Financial Selling (CPG Retail Sales)

August 2005 1

FINANCIAL SELLING

BROWN BAG IT !!

FINANCIAL SELLING

Susanne Banks

August 2005 2

•Lowest Cost of

Goods•Cost of an Out of

Stock•Cost of Inventory

FINANCIAL SELLING

R3 DM August 2005 3

WHAT IS FINANCIAL SELLING AND WHAT IS THE BENEFIT TO

ME???WHAT?

Explaining monetary benefit of PM programs vs. Others.

Quantifying value of brands to retailers bottom-line.

Help explain how PM products and services tie into customer’s short & long-term planning.

BENEFIT Most retailers are in business to

make money - align customer & PM goals.

Enables FSF to influence customer’s decision making & correctly choose from available options.

Improve opportunity to sell PM brands.

FINANCIAL SELLING

R3 DM August 2005 4

WHAT ARE SOME FINANCIAL ISSUES RETAILERS FOCUS ON & WHAT TOOLS ARE

AVAILABLE TO ILLUSTRATE MY SALES MESSAGE?

WHAT? Gross Profit $’s and

Margins for Primary brands.

Current volume & comparison to market and trends.

TOOLS Profit Analysis Tool.

Lowest Cost of Goods.

FINANCIAL SELLING

R3 DM August 2005 5

POTENTIAL PITFALLS

• Not fully understanding customers needs

• Inadequate preparation

• Complicated or Confusing Message

FINANCIAL SELLING

R3 DM August 2005 6

LOWEST COST OF GOODSLOWEST COST OF GOODS

HOW TO GET A MORE COMPETITIVE MARLBORO

PRICE!!!

R3 DM August 2005 7

3 Easy Steps to a Competitive Marlboro Price

1.Establish Gross Margin

2.Find Lowest Cost

3.Establish New Selling Price

FINANCIAL SELLING

R3 DM August 2005 8

What is Gross Margin?

The amount of profit contained in each sales dollar.

Definition:

A gross margin of 20% means that out of every dollar of sales, 20¢ is profit.

Example:

FINANCIAL SELLING

R3 DM August 2005 9

$4.09 - $3.14

$4.09

Determine Gross MarginGross Margin

Sales Price – CostSales Price

**Determine the margin based on non-bought down price & cost**

Example:= =

23.2%23.2%

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R3 DM August 2005 10

Determine Lowest CostLowest CostOriginal CostPM Buydown

Reward FundsCMO 4 Funds

RL Merch. Funds

$31.37($5.50)($1.50)($0.50)

($0.25)

$23.62 carton

Minus

Lowest Cost =

$2.36 $2.36 packpack

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Establish New Price

New Selling Price = Lowest Cost

(1 – Desired Gross Margin)

=$2.36

(1 – 23.2%)

New Selling Price = $3.07

FINANCIAL SELLING


Benefits of a competitive Marlboro price

• Competitive pricing = More foot traffic

• More foot traffic = Increased Sales

• Increased Sales = Increased Profit

• Increased PM Sales = Higher PM Merch. Payment

• Lower Marlboro Price = Increased premium customers

• Increased premium customers = Increased incremental sales

FINANCIAL SELLING


LCOG – CASE STUDYLCOG – CASE STUDY

1. Jason’s Junction2. Karin’s Corner Store3. Susanne’s Pit Stop


Jason’s Junction It is Monday morning and your first call of the day. You walk in to the store to sell Jason on establishing a Marlboro price that is more inline with his competition for the October Price Promotion. You remember that on your prior visit, you had a discussion with Jason in which he stated that he must maintain a 20% margin on cigarettes. He also wants to increase foot traffic in the store.

Key Facts: Jason’s store does not sell cartons, they sell packs for $3.29 (after $0.55 buydown). The wholesale cost for Marlboro is $31.50. This RL CMO 2 store is located on a very busy street, but they see very few new customers.

