Trimming the Fat:: Customer Spending

Taking away a "precedent" spend is perceived as breaking a promise to a customer. The recession has given further cause to review current customer spending and, yes, take measures to reduce this spend. The key to executing spending cuts is to know when and where to pick your battles.

The above chart is a guideline of what measures you may want to take when trying to trim spending with your customers. Convincing your customer of positive repurcussions to any change is very important in the presentation of your plans. For example: a price increase will mean more generated trade spend/program money that your customer will earn. Eliminating one spend in favour of another that may generate more sales, is a win win for both parties. Any small change or redeployment of spending can become a new way to generate sales if executed well.

To Grow your Business: Pick your "Low Hanging Fruit First"

There are two sound rules of thumb here:

• The 20/80 principle: 20% of your customers will deliver 80% of your sales.
• To grow your sales: target the easiest wins/opportunities first.

This drives my next point. In these lean times when resources are stretched thin, it is important to keep focus on the above when implementing your business plans. Often companies becomes too focused on developing new business. Have you analyzed your current customer business well enough to realize all the growth opportunities you have yet to develop? This chart highlights some thoughts to consider when determining where to direct your sales energy. Ultimately though, keep in mind that if you don't take care of your current customers and show them growth, someone else will.

Category Management: A key to profitability, efficiency, cost savings and driving your sales

It is important to understand what skus are driving your product sales and profits and what products are driving the market sales. Maximize focus on the stars and eliminate the dogs. This is key to category management.

• Proper sku and flavour management improves product rotation, production and ingredient efficiences and economises storage space.
• Category management is also a great tool to help your customers (both enduser and distributor) maximize their sales with your products. Customers are often blindsighted by their own view/perception of what they believe they should sell, so it is important to back up your sku changes with facts based on the market, similar customers* and your own company information. Customers must understand the lost sales opportunity if they do not promote the top sellers. They need to have the correct assortment of products to appeal to all of their targeted market segments.
  
• Ensuring you have the right products, sizes and flavours will also help pave the way for new product innovation and launches. Do not ignore the need to bring out new news to inject renewed interest in your category. The key here is to grow the category with innovation and at the same time rationalize skus that are stagnating.

Category management is often not well received by many customers. Ensure you present your category management changes with a well prepared win win story. In other words provide proof that their sales will grow with these 3 key changes:

• Improved merchandising/marketing of the best selling or new skus.
• Suggest a replacement sku for any discontinued sku that will have a better sales success.
• Sales support/communication of why these changes will have a positive impact to all their key operators/shareholders. This last point is key to gaining organizational support.

*Use Direct Link or CREST for market/customer/distribution trends and information.

The Foodservice Customer: Who has the Purchasing Power: Part C: The Contract Feeder Segment

Contract Feeders have the critical mass with "specific" product lines to enforce distributor listings country wide. Both distributor and manufacturer must be aggressive with their trade spend programs to secure this business. Contract Feeders will prioritise:

1. Inside rebates given directly to procurement
2. Pricing to the unit level
3. Product quality and consistency
4. Product support
5. Marketing commitment
   

Product compliance into their units makes them an ideal partner with a secure volume for the manufacturer. They have had more challenge enforcing their preferred products into their buying group members and it is up to the manufacturer to often actively help convert competitive brands. The key to this conversion:

• Find members using competitive product through velocity reports (generated from the contract feeder)
• Active sales call conversion: features, benefits, costings, samples, distributor codes
• Incentives to member or account rep to convert
  
• Attend buying group meetings/trade shows to promote product compliance and extend product usage.

As Contract Feeders tend to hold a low personal brand profile in most of the locations they service, they will support and often market high profile national brands to enforce the fact that use "high quality" products and ingredients. They also prefer to work directly with the manufacturer for all of their key ingredients. To have exclusivity on a contract feeder buying guide is ideal for a manufacturer, but do not neglect to reinforce your product usage with marketing, merchandising and technical support to ensure you remain a top priority in each unit.

The No Fail Strategy to Launch/Promote your Product

Never assume automatic distribution of newly listed products.


