What is trade promotion? Trade promotion refers to the practice when manufacturers offer price discounts and incentives to distributors, retailers and operators to execute promotions that stimulate demand for a product.
Food is a big part of consumer spending; Americans spend $627 billion on groceries. Habit is the strongest motivator for most grocery shoppers’ behavior – buying what they usually buy, where they’ve always bought it.
Roughly 75% of grocery shoppers know what they’re going to buy before even getting to the store. Most consumers – 90% – say their favorite store is their favorite because it’s convenient to get to, has good prices, and is where they’ve always shopped.
Will shoppers forego their shopping habits in favor of ordering from online stores?
The Amazon Effect
America’s retailers are closing stores faster than ever. An abundance of options, the prevalence of e-commerce and the increase of small and local competitors, have changed the way we shop. When Amazon purchased Whole Foods last year, it forced food and consumer goods manufacturers to rethink their sales and marketing strategy.
Challenges for Retail Trade Management
“The challenge is consumer values and interests around food are changing rapidly,” Ken Powell, CEO of General Mills said. PwC forecasts that the grocery channel share of all packaged goods sales will fall from about 45% today to about 37% in 2025.
Supermarket chains Bi-Lo and Tops Friendly Markets are edging toward bankruptcy. Will grocery retailers follow the strategy of apparel companies like Zappos and Asos – who don’t have a physical location, and use an online-only approach?
Grocery carries specific challenges to e-commerce – the products tend to be fragile, perishable or an immediate need — but that doesn’t mean that online grocery won’t disrupt the industry as we know it. Surprisingly, 65% of consumers will buy fresh produce and chilled dairy products online. Only 39% of digital shoppers say they don’t buy fresh produce because they’d prefer to inspect it in person.
- Premium Products | Consumers vary in their spending, but 2/3 of all US consumers are cutting back on cost and looking for value in the items they buy. Outside of product categories like coffee and baked goods, there’s less interest in paying a premium.
- Population | In the last 50 years, per capita spending on grocery store products in the US really hasn’t budged, and any growth that manufactures have seen has mostly been a result of a larger population. Population growth will continue to slow, creating less chances for bottom line increases.
- Demographic | “Life stage dictates spending, putting Gen X on top for now, but Millennials will likely take that spot within the next decade,” said Colin Stewart of Acosta. Gen X spends the month per month on groceries, $380, and they’ve adopted digital grocery tools. Millennials are spending about $298 per month on groceries, and 48% say they don’t care which brand they buy (switching loyalty to get a better deal). Boomers (ages 53-71) are loyal to both products and grocery stores; spending an average of $314 a month on groceries.
- Small Brands | Legacy brands are losing market share to smaller, trendy companies, scale no longer wins the market. Shoppers want new and healthy choices, and analysts believe that’s where upstarts are finding success. Take KIND Snacks – it has captured 10% of the snack bar market in just five years.
- Local | Shoppers are looking for local vendors and most prefer local brands for vegetables, meat, fruit and seafood. 59% have said they buy local to support local economy.
- Technology | For those still shopping in-store, technology makes life easier: Apple Pay, self-scan check-out options and mobile coupons. And there are shoppers looking for retailers who offer home delivery, or the chance to buy online and pickup in store. Online grocery spending is projected to grow to 20% of the market (or $100 billion) by 2025.
Trade Promotions Still Matter
The efficiency of trade promotions is trending down. Margins are tight, growth is slow and costs are increasing. Companies over promote products without knowing what is working and what isn’t. Only 22% of consumer companies can measure trade spending at the individual event level.
Finding the right mix of promotional activity – focus on social media, promote your company’s values, create bigger in-store displays, sample new products, build a great mobile experience, or offer a coupon – will help your product stand out.
Appealing to customers through trade management could also mean establishing new products, offering your products in an assortment of sizes, or focusing your dollars on your best customers.
- As consumers remain sensitive to price, it’s important for brands to extend value throughout the market; which could mean a manufacturer creates new but similar products, at a lower price point.
- Today’s manufacturers need an array of products to sell in various retail formats, whether its club stores, dollar stores or supermarkets. Companies need a more flexible supply chain.
- Manufacturers should shift attention to the retail channels that matter to its business. Not to throw away legacy relationships, but find a strategy for those channels that are showing promise to the profitability of your product.
- Product innovations are increasingly important; the idea is sell solutions and ideas; figure out a way to become a part of an occasion – whether that’s a yearly event like Thanksgiving or something that happens every day, like breakfast.
As manufacturers adjust to the new challenges and an ever-changing environment, creating a strategy for trade agreements is essential to see profitability.
Business users are shifting their focus to analyze a deal’s effectiveness. Finding visibility from trade promotion management (TPM) systems into activity, it’s easier to measure and report on profitability. To reduce ineffective promotions, spend some time in your data, then build an agile trade strategy that can be adjusted as quickly as shoppers’ expectations.