Foodservice Trade Investment What it will look like and how we ll get there

Transcription

1 Foodservice Trade Investment What it will look like and how we ll get there Speakers: Jim Klass Managing Partner MarketIntelligence Bill Mason Managing Director The Hale Group

2 Agenda Quick Intros Definition of Trade Investment Review of where we are 2010 Foodservice Trade Survey Point of View -Where we are heading. MarketIntelligence/ Hale Group 2020 Panel Discussion with: Dror Karidi, Senior Director Operational Strategy- US Foodservice Scott Modica Vice President Smithfield Packing Q&A Page 2

3 Page 3 First let s define trade.. Trade Investment: Above the Line We have worked to define trade investment with a group of foodservice manufacturers. Comprised of various types of spending that can be considered a reduction in revenue according to the Financial Accounting Standard Board s interpretation, defined after the Sarbanes-Oxley Act of Included monies paid by the manufacturer to a distributor, wholesaler, GPO, customer or operator as payment for consideration of various promotional, merchandising and/or product, brand or category-building activities for the manufacturer. Bids Deviated Pricing Corporate Marketing Programs Rebates Off-Invoice Price Allowances Market Pricing Distributor Food Shows Earned Income / Shelter Corporate Growth Programs Local Growth Programs Local Marketing Programs Distributor Sales Spiffs Local Blanket Bids Conversion Fees

4 Agenda Quick Intros Definition of Trade Investment Review of where we are 2010 Foodservice Trade Survey Point of View -Where we are heading. MarketIntelligence/ Hale Group 2020 Panel Discussion with Dror Karidi, Senior Director Operational Strategy- US Foodservice Scott Modica Vice President Smithfield Packing Q&A Page 4

5 The foodservice industry is now in a new trade era. Trade Investment Low Cost Cost of doing business Collaborative Approach Institutional Era Simple programs directed exclusively by the Manufacturer consisting of label allowances and selected foodshows. The industry was very immature and the Institutional "business was an afterthought to most retail companies. Most Distribution was local and most of the operators were mom and pops Growth Era Power shifted to the distributor after the Imposition of wage and price controls in Manufacturers were able to build in margin through the introduction of new products.foodservice was in a tremendous growth cycle and they offered programs Earned Income and Shelter to distributors and rebate and deviated pricing to National accounts and LLOs to drive sales. The industry evolved as National distributors and chains began to dominate. Trade Spend was a cost of doing business and until later in the 2000s was manageable 2008-? Trade Investment Era The financial collapse in late 2008 destroyed the myth that foodservice was recession proof. The industry declined yet distributors and operators continued to look to the manufacturer as a funding source. Contracted business and GPOs captured a larger portion of the higher margin street sales, commodities fluctuated and inflation was held in check. The game has changed to market share and the vehicle to capture it is prudent trade investment. Manufacturers will need to utilize their trade dollars more efficiently and effectively. The opportunity to cut trade is long past. Page 5

6 Survey Background This is the second survey of what we call Trade Investment, the era of trade spend is over. Foodservice is not the growth industry of the era but a battle, as in retail, for market share Participants There was abroad spectrum of participants representing all major foodservice categories Protein Frozen Refrigerated Dry Non Foods Firms were both branded and distributor label manufactures and the majority were part of a larger CPG company Page 6

7 The environment today.. Foodservice has shrunk- 7% since 2005 The street is using alternative distribution 10% to Club Stores Contracted Operator now over 60% of Manufactures Sales At Distributor 3-4% of SKUs generate over 80% of True Profit Distributors are looking at Cost to Serve How will manufactures manage conflicts with distributor brands? Operators have more visibility to pricing How will manufacturers manage the Club/ Cash& Carry conflict?

