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Trad trade key to LatAm CPG growth

News, 22 June 2016

S AMERICA: CPG companies operating in Latin America need to offer a range of brands in traditional trade outlets and to devote time to segmenting customers shopping there, a new study has said.

McKinsey & Company looked at how 35 leading CPG businesses in the region were managing their customers and channels and identified those practices that elevated the best-performing organisations – in terms of sales growth – above their rivals.

Traditional, or fragmented, trade still accounts for at least 40% of retail sales in every country in the region, it noted, and "winning companies do a thorough job of segmenting their fragmented-trade customers".

That typically means using a greater number of segmentation criteria than competitors while also including criteria such as their company's share within a store and the store's profit-growth potential.

Scale is also important, McKinsey said, as winning companies generally offer a wider range of products than their peers do; some 75% of winners offered products in at least five categories, compared to just 41% of others.

While traditional trade requires a larger number of staff to manage it, they can also be instrumental in forming "power partnerships" with certain distributors. And that, McKinsey noted, can be a competitive advantage in a region where 60% of respondents viewed retailer-manufacturer relationships as primarily transactional.

Don't look to partner with the largest or cheapest distributor, it advised, but rather those that offer exclusivity and openness to collaboration.

Other recommendations from the consulting firm echoed best practice around the world: "pay close attention to the basics of in-store execution, in particular, monitoring out-of-stock items and correctly implementing planograms" and reward those salespeople who are getting it right.

Centralising the management of pricing and promotional spending in a single team at the business-unit level can also help increase the proportion of products sold at full-price: 78% of winners were doing so compared to 63% of the rest.

Data sourced from McKinsey; additional content by Warc staff