By:  Barry Friends | Gary Karp

May 28, 2020

There are many projections of what the size and structure of the foodservice industry will be as we emerge from the March-April-May restrictions and how long it will take for foodservice to establish new sales structures and volume baselines.

Due to the impacts of the pandemic, a large percentage of foodservice operators, distributors, GPOs and manufacturers see the need and/or opportunity to reengineer their business models and processes for post-pandemic FS 2020 and beyond.  Trade spending* should be on the list for improving/re-engineering.

Situation: Trade spending is a very important component of trading partner operations.

Prior to Covid-19, manufacturer trade spending was:

  1. the second highest P&L cost for manufacturers (after cost of goods),
  2. a primary income source for GPOs,
  3. a primary source of discounts for operators,
  4. and a significant component of profitability for distributors.

2019 manufacturer trade spend share:

Trade spending in foodservice is and has been highly complex and includes a wide variety of trading partner strategies, tactics, structures, rates, competitive activities, contractual agreements and administrative challenges.  For example, some manufacturer programs are “fixed amount/lump sum” programs while others are based on rate x sales = spend; many operator programs are deviated pricing; double-dipping is difficult to track/stop, etc.

Currently,  as foodservice trading partners navigate through the industry disruption, many report that reengineering their trade spending has been assigned a “lower sense of urgency” relative to crisis/survival management (such as identifying new sources of business, issues with sales, HR, production, inventory, credit terms and supply chain).

Industry Changes impacting and warranting trade spending improvement or re-engineering:

Given the importance of trade spending to each trading partner and the likely changes to the foodservice industry, trade spending now appears due for a thoughtful re-evaluation of strategies and processes. Key industry changes driving the need include:

  1. Lower industry volumes: due to FS operator bankruptcies or the permanent closure of many independent FS operators and chain units
  2. Lower operator volumes due to operating restrictions and mandated capacity constraints
  3. Slow or modified return to common workplaces, schools, colleges and sporting events
  4. Shrinking of the traditional manufacturer, GPO, and distributor profit pools as the population of independent operators is reduced
  5. Simplification of restaurant menus/potential SKU elimination
  6. Closures of distributors in some markets
  7. Line structure simplification and SKU rationalizations across trading partners
  8. Operator share shift to more chain/contract business (contract volume prior to Covid-19 was approaching 70%, with independent operators being the largest cohort of purchasers on “street” pricing)
  9. Shifting marketplace leverage (push – pull) which will impact brand shares
  10. Reduced consumer spending (due to lower consumer confidence and disposable personal income) will be a drag on restaurant recovery

Each of the above factors points to reduced volumes and smaller trading partner profit pools.


As you analyze your trade spending, the overarching question is: “In light of the substantial changes to the industry, the industry financials, the trading partners, and potentially the competition, how much improvement and re-engineering can and should be done?”

Some suggested tasks that should be incorporated in a review:

  1. Update trade spend objectives, strategies and tactics, incorporating new economic realities.
  2. Analyze how trade spend was performing (ROI, effectiveness) prior to Covid-19.
  3. Review and update what you are hoping to achieve with trade spending going forward (ROI, category performance, volume and brand growth, account penetration, etc.).
  4. Address weaknesses (ex: double-dipping, competitiveness, inability to analyze data etc.).
  5. ID how to take further advantage of continually improving TPM technology, data analytics, and consider tools that are needed to do so.
  6. Assess and incorporate specifics of your marketplace leverage (ex: push-pull, brand strength, sales resources and competitive strengths and weaknesses). 
  7. Ensure a clear understanding of all current contractual obligations and terms of each contract.

Additional thoughts and recommendations:

  1. Changes should be data-driven, strategic, and easy to explain internally and externally.
  2. Collaborate: Build trust with internal and external constituents.
  3. Simplify programs so they are easier to understand, manage and achieve success.
  4. Build negotiation skills for trade spending and beyond.
  5. Increase use of technology: TPM tools have substantially increased functionality

Final Comment:  Any changes to trade spend, unless clearly justified, will create pushback.  Implementation of changes will require “courage of conviction”.  Therefore, each in-depth process should be bold, rigorous, well founded and highly strategic.


Pentallect defines foodservice trade spend as amounts paid by manufacturers to operator, GPO and distributor customers inclusive of:

  • Price deviations
  • Rebates and allowances for guaranteed and performance-based programs
  • Other marketing funds excluded from this definition are temporary price reductions (TPRs), sampling allowances, and DSR spiffs

Trade spend is expressed as a percent of net sales, as defined below:

      Gross sales less TPRs, Cash discounts = Net sales

      Net sales less Costs of goods sold (COGs) Cash discounts = Gross margin

      Gross margin less Trade spending, Go to market operating costs = Net profit


Pentallect is well-versed and prepared to assist in the re-engineering of your post-pandemic business models and processes, including trade spend review, modification and improvement, to optimize net profit.

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