Each year, there are always a few new themes that tend to surface from Expo West. This year, as usual, food innovation was evident everywhere (plant-based candies and gummies, anyone?). But if you look beneath the surface of the booth displays and samples, there was another identifiable trend we noticed: a focus on sustainable growth and profitability. In just about every conversation we had, it was apparent that more than ever, brands were exploring ways they could save time, money, and grow profitably.
While focusing on sustainable growth and profitability doesn’t sound like a groundbreaking concept, consider this: according to the FABID 2023 Annual Report, CPG venture funding hit a 3-year low in 2023, dropping to $1.6B – a 36% decrease from $2.5B in 2022 and 43% decrease from the peak of $2.8B in 2021. Last year was a wake-up call for CPG. It was especially hard on brands whose growth and operational survival depended on a successful fundraising round. Understandably, that left the brands that made it through this “CPG Winter” with a valuable lesson: to grow and thrive, no matter the circumstances – they absolutely must learn to operate profitably. Easier said than done, right?
As an organization focused on C.P.G. (cash, profitability, and growth), these are the types of conversations that are right up our alley because our services and platform help brands to operate profitably. In fact, we spent much of our time at the show learning exactly how our own client brands optimize their cash flow, profitability, and growth. After dozens of conversations, we noticed a few common themes emerging.
Most young brands walking into CPG distribution and retail don’t realize what they’ve committed to with deductions until they start getting checks for pennies on the dollar from their customers – or don’t get paid at all. Many opt to take the losses and move on. But in an industry where net profit margins are often measured in single digits, every penny counts. Can you afford to bleed 5-15% or more of your trade spend? Assuming that’s a portion of the typical 20-25% of the top line, that’s between 1-4% of your total sales number in lost cash and profit. (Note: That may even be a conservative estimate – on average, we’ve disputed 17% of our clients’ deductions.)
If you are just starting out and you have less than $2M in annual sales, this may not be a real problem – yet. But as you move into the $2M-5M annual sales range and beyond, deductions will really start putting a dent into your cash flow and gross margins. Whether you decide to manage deductions internally or outsource, you need a process.
After struggling on their own with deductions, successful brands Safe Catch and Bellwether Farms chose to outsource their deduction management processes end-to-end with the Promomash DeductionGenius deduction management service. The result has been a significant ROI so far.
“It’s far exceeded our expectations…just in the last 3 months, we have gotten back almost $180,000 in deductions. Obviously, it’s paying for itself.” – Kevin McKay, Safe Catch
"The first month with Promomash we had a $17,000 deduction that we were unaware of that they got us back within 3 weeks. It was amazing!” – Diana Callahan, Bellwether Farms
Any brand in retail will tell you that managing trade spend is a top priority. After all, it is typically the 2nd largest expense, averaging as much as a quarter of top line revenue. How effectively it’s managed can determine a brand’s profitability and, frankly, survival. Having said that, we’re amazed at how many brands still manage such a critical piece of the business on spreadsheets. Static, disconnected, complicated spreadsheets that require constant manual refreshing of data. Working so inefficiently can hold brands back from making impactful, timely decisions. Think about the missed opportunities, profits, and savings just because you didn’t know what you didn’t know.
Graza, a young and growing olive oil brand, had a more forward-looking perspective and decided they needed to ditch the spreadsheets sooner rather than later.
“In thinking about the tools that my team needs…I wanted to get us set up for success,” said Melissa Ferrie, Head of Sales at Graza. “That means getting this type of tool in place before we ‘need’ it, or feel like we’re outgrowing the millions of spreadsheets we have…[with] Promomash set up for our future success [we’ll] have years of data on how we’ve been performing, how we’ve been spending on trade, [and] have all of those insights available to use in the future years when we need it.”
While any dynamic platform could serve as a better option than spreadsheets, there are reasons why the Graza team chose Promomash. With the Promomash TradeGenius service, brands can proactively manage not just spend, but both sides of the equation (profit & loss, or P&L) from the top level roll-up all the way down to the customer (direct or indirect), product, or promotion level. And with Crisp sales data updating daily, performance at all levels can actually be monitored in near-real time. This empowers brands like Graza with easy and quick access to in-depth sales and spend insights that, as Ferrie said, “are invaluable to make quick decisions.”
“For us it was an easy decision…spreadsheets can get you only so far. The disparate pieces of information make it harder to move quickly,” said Ferrie. “We need to be able to serve our customers and make plans that make sense. [Now we can] move quickly and plan efficiently.”
Other leading brands like Lundberg Family Farms and Rishi Tea & Botanicals are on the same page.
"The tool has allowed me and my team the ability to strategically deploy our somewhat limited trade spend by account. It’s been amazing.” – Matthew Wood, Rishi Tea
“Promomash allows us to have all of our deductions, promotional planning, and forecasting all in one place. Previously we really struggled with being able to clear things in time. Now we’re on top of our spend and able to reallocate our trade and use it more efficiently.” – Catherine Youngblood, Lundberg Family Farms
The high failure rate of CPG brands once they hit retail is often cited, for good reason. This is not an industry for the faint of heart. If surviving is hard, it’s even more difficult to hit a stretch goal or revenue target. In CPG, experience and guidance are extremely valuable. This is not the type of industry where you should try to “figure it out” on your own. Those who know this tend to be repeat entrepreneurs who have already tried it and failed. And the best ones share their knowledge to help other brands (one of them is our founder).
Several brands we spoke to at Expo West expressed the difference experience made when it came to choosing Promomash, and how it made for a successful implementation and onboarding process. One ambitious brand in particular, Mid-Day Squares, stands out. Taking the world of chocolate by storm and working towards $100M, this young brand had the foresight to know how valuable experience would be when they chose Promomash as a trade promotion management and deduction management partner.
“Having someone that is so used to how it works within the industry helped so much,” said Alex Trinh, VP of Revenue at Mid-Day Squares. “Implementation and to be up and running within a couple of weeks was crucial for us, so we wanted to make sure we had the proper onboarding to make sure that we were live…we had deadlines to hit, we had budgets to prepare, so Promomash definitely helped us with that.”
Trinh went on to say that it was his Promomash support team that was the “biggest differentiator” so far. Plenty of other brands at Expo West like Clearly Canadian, 4th & Heart, Gimme Seaweed, and Milkadamia agree with this sentiment, as shown in this video. The right software is nothing without the right guidance and support to get the maximum benefit from it – especially when you’re talking about your huge investment in trade spend.
Spending time with so many thriving brands at Expo West 2024 was invigorating. Hopefully their perspectives will be helpful in assessing your brand’s path to sustainable C.P.G. (cash flow, profitability and growth). With an eye on the future and focused investment in the right tools and expertise, as these brands have demonstrated, it is possible.
What steps do you need to take towards sustainable C.P.G. for your brand? As always, Promomash is here to help. To explore what’s possible, contact us today.