Are You Losing Sleep Over Your Foodbuy Contracts?

Posted on July 18, 2017 by Paul Wietecha under Industry News

The reality is: executives all over the industry are anxious about their spending and it’s a much bigger topic than Foodbuy.

During the past 10 years, spending has increased greater than underlying volume trends. Unfortunately, there is no one area across the range of discounts that we can single out as the enemy. The need for more effective control is just as true for corporate earned income as it is for local marketing, national account pricing and other operator discounts.

Don’t despair … there is hope.

10 actions

Distributor Trade and Marketing

  1. Reduce your earned income rates on deeply discounted operator volume. Whether you are settling earned or sheltered income via payment or deduction, migrate to a higher earnings rate on full list price business [e.g., ‘Street’] and a lower or zero rate on cases sold to large national accounts or against aggressive bid prices. This will reward your distribution partners for building your local volume while improving your competitive position to win more national account and school bid business.
  2. Exclude proprietary or ‘signature SKU’ volume from all corporate and local funding. This will help control your total overall spend as those customers purchasing those proprietary products grow.
  3. Migrate to a normalized schedule. Benchmark the earned income rates you offer relative to the volume you enjoy; identify the outliers and correct them. With a schedule that considers volume by category across customers, you can reduce the risk of ‘runaway rates’ that can drive spending spikes unnecessarily.
  4. Adopt a ‘zero-based budget’ mentality. Use the zero-based budget mentality on local marketing funding for trade shows, sales meeting sponsorships, wall calendar advertising, and sales contests. Many organizations fall into the trap of blindly rolling over local events from the prior year. Do not assume that the prior year events were effective. Identify the performance criteria you believe will impact your volume and then justify the investments for the new year against that criteria. This will help you eliminate the true non-performing dollars where the correlation to volume is negligible.
  5. Implement a budget-based control over local marketing and samples. Establishing a maximum dollar amount each year for each sales area will control your investment exposure and eliminate the risk of overruns and surprises.

 

Operator Discounts

  1. Evaluate economics rather than volume. Assess national account, non-commercial and bids requests on economics, not purely on volume. By establishing minimum acceptable levels of operating income [and finding the resolve to stick to those parameters] you will limit your risk and reduce the runaway expense line that results as national accounts grow and independent operators migrate to GPOs. When you execute this, incorporate your corporate and local trade based upon actual programs rather than a blended or ‘planned rate’ so that you are making solid decisions based upon the distribution of your product.
  2. Establish a minimum acceptable volume to quality for deviated pricing mechanics. As your list pricing evolves over time, deviated pricing that is guaranteed for long stretches will drive additional spending that should be rationalized for value. Offering deviated price contracts should be a qualified and thoughtful decision given your risk for increased expenses and incremental administrative complexity.
  3. Focus on case rate rebates. Rather than offering percentage-based allowances and/or deviated pricing, look at case rate rebates. Expressing your discounts as a rate per case provides greater certainty for your future liability and dramatically reduces the likelihood of variance between what you expect to pay and what your customers expect to earn.
  4. Benchmark operator pricing. What operator pricing do you offer relative to the volume you enjoy? Identify the outliers and correct them. By migrating to a normalized schedule that considers volume by category across customers, you can reduce the risk of ‘runaway rates’ that can drive spending spikes unnecessarily.
  5. Define the minimum acceptable level. Classify the lowest acceptance level for the type, frequency, and overall quality of the claim backup or ‘billback data’ your customers provide to support their claims for reimbursement. This will control the complexity of administration and ultimately your investment in time, people and systems necessary to clear deductions and issue checks.

Your promotion spending doesn’t have to be out of control. Use the actions above to efficiently gain financial control of your trade spending, while reducing runaway rates, eliminating non-performing dollars, increasing visibility, and reward your distribution partners.

 

 Keep Reading: