Our CPM Expert Speak article this month comes from Chuck Somborn, CPM US Chief Executive Officer.
Chuck is a field marketing, direct sales and merchandising specialist with over 30 years’ experience. Chuck was previously CEO of NIS (National In-store) and became CEO of CPM US in 2009 following the acquisition of NIS.
From what began as a small merchandising company, CPM US has grown to become a nationwide merchandising and retail support business working with leading blue chip clients across North America. But, on the back of various economic highs and lows, it has not all been smooth sailing and CPM has had to remain agile to ensure it maintains its competitiveness in an ever evolving US marketplace. Chuck presents his thoughts on the US economic shift and the tipping point CPM, among other businesses, are facing to maintain market share.
Are you ready for The Shift and Squeeze?
The US market has gone through an amazing transformation over the past 30 years, impacting not only CPM but also our clients and our customers. I believe this transformation can be summarized under four primary trade eras: The Good Ole Days, The Gold Rush, The Shift and The Squeeze:
“The Good Ole Days” – if you go back to the early 1980’s, our client partners had two choices for servicing their products at retail: one was to have their own full-time staff calling on stores to impact product selection, shelf location and promotional volume with store level decision making. The second was to hire a Food Broker or Retail Service company that provided head office and/or retail store coverage for a commission on all goods sold in a state. There were approximately 2,000 Food Brokers operating state by state throughout the US.
“The Gold Rush” - in the 1990s, as Walmart started buying product centrally and shipping it out of state while growing their business, the Food Brokers quickly realized that to protect their commissions, they had to expand nationally by purchasing local statewide Food Brokers. It was a race to find an acquisition partner in each state, which lead to the creation of the current Big Three Agencies in the US: Advantage Sales & Marketing (valued at $4B), Acosta (valued at $4.8B) and CROSSMARK (valued at $1B) and the demise of the entire National Food Brokers Association and its 2,000 members.
“The Shift” – as Walmart was expanding their buying power, they were also shifting from store level buying to head office buying to receive the greatest volume discounts available from suppliers throughout 2000’s. Many other retailers followed that direction which created a shift in the resources needed to call on retail stores going from the full-time, salaried Sales Rep, to a part-time resource that did not have to “sell” anything at store level. The shift in resources was to a lower cost, tactical part-time merchandiser that was focused on executing decisions made at the head office with directives sent to the stores for implementation.
“The Squeeze” – as the retailers continued to fight for consumer dollars, the pressure from Wall Street was focused on year over year store sales and overall shareholder ROI. With that pressure driving overall corporate profits, store managers quickly learned that cutting store labor hours was the quickest way to hit their goals, while suppliers still needed to ensure that their brands were accessible to the consumer when they visited stores.
It’s a “bad news, good news, bad news” story. The bad news is that the margin squeeze is creating a void at store level where suppliers brands do not get the attention they need from store personnel. While the good news story for CPM is an increased demand in services; which leads to the final bad news that we are constantly battling against our competition who continue to lower prices to grow their top line business.
Our squeeze is that top line billable rates continue to come down while our wages are being pushed up by the US labor laws for minimum wage compensation.
The big question is whether or not other CPM markets will go through the same evolution that the US has. As a global sales business, CPM’s success is based on the ability to remain faster, sharper and fresher than our competition, adjusting our service offering to address the changing needs of our retailers and clients. The key for the US has been to recognize “The Shift” before it happens and make the necessary adjustments to prepare for “The Squeeze”. We also focused on quality execution of the services that we excel and said no to the other opportunities that we could not do and do well.
I am delighted to report that the CPM US business is thriving and growing YTD in 2014. If things stay on track like they have for the first seven months of the year, I believe we may be in the middle of an expansion that will set our US operation on a track to achieve greater revenue and profits than we’ve seen in the past seven years.