Foodservice Manufacturers: Address the Leak in Your Trade Spend

Are you addressing leaks in your trade spend process? To stop leaks in foodservice trade spend, invest in a trade promotion management solution. With trade promotion management, you can prevent double dipping, monitor contract performance, take control of your deduction balance, minimize claim processing time, and maintain a low pending count.

Trade spending refers to money taken off the invoice or paid back to the distributor or operator as a rate per case; fixed payments made to distributors and operators in the form of signing bonuses and growth programs, among others; and deviated pricing offered to obtain operator business.

I came across an article titled, There’s A Massive Restaurant Industry Bubble, And It’s About To Burst. Independent operators seem to be getting hit the hardest. The Chicago Tribune reported that in 2016 the number of independent restaurants in the US dropped 3%. Then, the pandemic hit.. and the predictions were grim. Fortune.com says that more than 110,000 eating and drinking establishments closed for business – temporarily or permanently – in 2020. Restaurant and foodservice industry sales fell by $240 billion in 2020 from an expected level of $899 billion. Foodservice manufacturers may see a hit to the bottom line if independent operators become obsolete.

The Good News for the Foodservice Industry

Even though there could be a decline of independent restaurants, we see promising feedback from the restaurant industry. Each month, the National Restaurant Association provides information that tracks the health of and outlook for the US restaurant industry called the Restaurant Performance Index (RPI).

As it stands in 2016, we see some decline. The good news is that restaurant industry sales continued to grow. So, even if independent restaurants close, there’s an increase in overall sales.

2021 Update: The NRA expects real GDP to grow during each quarter of 2021. By Q3 2021, GDP is projected to surpass its pre-pandemic levels. In May 2021, restaurant performance index declined 0.8%. A solid majority of restaurant operators continue to report positive same-store sales and customer traffic compared to year-ago levels. Many restaurant operators are optimistic about sales growth in the months ahead. 75% of restaurant operators expect their sales volume in 6 months to be higher than it was during the same period in the previous year.

What Foodservice Manufacturers Need To Do

With the decline in independent restaurants, foodservice manufacturers need to be on top of their contracted business and trade spend process.

Are you adequately addressing leakage in your process?

If you’re not addressing some of the major issues that could be costing you money, then you may be hit harder as operators close.

Here are a few things foodservice manufacturers can do to stop leaks in trade spend ⬇️

• Invest in a Trade Promotion Management Solution. If you’re managing trade with a homegrown or manual system, then you are probably losing money without realizing it. The right trade spend application offers insight into volume and profitability that can help improve your business.

• Prevent Double Dipping. Identify double dips and implement processes to minimize over payments to distributors. Double dips can gradually creep up and get out of hand quickly.

• Monitor Contract Performance. Monitor and update your contracts. Run reports on your contracts and their performance to identify areas for improvement and opportunity.

• Take Control of Your Deduction Balance. A high deduction balance means you’re losing money. Distributors deduct and collect monies for what they already deducted. Unfortunately, many foodservice manufacturers will pay because they don’t have a way to identify if they’ve already paid the distributor.

• Minimize Claim Processing Time. Distributors have a deduction policy time frame. Therefore, they will deduct if their invoices do not get paid within the specified time frame. If you’re not processing claims quickly, then you may risk a deduction taking place and a check getting issued as well.

• Maintain a Low Pending Count. Pendings on your claims will hold up payment, which will, in turn, increase the likelihood of a deduction occurring. So, monitoring your pendings and addressing them early on will help to lower your costs.

As you can see, there are ways foodservice manufacturers can keep their bottom line in good shape even if the restaurant bubble does burst. Each of these things are related and should be a part of your trade promotion management process. Keeping them under control comes down to having the right TPM solution in place.

Questions that foodservice manufacturers should ask and answer ⬇️

According to Deloitte, companies that develop a robust set of policies, processes, and trade analytics tools to quantify leakage optimize their budgets by 5-10%. Deloitte suggests asking these questions:

❓ Is trade spend driving optimal sales to maximize margin?

❓ How much trade leak do we have?

❓ what customers drive the highest ROI?

Finding Visibility: Foodservice Case Study

Don’t let visibility be a challenge for you in trade promotion management. It prevents so many foodservice organizations from accurately measuring and improving performance.

Know where you’ve spent your money, and recognize whether or not you’ve created good (or bad) deals. Use a fundamental framework to efficiently manage trade and revenue activity. There’s opportunity for foodservice teams to improve practices… and that’s automation.

Historically, the Bagcraft team managed trade rebates (aka: payments to distributors) and operator contract/bid pricing with a wide range of manual and time-consuming processes with tools such as Microsoft Excel and Access. As a result of implementing Blacksmith TPM, Bagcraft has more visibility and smarter decision making.

Pricing analysts are making better decisions, resulting in prices that are more profitable. The team has dramatically reduced ‘bad’ prices going out the door. Before, it was a dartboard approach as to the ‘right’ price. Now, Bagcraft is on track with our expectations from financial and efficiency perspectives.

Visibility enables you to reduce inefficiencies, mitigate monetary risks and expand product performance. Although it’s no simple task, you can avoid loss in your trade programs by viewing the entire “iceberg”; avoiding mistakes resulting from partial information.