Learn how vendor payment management software can help you simplify buying from your many suppliers in the food and beverage industry.
5 Ways DSD Sales Power Your Growth
Gain a quick overview of the importance of DSD sales, focusing on five major ways they improve your business and grow your revenues.
In DSD, products are delivered directly to the store and merchandised by consumer products manufacturers. DSD sales are poised to help stores grow in five areas: revenue, margins, accelerated working capital, better returns on trade deals, and improvements in shopper loyalty.
But don’t take our word for it. Check out selected statistics, graphics, and imagery showing the importance of DSD sales below, all of which have been contributed to by AMR Research & Clarkston Consulting group and the Grocery Manufacturers Association (GMA).
- 77% of US-based retailers state that DSD will either increase or remain constant
- DSD makes up 25% of unit sales & 52% of retail profits in the grocery channel
- DSD suppliers represent 25% of total store labor in North America
1. Higher Revenue
An increase in volume at the store directly translates to more sales. It’s really as simple as that. By integrating industry-leading DSD software, you can increase consumer product choices while simultaneously simplifying managing store-specific assortments. For consumer packaged goods (CPG) companies, the addition of new functionalities such as geo-fencing, predictive ordering, mapping tools, and real-time data processing has resulted in more efficient DSD solutions being deployed.
The concept for DSD was born out of the "Lean methodology" meaning that it was supposed to cut out extra steps and reduce inefficiencies to grow profitability. Which means that if your operations in DSD are more efficient, both the supplier and retailer are positioned to make more revenues!
2. Greater Contribution Margin
We all understand the importance of margins in any business. However, in the food and beverage industry, where you rely on high volumes of inventory and low margins of a couple of dollars, accelerated over an entire year and compounded by multiple locations, we’re talking about millions of dollars of either gained or lost revenue.
“DSD sales represent up to 52% of the contribution margin of sales at the store!”
For retailers, DSD represents some of the most profitable items on their shelves—the reason? Because the supplier assumes the costs for delivery, inventory management and merchandising. With rising oil and labor costs, the contribution margin of DSD products will continue to escalate the power of DSD in the near future.
Each incremental DSD sale that crosses the scanner represents an opportunity for the store to make more money. This strong contribution margin potential is coupled with strong brand power. Seven of the top ten brands are distributed through DSD processes.
3. Accelerated Working Capital
In the simplest terms possible, DSD helps you get your money faster. Statistics show that DSD can drive a 30% improvement in working capital! This is because replenishment and payment cycles of DSD sales are often faster than traditional retail.
“With representatives in the store multiple times a week, and automation of store-level replenishment by the supplier, the average supplier can sense and replenish products in DSD processes within two days. This is five times faster than traditional grocery retail processes; and in most cases, the supplier owns the cost of the upstream warehouse inventory.
“For a retailer’s working capital this is a win/win. Not only do products get to the shelf faster, but they require less working capital support to get to the store and onto the shelf. This impact on working capital is magnified when payment terms are considered. In many cases, a DSD product will turn multiple times at the shelf before payment is expected from the retailer to the supplier. As a result, DSD sales significantly improve retailer cash flow. DSD offers the retailer the ability to have rapid response, with no capital outlay.” –GMA
4. Better Returns on Trade Deals
The average consumer products manufacturer spends 14% of revenue on trade deals with retailers. It certainly depends on the channel and category to determine the effectiveness of these trade promotions—but trade funds for DSD products in grocery retail have a 30-50% higher lift than other retail products!
A reason for this is that many DSD products are impulse buys with category elasticity, the average shopper does not leave beer in the refrigerator for very long… An increase in promotional lift leads to an increase in DSD sales.
This is compounded when spending on trade deals is paired with new product launches. The strongest promotion spending for a supplier is in tandem with new product launch promotions, on average 60% of the top 10 new product introductions in grocery are managed by DSD software processes.
Because direct store delivery is store-specific it enables the customization of promotions to drive these new product introductions and maximize the value of dollars at the shelf! DSD offers a way to better use funds to drive volume and store traffic.
5. Improvements in Shopper Loyalty
DSD categories also have more frequent trip types per buyer and a higher absolute dollar volume sold by category than other retail products. In fact, many DSD categories are so significant that they drive shopper trips to the store. It is also significant that five of the top seven most frequently shopped brands are managed by DSD processes.
You can see by our list of retailer customers that major retailers are following through here, with an understanding of how the positive effects go beyond just effective store delivery, but also create a much better shopper experience.
By reducing out-of-stocks and helping accelerate the time to market for new products, DSD allows a store to create a better association with the consumer—which is at the heart of shopper loyalty. Retaining a current customer is much more effective than finding a new one, and the collaboration that DSD sales provide supports your efforts.
Support DSD Sales to Support Your Retail Operations
By improving your DSD sales, you will be empowered to drive the reliability of store operations and growth. DSD is the cornerstone of demand-driven retailing, and in the current age of retail—any advantage can be the major determinant of success.
By leveraging DSD and the services of iControl your business can make the difference when it matters most, at the shelf for the shopper. iControl’s software takes the hassle and pain out of DSD by aligning the retailer and supplier after every scan, so both are empowered to focus on what matters most. Their customers. Request a demo today.