Takeaways and Recording Link for Naturally Chicago’s January 17 Trade Spend Webinar

It would be hard to find a Naturally Chicago webinar as technical as “Navigating Trade Spend to Defend Gross Margins,” the title of the free webinar presented on January 17. Yet even as the webinar was rich in financial and business-planning details, the formal presentation and panel discussion was engaging, and the hour-long program flew by.

The webinar was organized by Bobby Achettu, a Naturally Chicago Board member. Since December, Achettu has been a partner with Sikich, a Chicago-based financial services firm with 1,600 employees. He was previously Founder and CEO of Accelerated Growth, a 120-person accounting, financing, and technology consulting firm that was acquired by Sikich.

He was joined by Robert Razo, a Director at Sikich, who provided an informative slide-driven trade spend presentation at the beginning of the webinar, and then two panelists who engaged in a conversation with Achettu: Amy Hass, Chief Financial Officer at Simple Mills, and Tim Bosslet, Senior Vice President of Finance at CHOMPS. Both Hass and Bosslet were early hires of companies that are among the fastest growing in the Good Food and Natural Products industry.

The recording of the webinar can be access by clicking the button below. Given the intricacies of trade spend — the money that brands allocate to cover shelf slotting fees and promotions charged by distributors and retail partners — we urge you to watch the presentation if you have a business interest in the topic.

 Below are some top takeaways pulled from the presentation.

Bobby Achettu

We've had the opportunity over the years to work with several hundred organizations in food CPG. And I can tell you that one of the most complex items related to accounting and finance is this topic we're going to cover.

Robert Razo

Trade spend can be a nuance for a lot of you and ultimately define the profitability of your business. So the goal here today is to equip you with the tools to defend your gross margin and continue to push volume.

So what is trade spend?... Sometimes you hear trade spend defined as charges or deductions or expenditures as well too. Trade spend is the spending by brands and wholesalers to assist in the promotion of a product. It provides the brand the ability to get into retailers and convenience stores that are typically not available to them. The charges vary from promotions to damaged goods to slotting fees. Ultimately it is a buy-in to reach your consumers.

So who charges these trade spends? Distributors… And then retailers also charge these as well as brokers. But typically, you're going to see these charged back to you through your distributor.

Why do you need [distributors]? Well, first, they'll be able to warehouse your inventory, and shelve your product in a pool of retailers… They already have these relationships with both small mom-and-pop shops and large retailers, all in the same pool, which would typically be hard for a stand-alone brand to get into all of these at once. So you do not have to create the relationships upfront. And it helps your brand differentiate itself. You're able to differentiate yourself by getting yourself into more locations.

So when should you leverage trade spend? Well, you have to be careful when deciding when to engage in taking on this trade spend since it can be a huge expense for you… What you could do is certain distributors have certain regional pools, so I might need to go to UNFI to get in one section of a region, and I might need to go into KeHE to go in a different section. So understanding your demographic and where you need to get into a distributor to then ultimately get to that retailer into your consumers’ hands… Without a strong and a proven customer engagement, it's going to be very hard to negotiate lower fees…

Churn rates are very important because if your consumer wants you, they're going to continue to take your product off the shelf. If that happens, your retailer wants you inside their store. Your distributor is going to want to keep your product on the shelf… Use the relationships to increase the volume and velocity of your product, and then improve that loyalty and awareness for your customers.

Understand how you categorize [trade spend items] well. You want to be as concise and reporting so that it will help with budgeting in the years to come. You don't want so much noise on your income statement. So when you're presenting it to your board or to an investor, you have these concise categories, and you could break out if you need to.

When looking at trade spend, there's going to be some challenges but accruing is very tough. Forecasting and budgeting in the beginning of the year is so important so that you can accrue for these and as actuals happen, you could go back in time and put those actuals in there.

Amy Hass

I'm the CFO of Simple Mills. I have been with Simple Mills for eight years now… I was a one-man finance and accounting team for years. And then slowly, it was able to build out a finance team… I currently lead a team of 11 people on finance, accounting, and it also includes data and insights. And then over the last couple years, my role is kind of expanded beyond finance. I also oversee other functions like sales and people operations and legal… Simple Mills is a mission-based organization. The company was founded under the mission of trying to improve the way that people eat. Katlin Smith, the founder, has been very passionate about sustainability. We've evolved the mission to try and improve the health of both the people and the planet, and finding all those great synergies, and that's been a huge impact and part of our innovation process, and also our culture.

Tim Bosslet

I'm Senior Vice President of Finance for CHOMPS. I joined the company about three and a half years ago. I was the first hire brought in to build out the finance and accounting function. Prior to joining CHOMPS, I spent the bulk of my career working in investment banking… The four years prior to joining jobs, I covered emerging food and beverage brands… I also spent nearly three years working professionally as a chef… I’ve enjoyed finding ways to combine sort of that passion for food and sort of a skill set and experience in finance.

Our product is differentiated in a couple of ways… Quality of ingredients first and foremost. Grass-fed, grass-finished, antibiotic-free, no compromises in the quality that we put into our food, as well as sourcing… It's just a really great-tasting product. I think that's a key enabler to our success in market… Trade spend is obviously really critical, sort of a top-three expense for most CPG businesses. So we spend a lot of time looking at it and thinking about it and managing it as a business.

Amy Hass

I was kind of cringing thinking about trade spend in the early days. It just caused so much more stress than it actually had benefit back in the day. I think one of the biggest challenges for us was transparency, I think that's probably a big challenge for everybody, especially in the early days when you're working with distributors. And I remember trying to close the books for the year, and we knew how our revenue had turned out, or at least our gross sales, and we're gonna hit our plan. And I was cringing to see how the trade spend was going to come in. It kind of felt like we were kind of flying blind, where we were planning these promotions and saying, ‘We'll do it this way.’ And then we were trying to forecast some numbers on the side, but we really had no way to link those things.

Tim Bosslet

Rewind the clock to when I first joined CHOMPS, we were really just booking credits as they were coming through. Phase Two was sort of validating credits and making sure that we understood and were comfortable with them and they were appropriate. Really where we're at in our evolution now is the validation and optimization of trade activities to really track and have some discipline around loopback analysis… We have that visibility. So there's no unknown at the end of the year, we've already accounted for all the key trade activities that we know we're executing in market and avoid any of those surprises down the line.

Want to know about upcoming webinars? Subscribe to the Naturally Chicago newsletter! Click here to visit the Naturally Chicago home page, then scroll down to the subscribe button.