Are your price promotions hurting your margins?

price margins

Promotions can boost sales, but they can also erode margins. Priyanka Jethwa looks at how to maintain healthy profits.

Promotions and deals are a key marketing tool for any business, regardless of size. For wholesalers, having certain products on promotion could mean the difference between losing and keeping a customer.

However, Paul Baxter, the recently-departed chief executive at the National Federation of Retail Newsagents, notes that retailers are complaining that “ranges in-depot are getting smaller and promotions wilder”.

Nick Ramsden, managing director at wholesaler Dee Bee, agrees. He says the sector runs too many promotions and as a result, many of them are ineffective. This could be because having too many promotions at the same time can make it hard for retailers to work through all the deals available.   

So, how can you make sure your promotions are working effectively?

Margins

The key to any promotion is the ability to attract attention, create conversation and ultimately persuade purchase.

But Al Gunn, sales director at energy drinks supplier Boost Drinks, notes that over the past five years, the result of “many, many more promotions, sometimes too many” is eroded margins.

Retailer Amandeep Singh, of Singh’s Convenience Store in Barnsley, concurs. He says that while a few pounds off a product – especially alcohol – is helpful to businesses like his, margins still remain problematic, which ends up cancelling out the value of the promotion.

“We have noticed that some products have improved, with margins growing in some instances from around 10% to 18%. But the rest we are still fighting against,” he notes.

Gunn advises wholesalers that the best way to implement promotions is to take a category approach, but not to promote all products in a category at the same time.

Meanwhile, Dee Bee’s Ramsden says that its core base of promotions come from the Today’s Group Retail Club, as these seem to be the most effective.

“It is very important to the sector to run promotions, but they need to be effective and focused on the right products at the right prices, with acceptable margins for the whole chain,” he explains.

But as well as having effective promotions in-depot, wholesale is now using digital as a primary marketing tool more than ever before.

Terry Larkin, general manager at wholesaler JJ Food Service, notes that his wholesale business puts as much of its time and effort into promoting online using its website, app and digital media, as it does in-depot.

He says: “At our Enfield branch, we have a canopy with that week’s special offers stacked high, ready to pick up, and we have plenty of digital signage highlighting local deals and new products.”

Larkin says that hosting online-only deals encourages more customers to download JJ’s app, which has already been downloaded more than 20,000 times.

This is further complemented by customers coming into the depot and quoting online prices at the counter. “So we encourage and support them to place an order using one of our touchscreen monitors; we can also talk them through the process on their phone or iPad,” Larkin explains.

Craig O’Connor, managing director at Landmark Wholesale member Abra Wholesale, says his business also gets customers coming into the depot specifically because they have seen a deal advertised online, in the Abra app or in one of its promotional leaflets.

O’Connor adds: “We offer some online-only promotions and these work well, such as our Virtual Trade Day, which we ran through our app.” O’Connor and Abra have more app-based initiatives that they will be launching soon.

Paving the way online

While digital seems to be the future when it comes to getting the most out of promotions, there is still the issue of there being too many promotions in the channel.

However, while there is an apparent shift towards more wholesalers using tech to showcase promotions, the number of promotions has reduced over the past five years, according to wholesale industry expert and managing director of consultancy Store Excel, David Gilroy.

Gilroy adds that there has been a decline in multi-buy and link deals, with the wholesale industry shifting back to price-led deals, along with everyday low prices.

“A lot of operators are moving to this, as it is easier for customers to understand, being a more ‘straight down the line’ way of promoting,” Gilroy notes. “Customers seem to prefer this as there is more consistency of pricing that they can then base their own pricing decisions on.”

Abra’s O’Connor agrees. He says that despite promotions playing a major part in its retail activity and within the trade more generally, the business has been working in the past few years to reduce the number of promotions it runs.

This is because there is mounting pressure on the sector to get more sales from fewer lines. He adds: “We have to promote the products that deliver growth. They also have to be the ones retailers want and stock as part of their core range.”

Discounter pressure

David Burns, founding partner at DJB Consulting, a specialist in the food industry across manufacturing, wholesaling and retailing, says that the wholesale sector has become much more saturated compared to five years ago. Therefore, he notes, the easiest way for wholesalers to gain traction and stand out remains offering promotional discounts.

However, Burns notes that wholesalers can perform better at this by working out what is important to the consumer and then working backwards.

“Most research internationally would indicate that retailers and consumers want consistent competitive pricing where trust can build over time and when the guesswork as to what the price will be next time is removed. My suspicion is that the bulk of price promotional activity is for the commercial benefit of the wholesaler and retailer, and less so for the consumer, which is strategically dangerous,” Burns concurs.

Furthermore, Burns says that what is often overlooked by wholesalers is the collaboration with suppliers in developing standout products that have unique branding and packaging designs that can be equally impressive as promotions.

This view is shared by Tariq Malik, foodservice sales manager at Country Range Group wholesaler member Caterite Food & Wineservice. Malik says: “The key to having the best promotions is a combination of working with a broad spectrum of suppliers who understand our customer base; devising excellent marketing strategies using both traditional and digital formats; and having a great graphic design team to deliver striking graphics to reach the target audience.”

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