Why CPG brands Need to understand %ACV in order to optimize distribution.
If you’re a CPG brand and you don’t have a handle on %ACV and distribution, your total sales may suffer.
Many CPG brands approach distribution by casting a wide net, the philosophy being the more stores and retail locations that carry a product the better the chance to grow sales and win market share. However, by looking at distribution purely from a volume perspective, brands and retailers can sometimes fail to see the forest through the trees. Often, sales success doesn’t come down to the number of stores and retail locations carrying a product, but the quality and sales potential of the stores and locations carrying that product. This is what #ACV helps measure.
What exactly is %ACV?
ACV stands for “All Commodities Volume”. It is defined as the total sales of all products in a given store relative to the total sales of all products in competitive stores in a specified region or territory. What does this have to do with distribution? Why is it such an important measurement for CPG brands to understand?
Why %ACV is a key metric commonly used by CPG brands?
The goal of an effective distribution strategy is prioritizing the stores and retail locations where you want your brand to be featured. While it might make sense that stores with an abundance of square footage and a large amount of facings would be a good fit, this is not necessarily true. After all, what’s more important? How big a store is or how much product it’s actually selling?
You know the answer and it’s the reason why %ACV is so important for CPB brands to understand. This unique metric provides insight into how much product is flying off the shelves in a given store, which is a very good indicator into the potential sales success your brand and products might enjoy in that store.
Adopting an %ACV distribution strategy answers the questions CPG brands need to know. In what new retailers do I want to try and win shelf space? Are my current retailers delivering for me or not? Is the reason I’m not seeing greater sales in a region because I’m in the wrong stores?
The bottom line is this: brands that include %ACV in their distribution strategies have actionable insight into where new opportunities lie and why current distribution may be falling short.
How to calculate %ACV
To help you better understand %ACV let’s go through an example and actually calculate the measurements ourselves. First, however, lets define a few key metrics involved in the process.
Unweighted % Distribution: This is calculated as the number of stores in which a given product is sold divided by the total number of related stores in the area or region.
Weighted % ACV Distribution: This is the percentage of the total market actually being reached by a brand/product as calculated by the following %ACV formula:
ACV Value Among All Stores Carrying A Product
ACV Value Among All Stores In A Region or Territory
Weighted % ACV Distribution
ACV Value: This is the dollar value of all products sold in a given store. This data can be provided directly by individual retailers or you can purchase ACV data on most retailers through a syndicated data service, such as Nielsen.
An example of calculating %ACV
Okay, now we’re ready to get down to business and calculate %ACV value using an example. For our purposes, we’ll create a fictitious company named Affordable Bikes, a line of value priced bikes sold at the stores of two sporting goods chains.
Management is examining distribution in the hopes of learning why current sales have grown flat in the first quarter of 2021. This is where %ACV comes into play and can paint a vivid picture of market conditions for the new year – both in terms of what Affordable Bikes is capitalizing on and where they are missing out.
Let’s say that Affordable Bikes is currently considering expanding distribution by adding a small chain of local bike enthusiast shops. There are only three stores in the territory and management wants to determine if they’re viable sales and revenue drivers.
Here are the ACV values of each chain.
|CHAIN 1||CHAIN 2||CHAIN 3 (considering)|
|ACV $20 million||ACV: $5 million||ACV $30 million|
Are products in stores:
|CHAIN 1||CHAIN 2||CHAIN 3 (considering)|
First, we’ll calculate unweighted distribution which we defined earlier as the number of stores (chains in our case) divided by the total number of related stores in the territory. In this case, two divided by three, which is about 67%. So Affordable Bikes is operating at about 67% unweighted distribution for the territory.
Now let’s compare that to the %ACV distribution for the company. To calculate this, we’ll go back to the formula we established previously. We take the ACV value for all the stores carrying the product and divide it by the ACV value among the total number of related stores in the region. In this instance, that would be:
CHAIN 1 ($20 million) + CHAIN 2 ($5 million) ÷
CHAIN 1 ($20 million) + CHAIN 2 ($5 million) +CHAIN 3 ($30 million)
What we end up with is a %ACV distribution of just over 45%. This is why sales are down for Affordable Bikes. Based on their current distribution strategy, they are only reaching 45% of the available market. In other words, they are missing out entirely on 55% of their potential customers by not having distribution at Chain 3. Sure, it may not have the number of locations or square footage as the other two retailers, but it is outright gangbusters when it comes to winning market share. For management of Affordable Bikes, it becomes crystal clear that the company must try to secure distribution through Chain 3. The %ACV value proves the sales and revenue potential, just as it proves that the current distribution isn’t getting the job done.
Raw sales data can’t deliver what %ACV data delivers.
There’s no argument that sales data is a valuable metric for any brand or retailer. It lets you know exactly how well your product and individual stores are performing. Sales data can also shine a light on how well marketing and advertising are performing, the effectiveness of visual merchandising in stores, as well as seasonality and other sales trends. However, what raw sales metrics can’t measure is the revenue potential you’re missing out on based on your current distribution strategy.
The %ACV distribution of your CPG brand and products, on the other hand, provides insight into your exposure to actual customer spending. It tells you how much of the market share you’re looking to capture is actually being reached across your current distribution strategy. It also allows you to measure the possible sales and revenue potential of new stores and chains you might be considering adding to your distribution channels.
The fact is, not every instance of struggling sales is due to marketing or pricing or product quality or competitors beating a brand or retailer to the punch. Sometimes, it comes down to distribution. Just because a brand finds itself winning a lot of shelf space in one or two big-time retailers, doesn’t automatically mean they’re going to enjoy optimized sales.
By being able to calculate %ACV distribution, CPG brands and retailers are able to measure one metric that’s always important to value – the percentage of the total number of qualified customers out there that are being giving an opportunity to purchase your product? After all, if a customer doesn’t have access to your great product, it makes it rather difficult to purchase one.
While an important metric, CPG brands and retailers must look past raw sales data and marketing to understand why sales and revenue might be lacking. Distribution is tricky. What might seem like solid market coverage might not be as solid as one thinks. By calculating %ACV, CPG brands and retailers get the real story. They see the percentage of market share they’re reaching and where any missing potential might lie. That’s a tremendous advantage in adapting and formulating a distribution strategy that delivers.
If you found this blog helpful and are interested in learning more about retail solutions, including how data and technology are driving retail success, visit www.mobileinsight.com. Also, check out our other blog posts that discuss retail technology and how you can leverage it for your business.
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