CHECKS AND BALANCES 2001

Peter Perrotta

To say that Mrs. Smith's Bakeries spends a lot on retail-trade promotion would be an understatement. Its trade-promotion budget is so big that it's more than what the company spends on salaries.

"It's a high item now," said Steve Boynton, director of sales planning and trade marketing for the Suwanee, Ga.-based company.

That's why Mrs. Smith's has been managing trade funds much more closely than in the past. After implementing a trade-funds management solution, it's now budgeting its funds on a macroeconomic level.

"This week, for instance, I am already looking at budgeting levels for trade dollars in 2002," Boynton said.

Mrs. Smith's is not alone in getting more control over its trade spending. As most consumer packaged goods companies have watched their budgets for trade dollars balloon, management of these funds has become a top priority.

"The biggest difference is we ARE managing (trade promotion dollars) now," added Harold Strunk, vice president of customer support, Eagle Family Foods, Tarrytown, N.Y. "Three years ago, it was much looser."

Four years ago, 53% of a domestic, consumer product goods company's marketing budget routinely was spent on trade-promotion dollars channeled through retailers. That figure has increased to 61%, according to the just-released 2001 Trade Promotion Spending and Merchandising Study from Cannondale Associates, Wilton, Conn.

Cannondale partner Don Stuart said domestic CPG companies now spend anywhere from $90 billion to $100 billion each year on trade promotion programs funneled through retailers.

"It's a tremendous amount of money," Stuart said. "It's the No. 2 line item on most manufacturers P&L, right behind cost of goods."

Stuart said 85% of CPG firms recently surveyed cited management of trade dollars spent with retailers as an area of "critical concern." Fred Schroeder, vice president of sales, North America, MEI, a Montreal-based trade-funds management solution provider, said there's a large void in the ability of manufacturers to know where their trade dollars are at any given point in time.

He said a number of CPG companies have what he called "piece meal" systems for tracking what they are spending and what the deductions are.

"There isn't a total systematic process," said Schroeder, who's based out of MEI's U.S. office in Basking Ridge, N.J. "All that analysis work is extremely laborious. It's very cumbersome to track and rate performance in this area."

Schroeder said manufacturers need to do a better job of analyzing whether the money they are spending is driving their business objectives.

"The figures are that 78% of the manufacturers don't even analyze the performance of their promotions," he said. "The lack of analysis is huge. They need to make a big improvement in this area."

In their attempts to do just that, various CPG firms are trying to find a better way to track promotion spending, evaluate spending against sales, and use return-on-investment information for planning future trade promotions.

Boynton said the downturn in the economy, the growing trade budgets and the continued desire to cut costs have led manufacturers to scrutinize their trade-promotion budgets like never before.

"As business softens, one of the first things we do is look at the huge trade budgets we need to firm up," he said.

The arena for these trade dollars is a much tougher playing field these days, said Boynton, citing that retail consolidation has created larger, more powerful retailers that want better prices.

But until three to five years ago, most CPG firms did little in way of management of these funds, according to Strunk.

"There were tremendous overspends on what was budgeted," Strunk said.

Manufacturers routinely overspent because they simply didn't have a handle on how much they were spending or how effective that spending was, experts say.

However, all that has changed with the advent of new technology that now enables CPG firms to track trade spending in real-time.

Both Mrs. Smith's and Eagle Family Foods use a system by Gelco Information Network, Eden Prairie, Minn., called the Trade Management Solution.

A host of other products are on the market as well. Vista Technology Group, St. Charles, Ill., for instance, has just released VistaCPG 6.3, its latest solution for the consumer goods industry. The model features total volume planning capabilities, support for national account programs and multiple language support. Account managers can use it to model predictability based on syndicated data, plan account promotions, analyze promotion plans, request approval for promotions, print trade forms, and designate customer acceptance or rejection of promotion plans, according to Vista.

"Over the past three to five years the technology has improved a lot," Stuart said. "We now have better technology with more integrated databases to work with."

Stuart said that most trade-fund management solutions now integrate databases that track shipments, costs and syndicated information from groups like ACNielsen and Information Resources Inc., that measure things like market effectiveness and customer support for promotions.

"The key now is that everyone is using something," Boynton said. "Years ago, we had an idea of what we were spending and how effective it was, but we really didn't have a good system."

Mrs. Smith's has been pleased with the results of its trade management system.

"Now, I can say at least that we have wrapped our hands around our trade budget," Boynton adds. "Now, we can see what we spent in the last 60 to 90 days. We can see exactly what these promotions cost and what we paid."

Boynton said his company doesn't routinely overspend anymore, either.

Eagle's system has allowed the company to determine whether there is any money left over. If there is, it can then reallocate those funds.

"It gives us more flexibility because we now have a better feel of where the money is going," said Strunk.

Moreover, the new software solutions and applications provide the manufacturer with better knowledge.

"We know what worked and what didn't work," Strunk said. "We get up-to-the-minute reporting on our trade-dollar spending and overnight reports.

"At any given point in time we can get reports on this stuff. We can watch it much more closely."

Stuart said that most of the trade-promotion dollars CPG companies spend go toward providing retailers with funds for price reductions, feature ads in their circulars, special displays like endcaps in supermarkets, or a combination of these.

While most CPG firms have embraced the management of trade-promotion dollars, there is still a lot of work that needs to be done, Stuart said. In Cannondale's most recent survey, 10% of the companies said they are doing a "highly effective" job of managing these funds, and 48% said they are doing a "somewhat effective" job of managing trade funds.