As a Consumer Packaged Goods (CPG) Brand it can be challenging trying to understand the differences between all the distribution metrics that are used in category management—especially if you’re a grass roots start up brand that doesn’t have an analytics team yet.
Distribution is the number one driver of sales in the CPG industry, being on shelf is the most important part of the sales game. Understanding where your brand has distribution opportunities, or risks, can be the most potent way to focus your sales efforts as well.
Introduction to Distribution Measures
The terminology can be overwhelming to say the least, the primary terms we will be discussing today will be:
- ACV (All Commodity Volume)
- Average Number of Items
- Total Distribution Points (TDP)
- Stores Selling
These terms are thrown around as if they were taught to everyone in primary school! Unfortunately, they were not. Luckily, once they are broken down in an accessible way, they really do make a whole lot of sense and can be used to leverage the power of your growing brand in a logical, evidence based manner. That said, let’s get basic distribution metrics clarified.
What is ACV?
One of the most common terms and metrics is ACV, i.e. All Commodity Volume. In short, this is a complicated way of explaining the percentage of distribution you are in that is weighted by the total dollar volume of each store across all categories in one year. This is reflected in a percentage, so the metrics are based on values from 0 to a 100. When approaching this metric from a CPG standpoint, it reflects how many stores your product is sold in yearly. This is also referred to as “breadth,” meaning how wide is your brand’s reach, i.e., what percentage of stores are you actually in?
For example, Product XYZ has an ACV metric of 60 for Retailer ABC. This means it is sold in 60% of all the ABC locations weighted by each store’s respective volume. For instance, each Walmart location counts for more than each small, independent natural grocer location.
Max ACV vs Average ACV—What’s the difference?
There are two primary ACV metrics that are used in category management. Max ACV includes all stores where the product is sold over a given time period—the latest 12 weeks or 52 weeks are common examples. Average ACV, on the other hand, counts whether that item was sold each week. If an item is sold every other week in a 12 week period it will have sold in 6 of the 12 weeks, so in this case if the Max ACV were 60, the Average ACV would be 30.
Why Do We Look At Average Number of Items?
Another common term is “Average Items Carried” or “Average Number of Items”. This is pretty straight forward, it reflects the average number of items carried by one retail location, i.e., how many of your items on average does one store have on the shelf? This can be thought of as “depth of distribution,” compared to ACV which reflects the “breadth of distribution”.
The Definition of Total Distribution Points (TDP)
When these two metrics are combined: breadth x depth, you get what is known as TDP, or “Total Distribution Points.” Often referred to as the “Master of All Distribution Measures,” TDP is the most comprehensive distribution metric because it comprises both ACV and Average Number of Items.
For example, Brand X and Brand Y may have identical ACV values of 95; however, because Brand X has an Average Number of Items of 30, whereas Brand Y only has an average of 5 items, Brand X’s TDP is 6 times greater than that of Brand Y. More products in the same amount of stores not only means higher sales and brand presence for Brand X, but higher visibility reflected by more options for the end user to choose from.
What is Stores Selling?
The easiest CPG distribution metric to understand is Stores Selling, which reflects the number of stores an item or brand has distribution in. Stores Selling can be a great way to measure your brand’s overall distribution, “we are in 5,000 stores nationwide”. It can also be used as a percent of total available stores if you know the total number of stores, “we are in 15% of Kroger stores”. However, Stores Selling can also be misleading, telling only a part of the story. For example, if a brand is in 1,000 Walmart stores, they will likely have more sales than if they are in 1,000 smaller stores with significantly less foot traffic and dollars sold per location. For this reason, ACV can be thought of as a more informative version of % Stores Selling, due to the weighting by store that it takes into consideration.
So now that these foundational metrics make more sense, what exactly does a growing brand do with them? Well for starters, brands will understand how their assortment on a shelf compares to their competitors. Do you have more or less items on a shelf? Are you in more or less stores than your competitors? Leveraging this information can help determine which retailers to focus on. It can also clarify what recommendations to provide to them when making a sales pitch, such as whether to recommend 6 or 10 items based on the average number of items of your competitors.
For investors and executives, distribution trends can help predict future sales trends much more successfully than dollar sales alone. For sales leaders and brand managers, distribution whitespace is the lowest hanging fruit for future brand growth, so identifying which distribution opportunities to chase is imperative to accelerating your brand’s growth.
Applying distribution metrics appropriately can be very nuanced, so you can always use a service like Red Fox Analytics to help your team ensure they are implementing a highly effective strategy for your brand. At Red Fox Analytics we help brands optimize growth by capitalizing on the most important distribution opportunities and identifying the most significant distribution risks by generating key insights for your team to focus on. Be in touch—we’d love to chat.