to say ‘no’ to activity that doesn’t fit that criteria: “The money for the retailer’s golf day may well be better invested elsewhere.”
It is vital grocery suppliers get a grip on their trade investment because this spending can account for up to 40% of their turnover, according to Aidan Bocci, chief executive of Commercial Advantage Consulting.
With the right controls, systems and leadership, he claimed most suppliers could very easily find ways of saving up to 3% of their budget.
To take control, he said, suppliers had to identify exactly what they were spending and why - which was not always easy to do.
But he warned that taking control of trade investment also meant taking some tough decisions.
The damaging impact of grey market trading was another key theme of the day - particularly how some retailers traded promotional stock.
Former Safeway executive Jack Sinclair said retailers could not be blamed for trying to buy cheaper stock if it became available. He said: “It is the manufacturer’s responsibility to stop it appearing on the market.”
The seminar heard other speakers say the only way of tackling this issue was having the right controls in place. That meant being able to spot when it was happening and then being brave enough to refuse to run ‘problem promotions’ with that customer again.
A key theme of the seminar was that people were critical to the success of any trade investment strategy.
Britvic’s business transformation leader Martin Branham said that as new systems and ways of working were introduced, it was important that everyone understood what was happening and backed the changes.
You may also have to rethink whether you have the right people. Other speakers warned that as businesses became more disciplined about their processes, it was inevitable they would lose the “mavericks” from their commercial teams. Most agreed that was a good thing in the long run.
Suppliers cannot afford to hide behind the excuse that retailers were to blame for the problems faced by suppliers.
Very often, said Keith Hogg, MD of Scottish Courage Brands, suppliers were guilty of chasing volume and offering their customers promotions that drove value out of the market.
The trick was being brave enough to build “virtuous market share” instead.
“Suppliers start the process by choosing how they position their brands. Both Interbrew and ourselves made a change this Christmas and we added value back into the category. Some retailers were sensible and others weren’t.”
There was little point in coming up with great ideas if they were not implemented properly, said
David Bridges, chief executive of Billetts Marketing Sciences.
Suppliers should do more in this area, he said: “It is a complete waste to find out a month after a promotion has finished that certain retailers did not implement it properly. You must ensure that you get the most out of your promotions from the very beginning.”
remember: you can say no!
Control is not a dirty word
don’t run stupid promotions
check you have the right people
It’s not always the retailer’s fault
have Inspiration and perspiration