Retailers pocket 90% of the profits generated by trade promotions, despite manufacturers spending £8bn a year funding the deals.
Research presented to The Grocer’s Price, Promotions & Trade Investment conference this week showed that since 2003, supermarkets have rapidly increased their share of promotional profits.
In 2003, retailers’ incremental profit from promotions ¬ cash from supplier contributions and extra sales ¬ was 78% of the total. In 2008, they estimate this has increased to 90% – effectively halving suppliers’ share of the pie.
A manufacturer at the conference challenged Asda produce category director Alex Brown on the increasing retail profit share.
“I don’t think our consumers would be particularly pleased to hear retailers take the bulk of profits from trade promotions,” he responded. “But we do work on a flat margin model and any extra profits generated by activity like this will be reinvested in infrastructure, or more likely, consumers.”
Findings from The Grocer’s fifth Trade Investment Survey, published this week, show manufacturers typically use promotions to achieve goals other than profit.
Supporting volume, keeping retail relationships strong and hitting customer objectives all ranked above profit as a reason to promote.
Almost three-quarters (72%) felt retailers benefited most from promotions but despite the increasing retailer profit share ¬ and soaring number of promotions ¬suppliers felt, if anything, more positive towards retailers this year than in the past.
“Suppliers really have accepted the inevitable and acknowledged consumers want lots of deals in this climate,” said Billetts technical director Ian Fermor. “Despite retailers taking a bigger share of the profits, their activity is becoming more appropriate to the category and more strategic. That’s evidently more important to manufacturers than direct return on promotions.”
For more information see tomorrow’s edition of The Grocer.
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