How should you proceed?

FINANCIAL SELLING


Jason’s JunctionYou should recommend to Jason that he implement a more competitive Marlboro price as indicated below. This lower price would drive new customers into the store, thus increasing foot traffic and sales. In addition these new customers are likely to purchase incremental non-cigarette items from Jason, thus increasing the overall profitability of the store.

Lowest Cost: $31.50 - $8.35 = $23.15New Selling Price: $2.31 / (1 - 20%) = $2.89

* With the lower Marlboro price, remember to discuss w/ Jason the need for additional inventory & the opportunity to increase visibility (interior/exterior) of the new competitive price!!

FINANCIAL SELLING


Karin’s Corner StoreYou are visiting with Karin to discuss some concerns she has regarding her overall business. Her volume has not grown even though there has been a large influx of new customers due to a new residential development nearby. She is the highest price C-Store in town. She wants to grow her business, but is concerned about reducing her current margins.

Key Facts: Current retail price = $3.39 (after $0.80 buydown), Wholesale cost = $31.80. It is a RL CMO 2 account, but currently maintains no exterior cigarette signage.


FINANCIAL SELLING


Karin’s Corner StoreYou should recommend to Karin that she implement a more aggressive price on Marlboro that is more inline with the market. This doesn’t meet her objectives of maintaining her current margins. However it does still give her a good margin at 21.6%, and this would drive significantly more foot traffic. You should also recommend that she place highly visible signage outside to advertise the new price. All of this will help to grow both sales and profits in the cigarette department. In addition these new customers are likely to purchase incremental non-cigarette items from Karin.

Current Margin: $41.90 - $31.80 / $41.90 = 24.1%Lowest Cost: $31.80 - $8.35 = $23.45New Selling Price: $2.34 / (1 - 24.1%)

= $3.09, suggest $2.99 (21.6% GM)

* With the lower Marlboro price, remember to discuss w/ Karin the need for additional inventory & the opportunity to increase visibility (interior/exterior) of the new competitive price!!

FINANCIAL SELLING


Susanne’s Pit StopOn your last visit to Susanne’s Pit Stop, the owner voiced her concerns that her business had been down recently. She mentioned that the convenience store down the street had recently become very competitive with their gas and Marlboro pricing. They are running a $2.89 pack price on Marlboro and have regular unleaded at $1.49 per gallon.

Key Facts: Current price $3.04 (after $0.65 buydown), cost = $31.37. Susanne’s Pit Stop is an RL CMO 1 account.


FINANCIAL SELLING


Susanne’s Pit StopYou should first ask Susanne if she’d be interested in seeing how you could show her a way to increase her business by driving traffic with a more competitive Marlboro price. Then gain her agreement on the specific retail price that would grow her business. Next, recommend to her that she sign a new RL CMO 2 or 3 contract to take advantage of our reward funds. For example: This will allow her to implement a $2.69 price on Marlboro and virtually maintain the same margins. This lower price would drive the price conscious customers back into her store, thus increasing foot traffic and sales. In addition these new customers are likely to purchase incremental non-cigarette items from Susanne, increasing the overall profitability of her store.

Current Margin: $36.90 - $31.37 / $36.90 = 15.0%Lowest Cost: $31.37 - $8.35 = $23.02New Selling Price: $2.30 / (1 - 15.0%) = $2.71

suggest $2.69 (14.5% GM)

* With the lower Marlboro price, remember to discuss w/ Susanne the need for additional inventory & the opportunity to increase visibility (interior/exterior) of the new competitive price!!

FINANCIAL SELLING


COST OF AN COST OF AN OUT OF STOCKOUT OF STOCK


4 Easy Steps to Determine a Cost of an Out of Stock

1. Determine the retailer’s build-to for the out of stock.

2. Determine the lowest cost of goods (LCOG) for the out of stock.

3. Determine how many days per week the retailer is out of stock.

4. Determine lost profits and lost sales dollars for the out of stock.

FINANCIAL SELLING


Cost of an Out of Stock1. Determine the retailer’s build-to for the out of

stock: *The store purchases or builds their inventory of

Marlboro Red Box to 50 cartons per week.

2. Determine LCOG:Original CostPM Buydown

Reward FundsCMO 4 Funds

RL Merch. Funds

Minus $31.37

($5.50)($1.50)($0.50)

($0.25)

Lowest Cost =

$23.62 carton or$2.36 pack$2.36 pack

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Cost of an Out of Stock3. Ask the retailer what day(s) s/he orders cigarettes and

delivery days. Ask the retailer how many days the store has been out of stock.

4. Determine lost profits and sales dollars for the out of stock.

LCOG: $23.62 carton / $2.36 packRetail price: $2.99 packBuild-to for Marlboro Red Box: 50 cartons per weekNumber of days out of stock: 3 daysLost Profits: Profit per pack: $0.63

50 cartons / 7 days = 7.1 = 7 cartons per day = 70 packs per day

70 packs X $0.63 = $44.10 per day X 3days OOS = $132.30

Lost Profits per week $132.30

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Cost of an Out of StockLost Sales dollars:70 packs X $2.99 = $209.30$209.30 X 3 days OOS = $627.90

Lost Sales Dollars per week $627.90

Things to think about:1. How much would the retailer lose on an annual basis in

profits and sales dollars from an out of stock?2. How much would the retailer lose in incremental sales

from an out of stock?3. Fast Facts to you can use to educate the store on how

consumers react to OOS’s next page

FINANCIAL SELLING


3%46%

16%

15%20%

Go to another store

buy diff. Type

buy diff. Brandwait

buy diff. Size or type

The 46% of customers that go somewhere else, go to...

82%

6%7% 4%1%

Another c-store tobacco store supermarketsmall grocery Liquor/drug

How Smokers Behave When Their Brand Is Unavailable

FINANCIAL SELLING

46%


OUT OF STOCK– CASE STUDY

1. Sam’s Convenience Store2. Pam’s Quick Stop


Sam’s Convenience StoreCost of an Out of Stock

Sam’s Convenience Store is one of your highest independentvolume accounts. Sam’s Convenience Store sells 150 cartons of

cigarettes per week, & PM has a 62% share andMarlboro Light Kg Box has a 40% share. Sam’s retail price for

Marlboro is $3.09/pack & his cost from wholesale is $24.50/carton.

On your last visit, you noticed that the store was out of stock onMarlboro Light King Box, which is the store’s top selling cigarette.You talked to Sam & he told you that he didn’t order enough that

week & he would increase his next order. You visit his storeagain & find that Marlboro Light Kg Box is out of stock again.

What should you do?

FINANCIAL SELLING


Sam’s Convenience StoreCost of an Out of Stock

1. What is Sam’s profit per pack?2. How many packs of Marlboro Light King Box does he sell per

week?3. If Sam is out of stock on Marlboro Light King Box for one day

in a week, how much money would he lose in sales dollars and profit dollars for the week?

4. How much would Sam lose in sales dollars and profit dollars on an annual basis if he’s out of stock one day per week on Marlboro Light King Box?

5. What base inventory level should you recommend for Marlboro Light King Box?

FINANCIAL SELLING


Sam’s Convenience Store Cost of an OOS1. What is Sam’s profit per pack?

$3.09 - $2.45 = $0.642. How many packs of Marlboro Light King Box does he sell per week?

150 cartons X .40 = 60 cartons = 600 packs3. If Sam is out of stock on Marlboro Lt Kg Box for one day in a week, how

much $ would he lose in sales dollars and profit $s for the week?600 packs/7 days = 85.7 packs = 86 packs86 packs X $3.09 = $265.74 lost sales dollars86 packs X $0.64 = $55.04 lost profit dollars

4. How much would Sam lose in sales dollars and profit dollars on an annual basis if he’s out of stock one day per week on Marl Lt Kg Bx?52 weeks X $265.74 = $13,818.48 lost sales dollars52 weeks X $55.04 = $2,862.08

5. What base inventory level should you recommend for Marl Lt Kg Bx?600 packs X 2 weeks = 1200 packs = 120 cartons per week

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Pam’s Quick StopCost of an OOS

Pam’s Quick Stop is one of your highest chain volume accounts. Pam’s Quick Stop sells 400 cartons of cigarettes per week, Philip Morris has a 54% share and Marlboro Light King Box has a 38% share. The retail price for Marlboro is

$2.99/pack & $25.99/carton. The manager tells you the wholesale cost for a carton of cigarettes is $24.20. The manager tells you that 30% of her sales are

from cartons and 70% of her sales are from packs.

On your last visit, you noticed that the store was out of stock on MarlboroLight King Box, which is the store’s top selling cigarette. You talked to themanager and she told you that she didn’t order enough that week and shewould increase the next order. You visit store again and find that Marlboro

Light King Box is out of stock again.

What should you do?

FINANCIAL SELLING


Pam’s Quick StopCost of an Out of Stock

1. How many packs and cartons of Marlboro Light King Box does the store sell per week?

2. If the store is out of stock on Marlboro Light King Box for two days in a week, how much money would the store lose in sales dollars?

3. How much would the store lose in sales dollars on an annual basis if it’s out of stock two days per week on Marlboro Light King Box?

4. What base inventory level should you recommend for Marlboro Light King Box?

FINANCIAL SELLING


Pam’s Quick Store Cost of an OOS1. How many pks & ctns of Marlboro Light Kg Box does the store sell per

week?400 cartons X .38 = 152 cartons of MLKB148 cartons X .30 = 45.6 = 46 cartons148 cartons – 46 cartons = 102 cartons X 10 packs = 1020 packs

2. If the store is out of stock on Marlboro Light King Box for two days in a week, how much money would the store lose in sales dollars?46 cartons/7 days = 6.6 cartons = 7 cartons per day7 cartons X 2 days = 14 cartons X $25.99 = $363. 861020 packs/7 days = 145.7 packs = 146 packs per day146 packs X 2days = 292 packs X $2.99 = $873.08 $363.86 + $873.08 = $1236.94 lost sales $’s when OOS for 2 days

3. How much would the store lose in sales dollars on an annual basis if it’s out of stock two days per week on Marlboro Light King Box?$1236.94 X 52 weeks = $64,320.88 lost sales dollars annually

4. What base inventory level should you recommend for Marl Light Bx?152 cartons X 1.5 weeks = 228 cartons of MLKB

FINANCIAL SELLING


Cost of InventoryCost of Inventory


• have stores with empty fixtures?

• have stores with fixtures with empty cartons?

• have opportunity accounts that have too many competitive fixtures?

How many of you…..How many of you…..

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Do your retailers know how much money is tied

up in their fixtures?


How do you determine fixture costs?

• Premium Carton Cost = $24.38, 90% share• Discount Carton Cost = $22.89, 10% share• Blended Carton Cost = $24.23• Fixture Capacity per foot (one WF plus

SL’s)– LP = 30 ctns– STD = 62.5 ctns– HP = 75.5 ctns

FINANCIAL SELLING


How Much Does it Cost to Fill Your Fixtures?


Simplified Category Costs & Simplified Category Costs & CapacityCapacity

• Low Profile = $725 per footcapacity = 30 cartons

• Standard Ht. = $1500 per footcapacity = 62.5 cartons

• High Profile = $1800 per footcapacity = 75 cartons

FINANCIAL SELLING


How can we provide solutions as their

category consultant?


How many fixtures do they need?

• 2 weeks supply of inventory• Example:

– John’s C-store, 75 Ind CPW– John would need enough fixtures to hold

about 150 cartons (2 weeks supply)– Standard Ht fixtures: 150/62.5 = 2.4 feet

• So we would recommend *3ft of Std Ht fixtures

*3ft aligns w/ fixture matrix

FINANCIAL SELLING


COST OF INVENTORY– CASE STUDY

1. Bob’s Discount2. Pete’s Petro


Case Study - Bob’s Discount

• NRL account w/ 12ft. of std. ht. Fixtures– 4ft. Competitive Fixture #1

– 4ft. Competitive Fixture #2


• Industry CPW = 150• PM CPW = 55, 37% share• Bob wants to contract with PM but keep

all other contracts

FINANCIAL SELLING


Bob’s Discount

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Bob’s Discount

• How many feet of STD height fixtures would we recommend?

– 150 CPW * 2 weeks supply = 300 ctn capacity

– 300 ctns. / 62.5 = 4.8, therefore 5 ft STD

FINANCIAL SELLING


Takeaways – Bob’s Discount

• Bob is over-fixtured by seven feet

• This equates to $10,601.08 in excess inventory

“Bob, would you like to hear about a way that I can help you save over $10,000?”

FINANCIAL SELLING


Recommendations – Bob’s Discount

RL CONTRACT: CMO 2 Horizontal

CATEGORY SPACE: 5’ STD Fixtures

Thanks for the 10K Philip Morris!

FINANCIAL SELLING


Case Study – Petes Case Study – Petes PetroPetro

• NRL account w/ 9ft. of STD Fixtures– 3ft. Competitive Fixture #1



• Industry CPW = 90• PM CPW = 28, 31% share• Kim wants to contract with PM but

keep all other contracts

FINANCIAL SELLING


Appendix

Additional CasesHelpful One Pagers


Susanne’s Gas Depot Susanne owns 9 convenience stores, used as outlets to sell gasoline, which is her principle business. She’s had a contract w/ competition the last 3 yrs, but has recently noticed that her profitability is on the decline, due in large part to the cigarette category. Susanne prides herself on her knowledge of the convenience store business, but would like to talk to you about what programs PM currently offers.

Fast Facts:• All nine store are equipped with a 4 ft fixture.• Susanne’s stores sell a total of 900 cartons a week of Marlboro and 1,200 cartons a week of Doral,

which represents 90% of her sales.• The retail pack price is $3.19 for Marlboro and $2.29 for Doral.• Wholesale price (Marlboro @ 25.87 & Doral @ 28.65).• Highest Level contracts: (PM @ $2.25 & RAI @ $9.70).• Tobacco advertising is limited and tasteful - PM is well represented.• Prior to signing w/ competition, Susanne had a contract w/ PM, but due to a disagreement

regarding merchandising pymts & her impression that she was mistreated, she decided to cancel the contract.What solutions will you give Susanne to increase her cigarette profitability?

FINANCIAL SELLING


Susanne’s Gas Depot Prior to selling in a solution to Susanne, you should first determine what the customer attributes the decline in profitability to, and only then provide a solution to the real problem.

Once you understand the issue(s), it will be helpful to consider the following:1) Susanne currently manages a 19% GP margin ($.60) with Marlboro vs. 17% with Doral

($.40).2) Based on Susanne’s interest in maintaining a limited, but tasteful, quantity of signs &

promotional materials in her store & her desire to increase profitability, you should consider the CMO4 Premium T contract.

3) Opportunity exists for Susanne to gain an additional $1,785 ($11,952 - $10,167 = $1,785) by capitalizing on both contracts at highest levels (Potential: Marlboro 26% GP @ $.83 /Doral 16% GP @ .38).

4) Under the new CMO4 contract, Susanne could lower her Marlboro price to $2.99 and maintain the same level of GP dollars with no increase in volume, which obviously would not be the case.

FINANCIAL SELLING

Financial Selling (CPG Retail Sales)

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