The 3 fundamental KPIs in times of inflation
Gilles Dallest
I am a clear supporter of the “Less is more” philosophy, both from a personal point of view, as a lover of the minimalist lines of Scandinavian design, as in my professional life dedicated to the FMCG world since the end of the 80s.
I pretend that selling consumer packaged goods is not a complicated task. Complex yes, but nothing to do with sending a rocket of hundreds of tons around the moon. In fact, selling and buying has become for the “homo sociologicus” as natural as breathing or eating. It is clear, however, that the massification of processes and the acceleration of trends makes it increasingly complex to manage. To move around efficiently we do not need as many controls and information tools if we walk or if we fly an airplane, even if the purpose is the same.
Having to interpret and make decisions out of hundreds of thousands of data at an increasingly high speed is the current challenge of commercial teams in FMCG. The technology allows them to treat this data effectively, however, it is not always easy to know how to prioritize them and not look in all directions at once.
In the current context, what would be the three key indicators to monitor, why and how?
Distribution:
“If the product is not in the store, it will not be sold” distribution is THE indicator par excellence, so obvious and basic that it is sometimes overlooked.
The first concern of any manufacturer of consumer products is to make sure that their products are available and within reach of the shopper so that the act of purchase occurs. If the first stage of sales at the level of the purchasing center is overcome, it is essential to ensure that the logistics take the product to all the stores of the agreed network which, according to the distribution channels, can be a real challenge.
In hypermarket channels the visits of the sales force generally ensure the presence of the products, but there are very few manufacturers who visit the hundreds of supermarkets and very often the actual distribution of the agreed assortments is quite different from what it should be.
Rotations:
Average weekly (or daily) sales is the second fundamental indicator. The product is in the store, but is it sold? What is the sales trend? Positive? Negative? What do we observe when comparing stores with a similar profile? Can we identify assortment optimizations?
In a period as tumultuous as the current one, when an unprecedented crisis occurs, many shoppers change their buying patterns. Faced with the difficulty of balancing the family economy, they are forced to make purchasing decisions that redistribute the positioning of brands and categories. Are manufacturers’ brands essential? or Do I keep the distribution brand or a first price? Or worse: do I dispense with the purchase of the category?
Such are the trends that must be identified when it comes to piloting the business of a distributor or a manufacturer as best as possible. Monitoring rotations and comparing them between products, circuits, brands, and manufacturers allows to keep up to date with market developments and react as quickly as possible.
Price:
Inflation has returned after decades of nearly stable prices. We thought double-digit price increases had disappeared forever and here they are, rewriting the rules of the game that seemed engraved in stone.
In recent years, price elasticity surveys for consumer products in general only had relevance at the promotional level when there were significant discounts capable of accelerating (or not…) sales. On the other hand, 2022 and the sharp increases in raw material costs have forced manufacturers and distributors, in a veritable “domino effect”, to increase retail prices often beyond 10 points.
Monitoring price levels is more important today than ever but most of all by linking it with the two previous KPIs:
Do price developments have an impact on turnover and distribution? What can we do so that the shopper/consumer finds an offer that allows him not to leave the category and enjoy the best possible quality/price ratio?
How to do:
In order to answer all these questions, it is necessary to have DETAILED sell-out data BY STORE and channel in real time, allowing TO CORRECT DISTRIBUTION DEFICIENCIES and TO LINK PRICES AND ROTATIONS in order to detect market trends and take appropriate measures to address them.
The sell out data shared by distributors has the great virtues of having generally a granularity reaching store level with a daily or weekly frequency and an almost immediate availability allowing to calculate the three key indicators:
- Distribution
- Rotation
- RSP
Establishing the relationship between RSP and rotation to detect the effects of positioning changes on sales.
The “shaker”:
Apart from being clear about the importance of monitoring these three KPIs and having the sell-out data that allows them to be calculated, a technical infrastructure is needed to calculate and communicate the results in real time to the teams. The two keys to success are the rapid availability of information and the speed of reaction.
The flexibility of the tools is also a very important factor. Sometimes it is critical for understanding the situation to be able to add one more element to better understand the changes. It can be additional data such as the linear space in store available in CRM tools or sell in sales to measure stock variations in store and warehouses.
POS Potential’s mission:
At POS Potential we ensure that FMCG companies always have the necessary information available to achieve their goals, especially in difficult times without having too much or too little of it.
Speed and flexibility are also two of our strengths when it comes to adapting BI tools that allow our clients to make quick and wise decisions.
If you’ve made it this far, you’re already one step away from being able to sell more and better! if you haven’t already, follow our posts to drive this change!
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