8 Trade Investment Survey Trade: Sales Ratio Utilizing our industry definition as the basis we found that trade for all firms averaged: 18.04%- higher than the 2009 survey of 16.1% ( slightly smaller sampling) So even as sales in the industry declined, trade dollars increase in absolute value both at the Distributor and Operator % % % Page 8

9 As in our 2009 survey respondents described a vicious cycle in four areas.. Process Systems Vicious Cycle Analytics & Data Organization Page 9

10 Observation for each of the key areas Process Organization Analysis Systems Lack of standard processes Sales group s incentives are not tied to customer profitability Lack of clarity on return of customer investments Low level of automation compared to other industries Inefficiency (high level of manual work and re-work required) they align to increasing sales, not profit No standard analytics used company wide No standard system for tracking and control Lack of timely (& accurate) information sharing between stakeholders No dedicated trade team with complete oversight Limited availability of unit level information Lack of visibility and accountability, e.g., contract execution Very Manual Settlement Process Unable to provide insights to effectiveness of programs to field sales Unable to measure impact at operator over time Lack of Useable electronic PoP data Different planning time horizon Confusion over who owns trade No post Promotional analysis No leading provider of trade solutions Page 10

11 Process Survey details Organization 85% of respondents said both their operator and distributor trade increase over 2009 without any sales increases Over 77% of foodservice manufacturers believe they are being double dipped at both the distributor and operator levels especially GPOs Only 35% reduce their Earned Income or Shelter for National Account Purchases 96% had their GPO trade spend stay the same or increase 58% of manufacturer said their trade team is right size vs survey when 55% said they had too many people handling trade 38% have a dedicated trade planning group, with 56% reporting to sales, 25% to finance 72% do not reward field sales on improvements to trade spend 72% reported that their admin cost were lower than the 3.2% benchmark from Technomics

12 Survey details continued.. Analysis Only 35% of manufacturers evaluate distributor programs for effectiveness >20% have the ability to evaluate multiple contracts at customer /operator /product level 25% analyze deviated POP info then only at the summary ( not location) level Systems Majority of Manufacturers are utilizing, either Homegrown System and excel to manage trade Vast Majority don t track POP data to the membership or unit level for rebates and deviated There is no one solution provider that has established an end to end planning to settlement tool 16% share analytical data and insights with distributor and operators in annual negotiations

13 As a result trade is a strategy of tactics not a tactic of a well thought out strategy * Trade Investment Outpacing net sales growth Declining product contribution Costly to administer Difficult to gauge effectiveness Customer Strategy Unable to execute customer strategy due to lack of internal streamlined processes that are: Fact-based / analytical Performance driven Lots of data- little useable information Page 13 * Jim Klass

14 Survey Take aways.. Process Manufacturers should revisit their budgeting process Opportunity to reduce double dipping Organization Consider a Trade Investment Group - trade is the second largest expense after COGS Involve Field sales (& brokers) in trade Analysis Develop an analytics group within the Trade Organization Develop analytics beyond summary datadrive to unit level Systems Review systems capabilities to support,planning,settlement and analytics Require EDI PoP to enable analytics Page 14

15 Agenda Quick Intros Definition of Trade Investment Review of where we are 2010 Foodservice Trade Survey Point of View -Where we are heading. MarketIntelligence/ Hale Group 2020 Panel Discussion with Dror Karidi, Senior Director Operational Strategy- US Foodservice Scott Modica Vice President Smithfield Packing Q&A Page 15

16 So where are we heading... Based on The Hale Group Foodservice 2020 Whitepaper Contracted Operators 80% of all foodservice operators will be engaged in a contract Growth Continued slow growth battle is now for market share Information Ability to share information and insights cement relationships and drives partnerships Page 16

17 Foodservice 2020: Consolidated Operator demand will be aggregated (mfg operator). Share Controlled by Consolidated Operator Purchasing Segments (P) Restaurants 58% 72% Lodging Fewer 70% 85% Retail Foodservice but 80% 90% Recreation bigger 55% 70% Airlines buyers 100% 100% Business & Industry 75% 85% Colleges & Universities 57% 65% K-12 65% 85% Healthcare 80% 95% Others: Government, Agencies, Institutions 70% 80% Total 62% 79% Source: The Hale Group s Estimates

18 Foodservice 2020: Structured Therefore by 2020, operator purchases will be: Conducted under structured agreements Negotiated between operator organizations (individual or managed) and: Manufacturers, and/or Distributors Compliance and consumption building responsibility at a local level Sales processes move up to strategic level represents millions and 10 s of millions. Page 18

