By Stew Bishop, President and CEO
Gone are the days when finance-driven consumer packaged goods companies could have their own top-down selling organizations (including direct retailer headquarters representation and store level support) as a part of their go-to market strategy. Most CPG companies have adopted a brokered retail organization, convinced that it is more efficient. 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 – applying pressure to all other parts of the P&L. Human resources are the second-highest expense after cost of goods for most CPG companies. This line of the P&L has been managed relentlessly with CFOs expecting continued, high levels of retail execution with very limited retail reach.
With this backdrop, I am often asked for a perspective on how a modern CPG organization, with roughly $100MM in volume, should structure their organization.
Most manufacturers of this size have just 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 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. Many of these companies have more people in consumer marketing than they have in field sales management.
This typically results in an organization that is “idea-rich and execution-poor.” The headquarters’ plans greatly exceed the executional capacity of their field operation. Effectively managing a large broker requires headcount in the field demanding attention and performance. Today, many smaller manufacturers have their Head of Sales based in a geography remote from headquarters, interacting online and by phone. This is unfortunate as it impedes “in person” dialogue around planning and execution and can result 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 a price increase at shelf, when in reality, it is only at list, with no real 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 can organizations like this improve their situations? Develop truly innovative product ideas that meet actual consumer wants and needs and a professional, properly resourced team that sells products through fact-based, scientifically-sound sales “controllables” management.
Can it really be this simple? In our experience, yes. Consumer packaged goods manufacturers are in the business of distributing quality products, pricing them effectively and promoting them responsibly. They must also be kept in stock with effective shelf and supply chain management – all while providing shareholder or investor value. It begins with marketers, since they are responsible for most of the decisions that restrict scope of opportunity for the rest of the organization. An effective Customer Marketing team skilled in managing the reality of the marketplace requires a Brand Marketing team equipped to make decisions that can be sensibly executed at retail. As I addressed in a previous blog post, this includes responsbily pruning skus so that top performers may flourish.
This internal team must also effectively manage the vast budget dedicated to distribution, price and promotion of their product lines. The effective field sales organization team executes the plans and direction supplied, while feeding back retail and customer reality into those plans.
This requires an execution team that outnumbers the planners. To the extent feasible, the retail team should be employees of the company who ensure the execution of the firm’s priorities. Ideally, there would be a direct account handler to represent the CPG at each major customer’s headquarter location and a minimum of one employee to manage the firm’s retail efforts. Direct retail employees are very effective but often unrealistic for smaller firms. Ideally, the organization would commit to account-specific retail brokers who specialize in an individual retail chain, providing solid regional market coverage, rather than the national brokers.
It is doubtful 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. One way to effectively control the heavy flow of new products in a modern CPG company is to limit the number of brand marketers, while ensuring the customer marketing team access to retail analytical expertise – talent that is increasingly scarce. Smaller CPG companies will have to engage an outside agency for retail customer investment optimization along with other tasks that have traditionally been managed internally – reminiscent of the relationship between field sales and brokers.
The CPG also needs a “smart team” comprised of highly skilled individuals who understand consumer insights and appropriate trade fund management and have keen negotiation skills and political weight within their company. They should also be mobile and move frequently to sell and close major change initiatives with retailers.
Typically, financial investors aren’t open to direct field sales employees. CPGs should focus their direct employees on key HQ retailers but still have at least one direct employee to manage efforts at retail for key accounts. Even the best broker organization needs supervision to ensure that a manufacturer’s objectives are appropriately prioritized. Limiting the number of brand marketers, outsourcing expertise for customer marketing, building a dedicated “smart” team, and developing a responsible mix of direct and broker resources can turn an evolving organization into a highly functional go-to-market force.
Contact us to learn more about how CMG helps our clients with the execution of great ideas at retail and how that might benefit your organization.