Trade spend habit hard to break

By Published on .

The reports of huge shifts food marketers are making from trade spending to consumer spending have been greatly exaggerated. But recent trends show marketers are at least attempting to monitor all their expenditures more closely to ensure maximum impact.

According to Ken Harris, a partner at Cannondale Associates, a soon-to-be released trade promotion survey of the food industry shows the average allocation of funds between consumer advertising and promotion on one side and account-specific marketing and trade promotion on the other has not significantly changed since 1997. Advertising spending has actually held steady at 24% of food companies' marketing budgets for the last three years, while straight trade promotion has dropped a mere two percentage points within the last two years to 49% in 2002.

But Mr. Harris suggests that recent accounting scandals at retailers, including global giant Ahold, has marketers looking at ways to spend more effectively with retail partners, and that will include manufacturers wresting back greater control of marketing funds once relinquished to the retail trade to handle. Such a shift, he said, will likely result in a growth of consumer ad spending.

Mark Baynes, VP-marketing for Kellogg Co.'s Morning Foods division, pointed to Kellogg's ongoing "volume-to-value" strategy that calls for the reduction of reliance on trade spending and an increase in advertising among other efforts, but he said that such a shift requires a renewed vigilance on advertising effectiveness. "Transferring [money] from trade to the advertising line would be counterproductive unless we can regain credibility for the fact that brand-building advertising can deliver results," Mr. Baynes said, pointing to recent years when the industry has relied on sales rather than marketing to grow volume.


Total combined dollars for account-specific marketing and trade promotion declined slightly last year for the first time in four years. But what's even more significant, Mr. Harris said, is the reallocation within trade spending away from monies for generic ads and displays to true co-marketing partnerships with retailers.

An executive close to Kraft Foods said the global food behemoth is placing a much greater emphasis on co-marketing initiatives, such as in-store recipe programs with retailers, as part of an industry-wide effort "to evaluate and make sure trade dollars are driving the business forward vs. driving retailers' margins."

Analysts, including Lehman Bros.' Andrew Lazar, are not seeing too many marketers that can claim success with their purported goals to rely less on trade spending. Although H.J. Heinz Co., for example, has pledged in recent years to put more money into consumer advertising-including allocating at least half of a nearly $200 million marketing influx this year to consumer spending-the company has been unable to shift its mix to consumer marketing without share and volume declines, according to one Wall Street analyst. Brian Hansberry, VP-marketing for Heinz Frozen Foods, acknowledged that despite the company's intentions to "keep consumers in the forefront," especially with its recently winnowed number of brands, the balance is difficult when many impulse-driven products benefit more from trade efforts.

General Mills recently claimed some success during its recent third-quarter earnings call, when it proudly announced that spending on price promotions (which, under new accounting rules, now has to be subtracted from net sales) was slightly lower for the quarter, which helped contribute two points of growth to the total sales increase of 11%. That is consistent with the company's full-year plan to keep price-promotional spending below its volume growth rate, as "We don't want to be seen as buying our volume growth," a spokeswoman said.

Most Popular
In this article: