While there are many differences, there are some common attributes between retail promotions and foodservice contracts:
Both Foodservice and Retail manage claims from ‘indirect’ customers.
- Foodservice has distributors and re-distributors, which sell product to national and local operators. Operators are restaurants, cafeterias, and other indirects that claim discounts. Sometimes the distributor will claim the discount on behalf of the operator. Deviated pricing is an example. The operator has a contractual price of “x”, and the distributor purchased it for “y”. The distributor will claim the difference.
- Retail has wholesalers which sell your product to indirect customers. The indirect retailer may submit a claim for a scan event, or the wholesaler may claim on behalf of the indirect customer. For example, in the organic and natural category, UNFI will deduct on behalf of Whole Foods, your indirect customer.
- Promotions and discounts to indirect customers is always challenging. That’s because your sales and claims aren’t aligned. Retail and Food Service share this challenge.
Both retail and foodservice have long-term discounts.
- Foodservice has earned income agreements, where a distributor will earn “x” percent of everything that’s sold through all of their divisions. Sysco and US Foodservice are examples of distributors that claim earned income.
- Foodservice operators also negotiate long-term contracts that establish prices. These operator contracts are the basis of deviated pricing claims from the distributors.
- If you sell in the North East United States, your retail division probably participates in the C&S Crossroads program. C&S is a wholesaler that charges “x” percent on everything they purchase in exchange for not diverting your product to other markets.
- Retail has other long-term pricing similar to annual Foodservice contracts. EDLP (everyday low prices) tend be longer induration than other retail promotions like TPRs and Scan events. In some categories (pre-packaged salads, and categories that have large category SKU counts like spices) there can be multi-year contracts that include growth allowances and long-term pricing, similar to foodservice.
- Both retail and foodservice have long-term contractional discounts.
We only have a few similarities. To see some of the differences between retail promotions and foodservice contracts, go to our blog at www.cgsquared.com.
Alex Ring
Co-founder and President
CG Squared, Inc.