Brace yourself for a tough year in 2016. Consumer goods/food producers face a better outlook than our peers in other industries. Tight spending consumers will focus on replenishment of staples and home cooked meals versus premium products and restaurant dining. Listed below are Export Solutions “Ten Tips for Turbulent Times”.
1. Track consumption as well as shipments – Consumer purchases reflect the true health of your business. Look at syndicated data consumption figures or warehouse withdrawals from major customers. Measure sell- through behind promotional campaigns versus previous events.
2. Watch Distributor/Retailer Inventories – Shipments to retailers may not correlate to consumer demand. Inventory levels measured in terms of weeks supply on hand should be monitored at both distributors and retailers. Higher inventory levels signal slowing consumer demand. Reduced inventory levels may indicate a cash flow/potential credit problem.
3. Retail Pricing:Value – Many brand owners took pricing action in 2015 to compensate for increases in transportation costs and raw materials. November represents a good time to conduct retail pricing surveys to calibrate current pricing. Special attention should be placed to pricing versus competitors and confirming that retailers did not raise prices in excess of the actual price increase. 2016 emphasis will be on “Value”.
4. Monitor Accounts Receivable – The global financial crisis sparked credit issues at distributors in several countries. A rapid surge in the value of the dollar has also made an impact. It may make sense to request updated credit information from distributors and retailers in certain countries. Suppliers finance departments routinely search for shifts in “Days Outstanding” trends. Scrutinize unusual bill-backs or trade deductions. “Follow the money”.
5. Review Preliminary 2016 Trade Spending Plans – Reduced consumer purchases could leave trade spending budgets under funded on a case rate basis. Look at early 2016 marketing plans to confirm that you are not overly optimistic on projected sales versus spend rate. Normally, retailers shift promotional emphasis to basic items versus premium goods. Competitive activity tracking may reveal that your competition has decreased spending levels. These factors suggest that a close eye on trade spending is warranted.
6. Distributor CEO Contact – Year end is an appropriate time for a lunch with the distributor CEO or a quick phone call. Key topics are status of the business in these “turbulent times”, cash flow, shifts in local retailer practices, status of capital expenditure projects, and an overall view of the Distributors operational plan for 2016.
7. Organizational Changes – Financial turbulence often leads to organizational downsizing at Distributors. Proactive dialogue with distributor senior management should reveal any potential reductions on your business team. Particular attention should be given to the brand manager handling your business at the distributor. Will they be changed or given a larger workload? Retail coverage is usually one of the first areas for headcount reduction. This could create issues for brands that are retail intensive or heavily dependent on in –store promotion.
8. Establish a Turbulent Times Task Force – Senior management hates surprises. It’s too early to sound the alarm bells. However, it is wise to identify potential negative scenarios and develop contingency plans with corrective action. A pro-active task force or informal group meeting provides group awareness and ownership of the issue versus a shift of blame to sales/marketing when shipment shortfalls are experienced.
9. Leverage your Strengths – Some brands will benefit from the slowdown. Find a way to participate in the sales shift to meals at home. Other brands may be positioned as “affordable luxury”. Retailers often use category leaders to reinforce their low price image. Find out what retailers plans are for turbulent times and adjust your own strategy appropriately.
10. Fast Start 2016– Many companies enjoyed good financial results in 2008. Are there orders in the system that can be moved to January 2016 ? This may be a time to shift emphasis to a quick start program for January and February 2016. Many retailers are looking for innovative ideas to attract customers in the slow, post holiday period.
Lastly, it is important to remember that a recovery is inevitable. We are fortunate to be participants in an industry where consumers still need to eat, clean their houses, and brush their teeth using the fine products we produce. Hang in there !
