A Realistic Approach to Foodservice Trade Optimization

Posted on March 26, 2018 by Brian Maloney under Foodservice 101

Foodservice trade optimization — these are words that sound sweet to an executive’s ears as trade is the second highest cost after the cost of goods. This an exciting time to be in foodservice manufacturing. According to a Gallup poll taken in December of 2016, 61% dined out at least once a week.

Foodservice Trade Optimization Challenges & Benefits

 

The Challenges

Trade spend dims this excitement. Not only does it drain profits, but it also presents a unique set of challenges.

  • Costs are driven by the three-tiered supply chain that creates multiple demands for trade funds.
  • No transparency to operator unit level of performance leads to a loss of margin.
  • It’s difficult to direct trade to the most effective area due to distributors viewing “earned income” bottom line dollars vs. toll to grow the business.
  • GPOs want trade dollars with a value add reduce margin.
  • Double-dipping: More than one trade claim is placed on a case of product.
  • No unit data creates the opportunity for double dipping—sometimes as much as 15 percent.
  • You can’t measure your ROI.

 

The Benefits

With changes in the value chain and corporate strategy, optimizing trade practices may seem like a dream instead of reality. Not so! A well-planned approach backed by reliable data, can save you money and simplify the trade process. But you may be asking yourself, will all of the work be worth it? To answer that question, take a look at some of the benefits:

  • When you are done, you will have a clear understanding of how and where funds are spent across the value chain. This includes net-net pricing of distributor and operation. You will understand what is driving the operator’s decision.
  • This is a practical approach. Realistic expectations are set.
  • You can realign your trade spend to meet your current and future growth priorities.
  • You will see a cost savings when you identify opportunities to reduce double dipping and create a more efficient route-to-market.

 

Once you are ready to start optimizing your trade spend, make sure you have a few things in place.

 

  • Support of leadership. Is everyone—the CEO, the COO, and the CFO on board with the process? These are changes that won’t be made quickly. Are they willing to be patient as you go through the process?
  • Negotiations. For trade to improve, you must negotiate with distributors and operators.
  • Participation. You need insight from account teams to create a plan.
  • Funding. Yes, the goal of optimizing your foodservice trade is to save money. However, some changes may require budget adjustments. Plan a budget for a two-year journey.
  • Data. Make sure you are handling data at the location level. Without good data, everything else falls apart. Because this is so important, gathering data is the most time-consuming process in foodservice trade optimization. (Read More: 3 Way Trade Spend Data Empowers Better Business)

Get Prepared

Change is never easy or quick. How do you ease the process? Create a timeline with goals and priorities.

Week 1

To begin, you must determine the key areas of potential value. You can do this by: • Reviewing strategic priorities. • Understanding all aspects of customer strategy such as route-to-market.

Goal: Create your initial hypotheses for trade investment optimization.


Weeks 2-4

This may be the most important time in your journey. During these two to four weeks, gather data on the investments by channel, distributor, operator, and brand/product. You should be focused on:

  • Extracting data from distributors and operators.
  • Creating detailed investment mapping exercises based on the data you collect.
  • Look at the business plans for reach customer.
  • Map actuals vs. plans.
  • Determine aggregated spend by distributor and operator.
  • Study supplementary data including sales, volume share, and one-shelf performance to understand the impact of trade investment.

Goal: Complete transparency of the “real” trade investment by channel, brand, distributor, and operator.


Weeks 4-6

You have your data. Now it’s time to look at opportunities for increasing efficiency and reducing costs. During this time, you should:

  • Identify and prioritize the hypotheses by working with owners.
  • Do an analysis on your return on investment.
  • Work with key stakeholders to test and confirm specific opportunities.
  • Create playbooks to translate earnings into guidelines.

Goal: Qualifying trade investment optimization opportunities and implementing a playbook and guidelines.


Executing Your Plan

Your weeks of work are coming to fruition. Now it’s time to implement your recommendations. Your key activities should include:

  • Document any policy changes. Make it clear what the objectives and goals are.
  • Engage with the sales teams. You need to have them on board as they are a key component in trade spend.
  • Support customer negotiations.
  • Embed new ways of working. Change can be hard but is often necessary.