Driving Improved Trade Promotion Effectiveness for Small / Emerging CPG Brands through a Cost-Effective, Fractional Approach to Trade Spending Analysis, Process & Partnership.
CPG Is Constantly Changing - Except When It's Not (part 14 in a series - skipped part 13 for good luck) The Real Cost of Slotting (Free Fills) Here we go, we're ready to launch our new CPG brand into retail - an exciting time! As we go forward, we recognize there is a cost to this - slotting or in the case of selling through distributors, free fills (typically one free case per store to get going). Before anyone starts complaining about the concept in general, there are some real costs to your distributor and retailer partners in getting these items into their stores - and if the item is not successful, getting it back out and another one in. Let's take a look at an example. You are launching your new brand, into 10 100-store chains, with 3 flavors, 10 in a case and a case cost of $20. Sounds simple enough - you give them one free case per store and it's going to cost you $60K, right? Not so fast, let's consider a few things: 1. If you do not adequately & accurately plan & accrue for this, you are going to get some bad surprises down the line. Long after you've forgotten the meeting and the free fills, these deductions will show up on various invoices in 2, 3 maybe 6 months. Oops! 2. So, let's look at real cost. When the distributor sells your product to the retailer, there's obviously an upcharge - for the purpose of this, let's assume 20%. So, your cost is now $24 per case. And there's a fee on the deduction - let's go with 10%. That's $26.40 per case. 3. Most likely, there's a 15% OI going on - the distributors bridge these deals from one to the next - that's another $3. We're at $29.40. 4. You're probably going to need a promotion to get consumers to pick up your new brand and get noticed. Let's be conservative and say it's simply a 20% scan. That's another $4.80. And let's not forget our 10% fee to deduct this amount. Yep, $34.68. So, we are now 4 or so weeks into our new launch, and we've given each store a free case. Seems simple - except I've sent invoices for $60,000 and have deductions for $104,040! When's breakeven? We should all know that going in, correct? Most midsize and larger brands do when they launch an item - it's a complex business and it's important to have your eyes wide open! Brands introduce all the time - many are successful. The key is understanding, planning and knowing your trade spending & promotion inside and out. Let's learn to look at this through the front windshield as opposed to the rear view mirror. It's easier to drive your business that way! ________________________________________________________________ For more information or more of my posts, contact me here at Linked in or at www.schroedercpg.com. Let's win here together!
This is a great post and such valuable information! Knowledge is power. Know everything before you get in.👏👏