Stew Bishop, President and CEO
April, 2016
Gone are the days when Finance-driven CPG organizations believe they can afford to have their own top down selling organizations as a part of their modern go to market strategy, including direct retailer headquarters (HQ) representation and similar store support. CPG companies have adopted a brokered retail organization, convinced that it is more efficient. Several decades of cost-cutting by CPG managers, motivated by major retailers’ threats of discontinuance, has resulted in margin erosion, price protection and inflated trade budgets - thus applying pressure to all other parts of the P&L. Human resource costs are most companies’ second highest expense after cost of goods. This line of the P&L has been managed relentlessly, with most CFOs expecting continued high levels of retail execution with very limited retail reach. Fueled by retailers’ mistaken beliefs that they can manage the chaos of their retail operations effectively, and marketers’ insistence on unwarranted distribution expansion, store conditions are deteriorating and out-of-stock conditions are rampant as retail system inventories are increasing. It is with all of this in mind, that I am asked to provide a perspective as to how a modern CPG organization, with roughly $100MM in volume scale, might go to market.
Most CPG manufacturers of this size currently have a handful of their own sales personnel managing their most significant retail customers. Less typically, these sales managers might be supported by a functional team of some sort close to the customer or in their own HQ. They rely on a commissioned national broker network to manage all other aspects of retailer HQ work and all retail store coverage. Most of these CPG companies have more consumer marketing personnel at HQ than they have in field sales management. The organization is idea-rich and execution-poor. Headquarter plans vastly exceed the executional capacity of the field operation. Effectively managing a large broker requires headcount in the field demanding attention and performance. It has become fashionable for these smaller manufacturers to have their Head of Sales (Vice President of Sales) based in a geography remote from HQ, mostly interacting online, and sporadically by phone. This is an unfortunate trend, due in part to the diminishing pool of qualified VPS coupled with the fact this remote location impedes “in person” dialogue around planning and execution. It results in a lack of corporate and financial discipline. With retailers being extremely resistant to manufacturers’ price increases, field managers and brokers now employ the majority of their trade spending budgets to price protect and maintain distribution. Headquarter Marketing and Finance personnel, who rarely understand retail operations, believe they have taken a price increase at shelf when in reality they have only done so at list, with no effective change on their Net Income lines. The trade budget continues to escalate (due to price protection) while expenditures against promotion, distribution and traditional marketing dwindle.
How do we structure an organization to improve the situation? Marketers should develop product ideas that are truly innovative, meet real consumer needs or wants, and can be executed at retail. A professional, well-trained, properly resourced selling organization should sell products through fact-based, scientifically-sound sales “controllables” management. Could it really be this simple? In our experience the answer is “yes”. Consumer packaged goods manufacturers are in the business of distributing quality products that consumers really want, pricing them effectively, promoting them responsibly, all the while keeping them in stock with effective shelf and supply chain management. Of course, they must do this while providing their shareholders or investors value. This begins with marketers, since they are responsible for most of the decisions that constrain the scope of opportunity for the rest of the organization. In conjunction with an effective Market Development Organization (MDO) or Customer Marketing Organization that is skilled in effectively managing the reality of the marketplace, the Marketing organization will be well-equipped to make decisions that can be sensibly executed at retail. This internal team must also effectively manage the vast budget dedicated to distribute, price, and promote their product lines. And what does an effective field sales organization look like? One that executes the plans and direction of the marketing and customer organizations, while feeding back retail and customer reality into those plans. This execution requires a team that will outnumber the planners.
To the extent feasible, the retail team should be employees of the company to ensure the execution of the firm’s priorities. Ideally, there would be a direct account handler to represent the CPG company at each major customer headquarters location and, at a minimum, an employee to manage the firm’s retail efforts. Direct retail employees are especially effective but probably unrealistic for smaller firms. I know of no direct retail organization that currently exists in the U.S. for small or midsize CPG companies. Ideally, the organization would commit to the abundant, account specific retail brokers that specialize in an individual retail chain, and provide solid regional market coverage, rather than the national brokers.
Let us temper the rather idealistic organization outlined above. It is unlikely that a small company will be able to build and maintain a marketing organization that has the experience or discipline to responsibly approach product development and introduction. The only way to effectively control the heavy flow of new products in a modern CPG company is to limit the number of marketers. This is not a radical idea, as CPG companies with limited human resources tend to work harder to produce innovative ideas that really work. The MDO needs knowledgeable and experienced retailandanalyticalexpertise. Unfortunately, headquarter talent in CPG marketing and customer marketing is increasingly scarce. Talent is often unwilling to relocate, and often treats small and midsized companies as transitions to bigger opportunities. It is likely that a smaller CPG company will have to engage an outside agency for tasks that have traditionally been managed internally - in a manner reminiscent of the relationship between field sales and brokers.
I very much like the idea of a “smart team,” comprised of highly talented individuals that understands consumer insights, appropriate trade fund management, keen negotiation skills, has political weight inside their company, is mobile, and moves frequently to sell and close major change initiatives with retailers. And finally, since the resources available, and the ability to educate financial investors on the importance of direct field sales employees are limited, one should focus their direct employees on key headquarter retailers, but should not give up on the idea of at least one direct employee to manage efforts at retail at each of these large retail accounts. Even the best broker organization needs to have supervision, to ensure that a manufacturer’s objectives are appropriately prioritized. A limited number of marketers, outsourced effective customer marketing, the presence of a smart team, and a responsible mix of direct and broker resources, can turn a limited organization into a highly functional go-to-market force.
To learn more about Trade Fund Brokerage and CMG’s unique approach to accelerated growth, contact Stew Bishop at (281) 738-2471.
