There are rumblings, albeit quiet and off in the distance, that foretell industry progress toward adopting more efficient trade promotion practices.
Growth in joint programs for category management, continuous replenishment and electronic data interchange is putting retailers, wholesalers and manufacturers in the same room to discuss mutually beneficial projects.
It's these types of collaborative programs, what one retailer dubbed "a new mating dance," that can bring trading partners closer together on the promotions issue.
However, whether the industry will realize the full vision of efficient promotion -- projected savings of $11 billion -- remains to be seen. New business strategies and relationships built on trust must emerge from what is now a tenuous climate.
"We're all like bashful kids at the junior high dance," said one retailer. "We don't know how to approach each other" -- or how to approach difficult issues, such as the discontinuation of forward buying and diverting as part of a continuous replenishment partnership.
Other obstacles remain. Even talking about promotional issues presents a major stumbling block. The same antitrust angst that stalled industry-sanctioned research into promotional practices one year ago has cast a pall over open dialogue on the subject.
"You're talking about a change of life. It takes time," said Tom Montgomery, vice president of merchandising at Farmer Jack, Detroit, a division of A&P, Montvale, N.J.
There are costs associated with adopting more efficient trade promotion practices, he added.
"While the long-term goal is to become more efficient, there is a short-term cost because some of these inefficiencies, like allowances and that, are built into your profit structure. You just can't unhook them overnight," Montgomery added.
Indeed, replacing income generated from diverting and forward buying is a major issue for retailers, said one top executive at a chain operating more than 100 stores.
"We are not all going to unilaterally raise our prices and make up the income that way, because our friendly competitor down the street will beat our brains out, or vice versa," said the executive, who requested anonymity.
Nevertheless, some signs of progress may be appearing on the horizon. Peter Harding, vice president of Kurt Salmon Associates, New York, said he is seeing a shift in buying practices that could lead to a reduction in the nonvalue-added costs of trade promotion.
"There continues to be a greater movement toward alternative ways to buy or sell that don't rely on periodic off-invoice or other deal-driven allowances, which essentially reduces the necessity for a distributor to engage in forward buying and diverting activities," he said.
"I think a lot of this is happening as manufacturers and distributors work together, particularly on continuous replenishment programs.
"It's difficult, if not impossible, to manage continuous replenishment programs effectively if you still have deal-driven buying," he added.
Growth trends in CRP are borne out in an Efficient Consumer Response progress report to be released this week at the Food Marketing Institute convention in Chicago. In a survey, retailers, wholesalers and manufacturers involved in CRP indicated they would more than double their CRP activities in terms of number of partners or number of cases.
"Similarly, people plan to significantly expand their joint category management programs," Harding added. "So as these things move from being the exception to being the way a lot of business is transacted, you'll see a shift" toward more efficient trade promotional practices.
Another initiative whose expansion could reduce excess costs linked to promotional activity is electronic data interchange.
The complex deal structures that have proliferated in the industry invariably lead to disputes between manufacturers and distributors. Industry estimates indicate retailers are able to match their purchase orders to manufacturer invoices only 30% of the time.
Industry observers say the use of EDI to transmit promotional information could streamline the process and reduce time and energy spent reconciling invoice discrepancies and deductions.
EDI, continuous replenishment and joint category management programs are viewed as steps in the right direction, initiatives that can lead to more efficient business practices, including trade promotion.
"It's a better way to do business," said one retailer who asked to be unidentified. "It's the transition period that's going to be the painful part of it."
Among those in the manufacturing community frequently cited for making strides toward better promotional practices are Procter & Gamble, Cincinnati, and Kraft Foods, Northfield, Ill.
"Other national manufacturers are also committed," said Farmer Jack's Montgomery. "Some of the best retailers in the industry are committed. The evidence is out there already."
However, trust issues and a resistance to change threaten to derail efforts to improve the efficiency of trade promotion.
"We've got a generation of management and people that have done it the other way. That presents a problem," Montgomery said. "The second thing is ongoing pressure of doing business, making money, [answering to] stockholders. You have to be able to maneuver yourself through this while satisfying their desires and yet get to the other side."
For independent retailers working with manufacturers through their wholesalers, trade promotion issues are different than those of their chain counterparts.
"It's more difficult because too many of the manufacturers have a hard time understanding what the role of the wholesaler is, and then how they are supposed to bring all of the money through to the independent," said Charles Butson, owner of Butson's, a Woodsville, N.H., independent serviced by Supervalu, Minneapolis.
"We've been working with our wholesaler within what's going to be efficient promotion," he said. "We see it evolving to that closer working relationship, with independents collectively working together when it comes to supporting the warehouse buying activity."
The desired outcome, he said, is for independent operators to see more of the promotional money tied to case performance and volume of products sold, "and to get away from some of the very hard-to-judge aspects of performance."
Butson said he meets weekly with Supervalu representatives "to review what our objectives are, merchandising-wise, and to see what [promotions] they're being offered and how we can work together to bring that to the consumer."
Keying in on the consumer, and the true purpose of promotion, is pivotal to progress in efficient promotion, said Kurt Salmon's Harding.
"ECR is not against promotion per se. What it it really says is the role of promotion is to stimulate trial by consumers, and when it's used for that purpose, it's a very valuable tool," he said. "But it's become so widely used and abused to become a push-oriented strategy."
Making the shift from product push to consumer demand, or pull, will take time and commitment from all industry players.
Some retailers are not so optimistic: "It is a real dilemma. No one knows where to go. It is paralyzing," said one retailer who said industry players have grown accustomed to the nature of promotional practices today.
"It's almost like instant gratification with promotional allowances," he continued. "If you were to promote based on the quality concept, it takes longer to get the quality message out and develop product loyalty. So I think with promotion, both the retailer and the manufacturer are looking for instant gratification, not a long-term commitment to get that product to work."
Another retailer echoed that skepticism. "When will significant progress be made in efficient promotion?" he said, repeating the question posed to him. "Couple, three years. End of the decade -- end of the millennium. Maybe then we'll have something. We'd better or we'll be out of business. And the new formats will take over."
