Negotiating Trade Expenses

Nowadays some FMCG companies are spending more money on the trade than on their actual marketing budgets, and realistically, as retailers continue to concentrate, trade expenses will continue to rise.

Why is that? And what can producers due to avoid it?

Clearly, the focus for producers during trade expense negotiations needs to be on optimizing return on investment. Below you will find the most common situations and argumentations, and some tips to face your trade negotiations.

1.  Try to maintain a healthy innovation ratio. As time passes by and products commoditize in consumers perception, the trade will need bigger and more solid arguments for you to justify existing listings. In this sense, consumer loyalty will be a powerful argumentation for you. The worst nightmare for a retailer is a consumer coming into a store and having a product the retailer does not have. Try to measure the loyalty of your brands and put it on the table!

2.   Also, it is difficult to negotiate with extensive portfolios. If the retailer has the strawberry, chocolate and vanilla variants, why should it take now a choco-vanilla variant? Try to keep your portfolio slim and only launch variants with real value added.

3.   Target chasing is usually missused, as retailers need to somehow finance the lower prices of their Private labels!. Try to understand your counterparts motivations, and always look for a win-win situation that allows to optimize return on investment.

4.   There are also some inherited situations, for instance if your company acquires another one. Evaluate whether the trade expense situation of your brand is in-line with the category and the rest of products in your company, and make a fair proposition.

5.   Negotiate at company level and individually by category. This is a way to ensure your total expense will not have a dramatic increase, and it’s a way to flatten inconsistencies among categories.

6.   Evaluate promotions consistently. Do not repeat a promotion just because it is what you do every year. Evaluate its profitability and if the promotion is not working, as for a counterpart or kill it.

7.   Define the role of your brands. You should have brands where you want to invest “investment brands” and brands you want to milk “trading brands”. Having a clearly defined trade expense strategy and a walk-away point is vital for a successful negotiation.

Posted by Ignacio Molins