19 Foodservice 2020: Structured Contract terms to build around: Product spec s Quantities to be purchased Pricing formulas Risk mitigation mechanisms Performance metrics both parties Rewards and penalties Therefore, Greater analysis to assure financial and fulfillment conditions are acceptable and viable. Page 19

20 Foodservice 2020: Requirements Anticipation of Foodservice 2020 will call leadership to action. Actions Developing the analytics Structuring targeted value proposition Directing efforts versus hunting for the business Measuring activities and results Using the feedback loop to adapt and improve Deliverables Clear understanding of the situation Tailored and targeted response High performance customer portfolio Measurement drives results Constant improvement is the name of the game Page 20

21 Implications Process More transparency through out the supply chain Drive to promote at the consumer level Reallocation of trade funds to reflect ROI potential Stricter enforcement of program requirement at both the distributor and operator levels Trade dollars will shift from the distributor to the operator and consumer Organization Trade will become a strategic part of the organization Trade will develop as a separate and distinct group with Director/VP level responsibilities Field Sales will be measured on their trade results Brokers and Field sales will have compliance and ROI responsibilities as part of their compensation

22 Implications.. Analysis Post promotional analysis will be a standard process Analytics will be conducted by a group with the Trade Investment Organization Analysis will be at the unit level not summary Data and insights with distributor and operators in annual negotiations Systems Technology will play a major role in driving ROI Trade Investment will be automated through EDI and later GS1 standards reducing settlement FTEs and time Pricing and Trade Investment will be integrated to include Cost to Serve

23 Distributors and Manufacturers will collaborate in very targeted narrowcast promotions vs. the old broadcast flyer mentality For a promotion to be effective, five things must come together in close coordination with one another: Right Operator >> Right Product >> Right Price >>Right Messaging >> Right Timing: Scientifically Targeted Approach No Does the Manufacturer supply product to the operator via another distributor? No Yes Is the Distributor economically incented to make sale? Not a collaborative promotion target Yes No Collaborative Promotion target identified Not a collaborative promotion target Yes Only 28% of operators are viable targets! Collaborative Promotion target identified Is the operator a Distributor customer? Yes Does the operator purchase the Manufacturer s Product No Does Distributor supply a substitute product to the operator? No Yes Is Distributor economically incented to make the sale? Not a collaborative promotion target No Not a collaborative promotion target Yes Not a collaborative promotion target The infrastructure and analytical capabilities now available make the odds of trade investments being squandered obsolete and enable a new era of collaborative promotion with trading partners. Page 23

24 Outlook for Trade Investment 2020 The focus on trade will shift to the Outcome of the program vs. the Control of the spend Earned Income will shift from table stakes to Performance based with shared goals Manufacturers and Distributors will increasingly partner to achieve Mutual Market Share Target of operators by the distributor will become more scientific and collaborative with their manufacturer partners The aggregated purchase GPOs will disappear the surviving GPOs will have a value added component and provide both the distributor and manufacturer with complete visibility Direct Consumer targeting via technologies such as SpoonByte & Groupon etc. will continue to evolve Total Trade Investment will not decline and may in fact increase as the true ROI of specific programs are revealed Operator GPO HQ Food Service Manufacturer Local Distributor Distributor Operator Information/Claim/Settlement Product/Invoice Operator Distributor HQ Promotion Patrons Page 24

25 Agenda Quick Intros Definition of Trade Investment Review of where we are 2010 Foodservice Trade Survey Point of View -Where we are heading. MarketIntelligence/ Hale Group 2020 Panel Discussion with Dror Karidi, Senior Director Operational Strategy- US Foodservice Scott Modica Vice President Smithfield Packing Q&A Page 25

26 Questions for Dror and Scott: Where do you see the industry going? What are the significant factors that would change? How is distribution and B2B different than B2C and are there any analogies to be made? How do you see collaboration between Manufacturers, Distributors and Operators changing over time? Page 26

27 Thank You! Page 27