2 + 2 = 5? Time to rethink retail investment strategies

It has been clear for the last few years that shopping around the world is changing, changing at the fastest rate in a generation. The Covid-19 pandemic appears to have accelerated many of these shifts (most notably the move towards online shopping). Added to all that disruption, we’re entering a global economic downturn. The net result is that retailers are under more pressure than ever. And what do retailers do under pressure? One of the first things they do is ask for more from their suppliers. At the same time brands need to invest in new customers and channels. . Brand owners and suppliers are going to have to make some tough decisions. In this post, we’re going to explore how marketing and sales leaders can make better retail investment decisions.

Demand for retail investment is going to increase

Even before the pandemic, across the globe, trade spend (monies spent with retailers in the course of doing business with them) was escalating. As retailers feel the pinch, we are likely to see this increase as retailers use their muscle to strike better deals. At the same time, there are new, fast growing channels we might want to invest in. But unless you have unlimited budgets, how do you square the circle? How can you support existing customers, meet their needs, AND support new growth channels at the same time? How to support retailers on price without damaging brand equity? And all when we’re in an economic downturn and revenue is going to be hard to come by?

For many companies, in many markets, trade spend now is significantly larger than marketing spend. Maximizing ROI with retailers has never been more important. So in the same way that you would expect a marketer to lavish investment on a specific target market only; a target market defined and derived from much research, head scratching and soul searching – you’d expect that a similar level of thought, research and reason would go into decisions about which retailers to invest in, and how that retail investment should be made, right?

Apparently – not.

Is this Trade Investment or Trade Spend?

In most cases the investment principals used appear to be rather one dimensional: big customers get more money. And the biggest of the lot, by dint of scale and negotiation, get disproportionately more. Now on the surface this may seem logical: large customers get more money as we do more business with them, right? Answering that requires the consideration of a slightly different question. If these monies are seen as a cost, merely the price of doing business, then yes; the big guys would and should get the biggest money. But of course we don’t want our precious dollars to be a “cost of doing business”. We want to view these moneys as investment, and therefore a slightly different approach is needed. Past performance is only an indicator of future potential: surely at least some of these monies should be weighted towards retailers which are most likely to generate future returns. In the case of consumer goods, this means: invest in customers which will deliver profitable growth in the future.

There are other factors too, which should, but often aren’t considered. Here’s a quick checklist to help you work out if your trade monies are investment, or merely cost.  Using this before spend is allocated to channels or customers will help you make significant steps towards maximizing the ROI on your retail investment.

1. Which retailers should I invest in to maximize ROI?

Big customers:

Yes, I know I dissed this idea earlier, but big is still big, and this shouldn’t be ignored. Two percent growth off a really big customer might still be worth more than twenty percent of a minnow.

2. How fast will they grow in the future?

How fast is the retailer going to grow? Are they forecasting new stores (and have they lived up to their promises before)?  Retailers that are growing will be attracting more shoppers, and that (typically) is good news for you.

3. Is your business with them profitable?

Consider the total profitability of the business (and not just the gross margin). How much time, effort and other hidden costs are tied up with working with this customer?

4. Is there strategic alignment?

How close do your strategies run? Are you a branded only manufacturer and are they crucifying you with private label? Are they all organic and fresh when you specialize in cans and value packs?  If there is a big gap between your strategies and the retailers, you’re less likely to get the support you need, which may limit the returns from your trade funds.

5. Do they have the right shoppers?

It’s all very well being large and having loads of shoppers, but what if they are the wrong type? Just because your sales there today are large doesn’t necessarily mean that this retailer will have the right shoppers for your big growth initiatives. Understanding which shoppers are key to your brand’s growth plans lies at the heart of shopper marketing, but it should also drive retail investment decisions too.

6. Can they/will they make it happen?

I’ve talked about compliance before; unless things change on the shop floor, then the money was a cost, not an investment. Some retailers don’t offer much support, some offer lots but simply can’t deliver where it counts. Those that are willing, and able, to make things happen on the shop floor surely warrant more support than those that refuse you or fail you.

7. What is the downside of not investing and how do I mitigate this?

We need to be careful with the last step. Reducing investment, or not investing, in a particular customer or channel is likely to lead to some downside. If a company chooses not to support discounters, it will have a downside. That doesn’t mean it is the wrong thing to do. Likewise, cutting spend in your biggest customer could hurt too. That doesn’t make it the wrong option. In a tough market most decisions will have a downside. We are not trying to avoid downsides here. We are trying to minimize them and then mitigate them.

Maximizing ROI with retailers requires many considerations to be made, but as trade spend continues to rise in percentage and absolute terms, it’s becoming more and more important that a full and comprehensive evaluation of where and how that spend is allocated takes place. And, as can be seen above, that means that sales strategy has to be aligned to marketing’s growth drivers, and this is done through developing a clear understanding of who the target shopper is, and where they shop. Shopper Marketing, when done correctly, connects consumption opportunities to the in-store world, aligning and integrating the efforts of the commercial team. In our book, we call this Total Marketing – check it out now!

Retailers are entering a really tough phase. That means it is going to be tough for brands too. This isn’t about better negotiation skills (though you’ll need those!) It isn’t about having better Key Account Managers (though they will be critical). This is about a better strategy across marketing and sales. A strategy that really connects consumer growth to shoppers to retailers. Are you happy with the way your strategy works across marketing and sales? Are you happy that you are investing strategically across all of your customers? Are you sure you’ve covered all the major opportunities that exist? Are you sure you’ve done everything to maximize the profitability of your business, including considering the difficult ones? If you are sure, that is great. If not, get in touch now. Let’s talk through your situation and work out what steps you need to consider next.