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Few retailers and manufacturers are satisfied with the current state of trade promotions -- and significant changes in the way manufacturers spend are on the way, according to Trade Promotion 2005, a study of spending and merchandising that surveyed more than 400 executives working for some of the nation's largest grocery, c-store, discount/mass and drugstore chains, their wholesalers and consumer goods companies.
Despite endless discussions about category management, the majority of manufacturers are still focusing on brands, rather than categories, on cases rather than consumers and on the short-term rather than long-term, according to the study by Cannondale Associates, a consulting firm with offices in Evanston, Ill., and Wilton, Conn. Manufacturers who are most respected by retailers are achieving better results because they are ahead of the pack in the kinds of insights they generate, their ability to deliver those insights to retailers and their willingness to innovate.
Parties on both sides of the table anticipate significant change in the ways manufacturers spend, with retailers more attuned to the change, the study concluded. Compared to the firm's previous study in June 2003, spending is down, though changes in accounting practices have driven this to an extent, and the payback on that spending has fallen, the study said.
Retailers continue to place high importance on a wide variety of manufacturer insights, which, unfortunately, are largely unavailable from their supplier partners. Almost 90 percent of retailers say information on category-level volume is very or extremely important, but only 33 percent of manufacturers are providing it. Eighty percent said brand-level volume data is needed, but only 45 percent of the manufacturers surveyed provide this. The same amount of retailers said insights on the longer-term impact of trade programs is very/extremely important, but just 27 percent of product makers are making this available.
Almost as many -- 78 percent -- of the retailers would like to know about consumer behavior during promotions and 70 percent say they need information on who is buying on promotion. But again, only slightly more than one-fourth of the manufacturers provide insights on either of these topics.
Meanwhile, manufacturer trade spending as a percent of gross sales has fallen from an all-time high of 17.4 percent in 2003 to 16.3 percent late last year, the study revealed. Trade spending as a percent of total market spending fell from 54 percent to 48 percent, but still makes up the bulk of spending. Advertising spending was 26 percent of dollars spent, up from 24 percent in 2002. Consumer promotions accounted for 16 percent of manufacturers' marketing expenditures, continuing a decade-long decline. Account-specific marketing has remained constant at 10 percent of spending.
Despite the dollars being put toward trade marketing, payout on most types of trade promotions has declined, the manufacturers reported. The payout on the "gold standard" of feature and display spending is down 5 points, to less than half of events paying out, while account-specific marketing has dropped to under 40 percent of events paying out. Price-reduction-only events paid out 34 percent of the time, manufacturers said, and 30 percent of frequent shopper card programs saw a desirable return.
While manufacturers may be unsatisfied with the return they are getting on their spending, the majority view trade promotion as "a powerful tool to drive volume" (60 percent). Also, there has been a shift away from the negative views about trade promotions, with fewer product executives describing trade programs as "a cost of doing business" (47 percent, down from 57 percent). Still, there was no corresponding increase in the idea that trade marketing can be "a powerful tool to influence consumer behavior" (32 percent of manufacturers, down from 34 percent) or "a foundation of the marketing plan" (28 percent, down from 38 percent.)
Manufacturers Who Have the Best Trade Promotion Strategy
retailers ranking Point change
manufacturers in vs. a year
Top 3 ago
Procter & Gamble 42.6% 0.6
Kraft 32.8 -5.7
General Mills 18.6 -4.4
Coca-Cola 11.8 -3.2
Pepsi-Cola 10.7 -1.4
Nestle 9.5 -2.0
Anheuser-Busch 9.2 0 (NC)
Frito-Lay 8.6 -1.2
Food & Beverage 8.1 0.6
ConAgra 7.7 -0.3
* As ranked by grocery, convenience, discount/mass and drug retailers surveyed by Cannondale Associates.