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Why would a product’s Dollar Sales Velocity decrease if ACV Distribution increased?
Measures referenced: Dollars per $MM ACV, %ACV
This is a scenario that can happen. The product could have gained breadth of distribution in a retailer that is less productive in moving the product off the shelf because they took in the product at a later time vs. retailers where the product has long established distribution, thus selling for a longer period of time and has had levels of promoted support to drive sales.
In our example, I am referencing sales velocity stated as Dollars per $MM ACV (“Dollars per Million”). This measures how fast a product is moving where it is in distribution or it is the Dollar sales of a product for each $1 million of annual ACV for stores selling the product. This is a standard velocity measure used in ranking reports compared across multiple markets. We can also use it for units and volume as well.
Conversely, it is also possible to see the opposite effect too. Sales velocity can increase while the product’s ACV distribution drops. The product may have lost distribution in a slow moving retailer while the remaining retailers the product has distribution left in may move the product faster off the shelf.
One example could be if the product lost distribution in Kroger and the product did not secure new distribution anywhere else to compensate. Assuming the product has a large presence in Kroger, its distribution as well as its sales would definitely decline. But if the product maintains distribution among several dozen retail chains where it is highly trade driven and responds well to trade while not as frequently promoted in Kroger, then what is left are chains where the product moves quicker due to its trade or other promoted reliance. Of course this impact would not necessarily be seen right away. Our sales velocity might peak higher during the continuation cycle in Kroger due to the retailer running a closeout price in order to deplete their remaining inventory of the product. Once depleted and order cease, then we may begin to see the scenario play out.
However, over time, the product may regain that lost distribution elsewhere, and sales velocity will adjust accordingly. If running the data in Total US Food, then you would need to drill down to the retailer level to see where the changes are happening. However, you still might not be able to isolate the retailers because not all retailers are visible in either IRI of Nielsen due to lack of releasing data, exclusivity, or those not participating in the collective. In addition, there is a sizeable portion of wholesalers not always accounted for either. So if the product has a strong presence among wholesalers, then isolating the issue will be limited and rely on word of mouth from your sales force.
Refresher on sales velocity
According to IRI and Nielsen, it's the total product sales during a selected time period per million dollars of annual ACV of stores selling the product. This sales rate measure is useful for comparing products with varying levels of distribution, especially new products with limited distribution across a set of selected markets of retailers of different sizes. It is the “sales efficiency” for a product in relation to its distribution. This measure is non-additive, meaning you can't sum up this measure across products or UPCs.
(% ACV Distribution X Total Market ACV)
Sales velocity can be in: Dollars, EQ Volume, Units
Note: (% ACV Distribution X Total Market ACV) in the denominator is equal to the ACV of the stores selling the product, and the number represents a decimal.
Product: Flakes 32oz
Market: Total U.S Food.
Time: 52 Weeks ending Jul 02, 2017
Dollar Sales: $12,253,981
% ACV Dist: 92%
Total US Annual ACV: $625,825MM
Calculation: 52 week velocity = $12,253,891 / (0.92 x $625,825MM) = $21.28 per $MM ACV
So we can state for the 52 week period, Flakes 32oz sold $21.28 for every million dollars of annual store sales.