In the world of beer distribution, supplier pressure and placement drives can lead to unintended consequences that cost distributors profits. When sales reps are focused on meeting targets, they may be more likely to place products in stores without considering their rate of sale vs the expiration dates or whether the product is a good fit for the store and its customers. This can result in products expiring or being returned, causing lost profits and additional costs for handling and transporting returned products.
In addition, if sales reps are not properly trained or incentivized to sell the right products in the right store, they may not be aware of the potential consequences of placing products in the wrong stores. This can lead to the distributor having out of code products on store shelves, which can result in higher costs, legal disputes with suppliers, and damage to the distributor’s reputation.
Suppliers pressure on sales targets
Picking up a lot of out of code product? Your supplier incentives might be to blame.
Suppliers may pressure their distributors to sell the wrong products in the wrong stores through flawed incentives by offering financial rewards for achieving certain sales targets.
For example, the supplier may offer a bonus to the distributor’s sales reps if they are able to sell a certain amount of a particular product within a certain time frame. This can create pressure for the distributor to sell the product quickly, even if it means placing it in stores where it may not be sold in time or may not be appropriate for the store’s customers.
This can lead to the product expiring or being returned, which can be costly for the distributor and damage their reputation.
It is important for distributors to carefully consider the incentives offered by suppliers and ensure that they align with the distributor’s goals and values.
These costs are distributors’ problems
When a supplier sells product to a distributor, the cost of out of code product does not come out of the supplier’s pocket. Instead, it is the distributor who bears the full cost of the product. This includes the cost of warehouse storage, merchandising, marketing, and selling the product.
In some cases, the distributor may be able to recover a portion of the cost of the expired product, but this is typically only a small percentage of the original cost. The net result is that the distributor bears the majority of the cost of out of code product, which can be significant and impact their profits.
When a product is close to its expiration date and has only a few days of shelf life remaining, distributors often incur significant costs in moving the product to new stores that can sell it before it expires. This can include shipping costs and labor costs for handling and transporting the product.
These costs are often hidden and not properly considered by the distributor, because they can be hard to track. As a result, the distributor may not be aware of the full extent of the costs associated with moving close to code product and may not take this into account when making decisions about the placement of products in stores. This can lead to unnecessary costs and reduced profits for the distributor.
Supplier Co-Op MBOs/PFPs and their unintended consequences
If a distributor’s sales reps are responding to supplier sales targets by placing products in stores without considering sell-through, it can lead to unintended consequences that cost the distributor profits.
Let’s consider when a distributor co-ops a sales incentive with a supplier on a product that eventually goes out of date. The distributor can lose money in several ways.
Firstly, the distributor will lose the money they paid to the sales rep as a co-op bonus. In addition, the distributor will have to pay the costs associated with returning the product, including transportation and handling costs. This can be a significant expense, especially given all the efforts to warehouse, sell, deliver, and now return everything back to the warehouse for destruction. The net result is that the distributor bears the full cost of the out of date product, as well as the cost of the co-op bonus, resulting in a double whammy to their bottom line.
How can we start to fix these problems?
To fix the problem of sales incentives that can lead to the placement of products in the wrong stores, distributors can take several steps.
First, they can work with their suppliers to develop sales incentives that are aligned with the distributor’s goals and values. This can include setting sales targets that focus on the quality of sales rather than the quantity, and providing incentives that reward sales reps for placing products in the right stores and ensuring that they are sold before they expire.
Second, the distributor can provide training to sales reps on the importance of selling products before they expire and the potential consequences of placing products in the wrong stores. This can help to ensure that sales reps are aware of the potential risks and are better able to make informed decisions about the placement of products.
Finally, the distributor can implement systems for tracking the sale of products and the amount of expired and close to code expense by sales route. This will help identify potential issues and take corrective action if necessary.
Distributor’s sales team aligns to solve the problem
A distributor can change their sales reps incentives to focus on volume profits and the cost of out of date products by implementing a new incentive structure that rewards sales reps for placing products in the right stores and ensuring that they are sold before they expire.
This could include providing bonuses or other financial rewards for sales reps who are able to manage sales though their stores while minimizing the number of out of date products. Distributors can provide good training to sales reps on this issue and have the proper sales systems to track and measure the results. This can help to ensure that sales reps are aware of the problem and are better able to make informed decisions about the placement of products.
By focusing on volume profits and the cost of out of date products, the distributor can help to reduce the costs associated with out of date products and improve their overall profitability.
Would you like to fix your Out of Date and Close Date Issue?
The VXP sales system helps beer distributors find and solve issues with expiring products, and lower their overall costs of promotions and placement drives.
The VXP team can provide expert guidance and advice on the most effective ways to identify and manage expiring products, and can help the distributor develop strategies for minimizing the number of out of date products. The VXP sales system provides real-time data on the sale of products and the costs of expiring packages, allowing the distributor to identify potential issues and take corrective action before it is too late.
By working with the VXP team and implementing the VXP sales system, beer distributors can improve their ability to manage expiring products and reduce their costs, ultimately improving their profitability and customer satisfaction. Contact us to discuss how VXP can help your business.