A commercial perspective on risk

A commercial perspective on risk 1

The FMCG market is undeniably tough at the moment. High competition, inflation, and reduction in consumer spend are just a few of the obstacles brands are facing.

The reality is, some of the obstacles and challenges from the last few years could not have been foreseen, most could have been predicted and all could have been prepared for.

So, moving forward, what risks should you be live to, and how can you mitigate them? Our Sales & Commercial team at YF, share theirf perspective.

Risk #1: Inflation

“Sadly, inflation is here to stay for a while longer, however there are a couple of things we can do to minimise this risk.”

  • Value creation through revenue management
    It is not about taking money away or reducing investment. Instead, make sure you focus on looking at your investment and consider if it is adding value to the retailer, the shopper, the category and you. There are five levers to think about when analysing your revenue management: price, promo, pack and portfolio and trade terms. You might find a better way to unlock value by reconfiguring your spread of investment.

  • Create a clear customer segmentation strategy
    During this time of inflation, you may need to make some hard choices about your customer base. It might really help if you create a framework internally where you consider who the really important customers are, versus the ones that might be less important. Think about things like their scale, their potential for growth, their relationship with you and their profitability. Once you have worked through this, it can really help speed up decision making and ensure objectivity.

Both of these action points are worth considering to prevent you from missing out on opportunities you might not have realised were there, and ensure you become smarter with resource allocation. 

Risk #2: An unpredictable customer landscape

“We saw a huge amount of change in the backend of 2022 – e.g. disruption in the Q-comm world and wholesaler Tree of Life falling into administration – many of which could not be predicted but could have been prepared for.”

  • Be close to the customer detail
    Look at your customers’ financial statements. Have you got a good view on their revenue and their profitability. Look in the news and check in with your network about their financial health. It is really important to be up to date with their status. If you are concerned about a customer then consider modifying the ways in which you work together. Perhaps consider reviewing payment terms. Ensure you have the right visibility of stockholding, and most importantly think about having a plan B if they are a wholesaler – who do you know in your network that can service this listing if it does go under?

  • Diversifying your customer base
    Look at your channels and your retailers, what percent of sales is going through one channel? Can you diversify to reduce dependency on certain channels or retailer? It is worth considering less mainstream channels such as food service and export; we are seeing a number of brands achieve great success when doing so.

It is really worth preparing for the volatile customer landscape, otherwise you may end up having to find clearance routes for surplus stock which will further squeeze your profitability.

Risk #3: Range simplifications

“The reality is that retailers will continue to make range cuts.”

  • Think strategically
    Shift the conversation from day to day or transactional to longer term. Think about what is important to the buyer, what is on their three year roadmap. What can you work on together that is on their strategic agenda? Think purpose driven activations and projects, value chain initiatives, and exclusives. This will increase your value with that retailer.

  • Deepen and broaden relationships
    It is important to remember that ultimately working with your customer is really about people working with people. So maximise that emotional connection that you have with your buyer. Focus on building trust with your buyer and demonstrate you are someone that is easy and enjoyable to work with. Who are the key people in their business and how can you get them engaged with your brand? Think junior as well as senior.

Consider these ways of improving your work with your retailer otherwise it is likely they will begin to make unrealistic requests during this unstable time that will strain the relationship.

Can we help you?

Here at YF we offer Sales & Commercial advisory. Our team has over 30 years of experience working with customers from multiple RTM channels and we know the FMCG industry inside out. We can help you through common challenges and best position your proposition for growth.

If you are looking for further support, we are always open to discussing your needs and our solutions. Get in touch today.

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