A perfect storm in trade promotions

CPG and retailers that don’t refine their promotion strategies will face a tough ride in 2013.

CPG and retailers that don’t refine their promotion strategies will face a tough ride in 2013. Food price hikes that grow dollar sales but impede unit volume force manufacturers to promote in order to move units. It’s a costly way to retain or grow share—trade-spend is the #2 CPG expense after cost of goods at about 20% of gross sales. Yet while CPG amps up its spend, 62% of retailers “take more margin on promotion than they did last year” and 46% move towards “more of a clean-floor policy,” limiting available space for shippers and displays, according to new research by Acosta’s AMG Strategic Advisors. The result: higher prices for shoppers and less visual impact on the selling floor. The situation isn’t pretty, imply findings of the report, A Shift in the Lift: A Study of Key Factors Influencing Trade Promotion Effectiveness. Many households continue to struggle financially. Two-thirds of shoppers (67%) tell Acosta they’re “buying less and sticking to a budget” these past six months. Also, 59% say more than half of their shopping basket includes items on deal. More than half polled (54%) say they’re buying fewer unplanned items on impulse. And if prices aren’t where shoppers want them to be, they’ll often wait: 65% say they “expect certain products to be on sale and, if they are not, they will wait until they are on sale to purchase.” Of 127 categories examined, 70% had a lower average promotional lift in 2012 than in 2011. The report anticipates that 75% of retailers will be either EDLP or in a hybrid EDLP/high-low price format within three years, supported by trade-spend that’s allocated to buy price down either everyday or long-term. Shopper Marketing is expected to be 16% of total marketing spend.