TABS Analytics Blog

Wells Fargo Trade Promotion Insights

This article is a summary of one that was published by Wells Fargo Securities, LLC in an April 2016 Food Equity Research Report.

Reduced trade promotion is a leading cause of soft CPG sales

Causation has been found to exist between trade promotion and retail sales, benefitting the baseline and driving incremental purchases. What’s seemingly a straightforward approach in appealing to consumers’ fundamental need for deals has been overcome by an increasing focus on full revenue sales by manufacturers. The reduction in trade promotion has been associated with a fall-off of incremental sales and softer baselines. Net, it may be in the manufacturer’s best interest to promote more, rather than less, given the positive correlation with sales, the ability for trade promo to act as a barrier to entry, and to preserve share of shelf as a cost of doing business with retailers.

From the retailer’s perspective, the shift to loyalty cards has been met with muted incremental sales on deal. By contrast, the traditional approaches such as “everyday low prices” (EDLP) and circulars remain most effective in driving conversion. Dr. Jetta advocates for a renewed emphasis on traditional promotions and often, a larger promo spend rate, as helpful to end the five-year sales malaise having affected the consumables industry.

Elaine Watson of Food Navigator-USA interviewed Dr. Kurt Jetta of TABS Group last month regarding the Heinz-Kraft merger. Dr. Jetta weighed in on the merger on several key points:

What happens when you tie a pair of stray grocery carts together? Do they start gliding across the parking lot in a straight line or do their wheels lock up and go nowhere? Drawing upon real-world experience, the answer to this riddle is no big mystery.

TABS Group Founder and CEO, Dr. Kurt Jetta, was recently interviewed by Elaine Watson at Food Navigator, as one of three experts speaking about the Safeway-Albertsons merger. In the article, Dr. Jetta pointed out some of the challenges both Safeway and Albertsons face:

Target is finally handing Canadians the deep discounts they crave on shampoo, smartphones and swing sets. Too bad it's for the last time. In one of the great humiliations of North American retail history, Target has begun liquidating more than 130 stores in Canada, after just two years of operation that spurred $2 billion in operating losses.

Like many of its counterparts in the yogurt category, Chobani has become a household name and skyrocketed to success over the past few years. However, the recent reports of drama in Chobani’s C-suite are indicative of larger problems. According to our founder and CEO Dr. Kurt Jetta, Chobani’s recent issues (over-investing in an expensive production facility in Idaho, a product recall in 2013, and disappointing performance of new products) are signs of an overall problem with Chobani’s strategy.

Dr. Kurt Jetta was recently quoted in the New York Post regarding the recent difficulties that Greek yogurt maker Chobani has faced. Spurred by falling shares and slowing topline growth, Chobani needs to now focus on the realities of a much more competitive market. As Jetta stated: “They never embraced the reality that the market had changed, the category was maturing and that a shakeout was inevitable.”

TABS Group Founder and CEO Dr. Kurt Jetta is featured in a recent Drug Store News article about the analgesics market: