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What is a retailers potential category dollar gain / loss when delisting a brand? Sometimes retailers will reshape their categories depending on the strategy, range of assortment, profit margins, category priority, expanding or contracting footage, etc.
This exercise will help you calculate the potential category dollar gain / loss based on delisting a targeted brand. This is more of an art vs. science, but we are running several calculations as a process to get to that bottom line. We will use a version of sales, velocity, and ratios based on current sales performance to derive to the potential loss. Based on this, we are assuming the remaining brands left in the category will each potentially plug the gap left by the delisted brand. But are the remaining brands strong enough to close this dollar gap left by the delisted brand to net a positive outcome for the category?
In the chart below, we are figuring out the category gain / loss if Retailer X decides to delist the Flakes 32oz brand. The simulation calculates the potential gain / loss based on remaining brands trying to fill the lost void left by Flakes 32oz. In this example, Flakes 32oz has the strongest share per item velocity. So all brands remaining in the category that are trying to fill the void will not be able to close the gap on the lost dollars the category will see once Flakes 32oz exits the Retailer.
Here are the calculations for the chart above in deriving a category gain or loss based on delisting the Flakes 32oz brand.
1. Average $ share per item selling for each brand in Retailer X. It translates into another alternative velocity measure.
Formula = (Brands $ Share / Brands AID)
Where AID = (Sum of brand items ACV / 100) This is also known as TDP or Total Distribution Points.
Brands $ share = (Sum of brands items $ share) or Brands total $ share which is the same. Reason we sum up the brands items is this analysis required us to break out at the UPC level.
2. Ratio to brand is looking at the ratio of a competing brands $ share per item vs. the focus brand which in this example is Flakes 32oz.
Do competing brands have a higher or lower share per item rate vs. Flakes 32oz? Our example shows all brands have a lower velocity ratio, but they could be ranked higher in dollars overall.This helps level the playing field because some brands have a wider depth of items in their portfolio while smaller brands may not. Shows just how productive each brand is in carrying their own sales weight on a per item basis and can be relative to sku productivity.
Formula = (Competing brands Share per item velocity / Flakes 32oz brand Share per item velocity)
3. If listed brand replaces Flakes 32oz volume, how much will it generate given the current velocity ration vs. Flakes 32oz?
Formula = (Flakes 32oz 52Wk Sales x Ratio to Flakes 32oz)
4. Difference between Flakes 32oz annualized volume and replacement volume from lower velocity brands.
Formula = (Replacement $ - Flakes 32oz 52Wk sales)
Negative numbers are a loss
The outcome: If the Flakes 32oz brand was delisted in Retailer X, the category will see a loss can ranging between $3.1MM - $6.6MM in sales depending on which brand, if any, would substitute Flakes 32oz. None of the remaining brands have as high of a velocity based on the share per item selling.
Note: We do not usually include Private Label in the exercise, and focus more on national & regional brands in this analysis. However, the Retailer X was suggesting to bolster its Private Label business
and is ok with us providing the details, then we would include in the analysis.
This is a hypothetical scenario considered directional if vendor has budget limitations to both 3rd party & retailer data, and or lack of study addressing this type of analysis.