Step A: Your Controlled Customers:

Gain commitment/support from your own controlled customers from their procurement, marketing and operation departments and present the distributor concrete reasons to list the product and next steps to grow their sales:

• Test/sample/promote the product
  
• Forecast
  
• Point of sale/support tools: recipes , features and benefits, costings, nutritionals, distributor codes
• Ask for suppression of competive products or forced distribution
• Ensure technical support if needed
  

Step B: Promoting your Products:

You will also want to expand your distribution to all other customers. This means taking the "right" initiatives that will give you the biggest impact. It's also important to think "out of the box". This involves 4 key factors:

• a) simple sales strategy/promotion
  
• b) creativity to make it impactful/memorable
  
• c) execution of your initiatives with excellence
• d) measurable results

An Important Key to a Successful Launch and Broader Distribution:

• Do not forget about your distributor sales reps. Make them an integral part of your promotion and launch strategy.
  

It is a benefit to talk to outside companies about your product promotions. Andrea Orozco from KIK Branding. Strategy. Design. is commited to covering all angles and giving the manufacturer measurable results. The more ideas/information you have, the better you can take the initiatives to ensure your success.

The end result is that your customers and distributors will see that you have taken the initiatives to ensure the success of your product. You will win their support and guarantee return on investment.

The Foodservice Customer: Who has the Purchasing Power: Part A: The Foodservice Distributor

It is important to understand first of all, the power the foodservice distributor has to support manufacturer listings. While the enduser customer can anchor the product listing at the distributor, the distributor has the ability to dictate the amount of support that the product will get once listed. If the distributor does not want to support the listing, the product may be suppressed to many customers. The means, that only the customers who demanded the product will have easy access to it.
The criteria that distributors will often use in determining their level of product support are:

• Customer demand
• The profitability of carrying the sku/product line:
  a) inside tradespend program given by the manufacturer b) margin potential c) product movement potential d) case cost (>$25 is optimal)
• Redundancy/duplication: Distributors do not want to list duplicate product lines. Each slot in a distributor warehouse is an expensive piece of real estate. It is in the best interest of the distributor to expand product offerings to capture all of the total needs of his/her customer so he/she will not have to shop elsewhere.
• Warehouse space
• Case size and cube---although this is not a main criteria, big bulky boxes that take up a lot of warehouse and trailer space---especially with low margin earning potential will not be a priority focus for a distributor.
  

Category management is a key tool that distributors need to employ to maximize the profitability of products in their warehouse. Eliminating slow moving redundant products in favour of high volume, value added/profitable, differentiated products, is a key objective of foodservice distributors. For the manufacturer, the foodservice distributor can often be the gate keeper to access the total foodservice market.

In order to ensure the strength and growth of manufacturers' products in foodservice, they must not totally rely on distributors to support their product lines. Manufacturers should strive to:

• Grow their business with the enduser customers who drive or can drive their business.
• Maintain a good ratio of enduser support to anchor the listings vs. the distributor controlled business (or business that the distributor will easily be able to convert to another of your competitors).

----Now what are your next steps when you find your sales are in decline and there is no "known" rationale? My next article will discuss business decline in distribution and possible strategies/solutions to revitalise your sales.

The Selling Show: Back to Basics

The Tannis show continuess to be one show where the distributor encourages their customers to buy and their supplier partners to sell hard. How do they do this?

• They put no restrictions on what suppliers can show.
• They provide all their product codes (listed and special order items).
• Each booth has a hot priced item with a low mark up ----always a high volume item.
• They offer an extra $ .50 incentive to only those who attend the show.
• If customers purchase from a minimum of 7 different show suppliers, they are eligible to win one of 31 prizes ranging in price from $50 to $3,500.
  
• They encourage their sales reps to escort their customers to visit the booths.
• They recognize and reward their supplier partners at their dinner, the night before the show.

They have given the manufacturers the tools to impact their sales.

Tom Lawson---one of the most astute people in the industry recognizes that many manufacturers do not capitalize on these opportunities and has some sage advice:

• Stand when you greet customers---show you want to do business with them.
• ALWAYS ask the question: How many cases can I send you? This is "key" to a selling show. Example: "I'm going to have your distributor send you a case to try. Here is my card. If you are not fully satisfied I will fully refund your purchase."
• Do not be afraid to offer incentives/trinkets to build volume commitment and generate extra sales.
• Develop the rapport with the DSR. You should know your key operators and the DSRs that will work with you. Excite them/give them an incentive to get them and new opportunities to your booth.

Again the objective at the Tannis show is simple---sell product. The only thing lacking to the manufacturer is the ability to only pay allowances on what is purchased "at the show". Other than that detail, I commend Tannis for delivering strong wins to all participants of their show. Not everyone is this easy. Every show should be analysed with strategies and tactics to meet your objectives. Take the time and given that the distributors deliver the customers to the show, you will see success in the outcome.

