The lead article in the last several issues of Nations Restaurant News have preached gloom and doom for the commercial foodservice operator: Rising costs of energy, food, fuel, and general operating expenses combined with an overall slowdown of the overall economy, slowing patron traffic. (We older folks remember that as “stagflation” from the 70’s). Concurrently, articles throughout the media talk about how the high oil prices have substantially driven the costs of distribution up, squeezing the margins of foodservice manufacturers and distributors. Yet economists warn that consumers will stop eating out if menu prices rise.
So what should YOU do to manage your Trade Promotion during such conditions?
Foodservice manufacturers fund a variety of promotions throughout the year to support their brands and to gain incremental sales. It’s even MORE IMPORTANT to continue this support under the current conditions. But will your CFO and management allow you to continue as they demand cuts in budget and headcount? The answer is a qualified yes…IF you can shift your spending toward a more efficient model that will increase sales while lowering spending. Magic? More like “slight of hand”…
Closely examine your current spending models:
-
Is your spending heavily concentrated against distribution?
-
Are the distribution programs you support targeted toward the operator, or are they internally-focused on “the buy” rather than “the sell”?
-
Do your operator programs primarily go through the distributor, rather than as direct rebates or free goods?
If the answer to the first two questions is YES and the third NO, then you must make some immediate changes in your TPM model.
Think about this: If your distributors are experiencing margin erosion, will they continue to be willing to “pass along” all promotional dollars directly to the operator without applying some kind of “fee” to capture some of these trade dollars during their journey to the customer? Do you even have a way to know how much of (or if) these funds are getting to the end-user? (If you have a good TPM data capture program, then you know. If you don’t have this ability, I guarantee your funds are not getting to the operator intact.)
Restaurants are looking at every line item in their operation for relief…including their food purchases. Proper brand and product support can create a barrier to switching out your item, by incrementally lowering (or maintaining) their cost. But your spending must GET to the operator intact, or your strategy will not work. Coupons, contract pricing rebates, direct pricing concessions, GPO efforts all can work to your advantage by getting YOUR funds to the end-user as they were intended.
Some suggested steps:
-
Closely examine your current TPM model and look for ways to shape it toward the product and the operator
-
Move away from as many of the ineffective distributor “buy” programs as you can, as soon as you can, while continuing to support your brand and product objectives within the distribution element of the supply chain
-
Evaluate your current contract management process internally, and look for ways to improve your data capture and evaluation. (The more “granular” your data against products and specific customers, the better you can REACT to conditions and “morph” into a different spending model. If you DO NOT have an effective TPM system, you will need to tread lightly in making wholesale changes without the ability to immediately evaluate their effectiveness. )
Confused? Depressed? Terrified? Join the club… These are stressful times for all businesses, but with the proper tools and a diligent strategic focus, you can “take charge” of your own destiny and make it happen.