Trade Shows: Necessity or Opportunity

Yes Fall to many manufacturers, represents the time again to be forced into a 8'x10" booth to talk to customers about their products. Many manufacturers have a jaded viewpoint when confronted with the "necessity" of working a tradeshow. It is true that we have all worked foodshows where there were more manufacturers than customers and these shows are deservedly dissapointing. I recently attended the SYSCO Show in Toronto and this show was truly one of the busiest ones I have attended.
I still met manufacturers that were dissapointed as they did not see measurable orders from this show. When I hear this, I wonder if manufacturers are spending the time to set their objectives based on the type of show they are attending. There is a difference between attending a Colabor Show where some manufacturers reap the benefit of purchase orders of $2 million dollars versus this SYSCO Show with no tangible dollars sales. The latter can actually be more beneficial if the manufacturer takes the time to figure out the strategy to make it successful. Here are a couple of thoughts:

• Simplify your objectives for the show. You should have not more than 3 to 5 measureable objectives clearly laid out for your team. Examples could be: A new launched or listed item or extended/new usages for current products. Many manufacturers try and put all of their products on display. This does not leave a clear message to customer.

• Define your customer targets for the show and get them to your booth-----your prime focus may even be the distributor rep. Is there some way that you can "knock their socks off" and ensure they visit "your" booth at the show. Give the distributor rep and/or customer an incentive to come and talk to you.

• Ask the appropriate open ended questions (pertinent to your objectives) to customers so you understand their needs and then offer solutions.

• Appropriate DISTRIBUTOR CODES and POS that can be given to customers are a must. At the show, highlight the product and the code for the customer so they can remember and access the product. Many customers are too small to warrant follow up. Meet their needs at the show.
  

• Ensure you have a system to track leads and customer follow ups.

• Make your booth stand out. Many manufacturers have an advantage with "wow" products which can be challenging to a manufacturer selling disposables. Put a little thought behind your key objectives. What would you want your customers to see first when they pass your booth and what will make them come and talk to you over your competitors?

• After the show "take the time" with your team to review the show: a) Have you met your objectives? b) Ensure customer follow up. c) Evaluate what you could have done better and ensure that you do it at the next show.

This week many customers will be placing their orders at the Tannis show. Have you prepared your strategy to maximize your sales? Each show should have slightly different objectives. Take your time to prepare and execute them. It will be worth your while.

The Foodservice Customer: Who has the Purchasing Power: Part B: The Enduser Options

Which enduser should you target in order to effect your listings, critical volume and profitability? Let's talk about some of these customer segments and their potential effect on your business:

The Consumer:

• In retail, the consumer sees the product on the shelf and consciously decides on its purchase. In foodservice, most products are seen as the creation of the establishment they were purchased in. Unless the product is purchased as a pre-packaged and branded entity, the consumer has little to say in what brands go into the foodservice establishment's menu.
• Foodservice operators must make decisions based on what their customers (the consumer) will pay and what quality and menu choices will impact their business.
• It is therefore important to understand the trends and innovations that drive consumers to establishments and their menu choices. Market study information is a very useful tool to reinforce your sales story. CREST (Consumer Reports on Eating Share Trends), Direct Link (tracks broadline distribution of foodservice products) and a new product from Direct Link called Menu Insights provide good indicators to product performance and opportunities in the industry.

Key Point

• The consumer makes the ultimate purchasing decision---the choice of what they want to eat. The manufacturer must penetrate two layers of purchasers (the foodservice operator and distributor) to get to the enduser. A good sales presentation should cover consumer needs/trends and how the product will meet these needs and ultimately the needs of the foodservice operator.
  

The Independent Operator (Operators with one to two units):

• Unless Independents join a buying group that has the ability to create puchasing scale and a manufacturer rebate program, these operators are too small to dictate distributor product listings.
• They are, however; the most profitable customer for foodservice distributors and manufacturers.
  
• Supporting this segment with POS and distributor selling incentives is a good idea. Distributor reps have a stronger ability to access and control this segment of your business.

Key Point

• Two key methods to grow volumes profitably with this sector: a) secure a prime vendor or unique vendor/product status at the distributor and b)create awareness through product knowledge, point of sale/recipes and incentives with their reps.

My next blog will cover a very relevant method of reaching your customers: Customer Foodshows. We are at that time of year when manufacturers are faced with an overwhelming number of these events. Are they a vain necessity (forced upon them by customers) or an opportunity to grow sales? I will discuss both sides and more importantly how to maximize your sales objectives through foodshows. Stay tuned for my next blog release, October 21, 2009.