Effective management of trade promotions in the foodservice sector requires a deep understanding of the industry’s unique characteristics. While the retail and consumer goods sectors are pushing the bounds on being data-driven and analytical, the foodservice industry has been trailing in part due to the structural differences in how foodservice business is managed and maintained, with different incentives systems and continued data challenges. With strong price sensitivity and complex distributor relationships, strategically managing foodservice trade promotions can be quite challenging. Since many Trade Promotions Management (TPM) technologies tend to be targeted toward manufacturers that operate in retail channels, foodservice organizations need to be aware of the differences before making decisions on TPM technology. Below, we dive into some considerations when balancing supply chain capabilities and TPM strategy in foodservice.

What is Unique About the Foodservice Industry Supply Chain? 

The complexity of the foodservice supply chain further distinguishes it from retail; multiple intermediaries, such as re-distributors and distributors, are responsible for the flow of goods from manufacturers to operators within the foodservice industry. For example, a re-distributor like DOT Foods might ship products to a distributor, who then delivers them to a restaurant or operator. Additionally, supplier contracts can be very price sensitive and less formal, which can result in quick shifts in volume and changes to the plan.  Given these nuances, promotional programs that drive significant increases in volume must be carefully coordinated with supply chain partners to avoid disruptions. This multi-layered distribution network makes it more difficult to gain visibility into the supply chain, posing challenges (and opportunities) for effective trade promotions management.  

What Must Best-in-Class TPM Processes in Foodservice Consider? 

Tools to manage foodservice manufacturer operations are essential given the challenges faced by the industry.  Designing, executing, and managing a TPM process and finding a best-fit TPM software requires thoughtful evaluation. For example, within foodservice, there’s a critical focus on long-term rebates and agreements rather than short-term promotions. In retail, promotions like “Buy One, Get One Free” (BOGO) are common, designed to drive immediate consumer purchases. In contrast, the foodservice industry relies more on long-term agreements, such as a 5% rebate on every case shipped over an extended period.  

Even foundational activities for Retail TPM like Volume Forecasting tend to be complex for a foodservice business because of the multi-tiered supply chain mentioned above. Some companies and systems do not support detailed volume forecasting by account as part of their process.  

Because promotions in foodservice are typically long-term, there is less discretionary spending available for the sales team to use as a negotiating tool throughout the year. This contrasts with retail, where short-term promotions can be adjusted frequently to respond to market conditions or to incentivize specific behaviors. The structure of foodservice promotions further reinforces the importance of distributor relationships, and incentives as sales teams must rely more on rebates, incentives, and growth programs than on flexible promotional tactics. 

Foodservice promotions are generally targeted at distributors and re-distributors rather than end-consumers but in the case of large chain and national operators, manufacturers will engage in direct negotiations. Managing a successful foodservice business requires flexibility to use a variety of promotion types and tactics as well as users.   

Another notable aspect of trade promotions in foodservice is that while volumes can remain steady for periods of time, changes in pricing or incentive structure can lead to sudden and unexpected changes in volume that can be challenging for organizations to manage. Foodservice manufacturers must plan to meet regular volumes but be prepared to shift on the fly as needed.   

How Should Companies in Foodservice Think About TPM Technology? 

The unique requirements of a foodservice business can pose challenges for traditional TPM systems. Foodservice-specific promotional activity may not be standard features in TPM systems designed for retail, requiring customization or specialized solutions. Most existing TPM technologies are designed with the retail industry in mind, which can create challenges for foodservice companies seeking to implement these systems. While some tools are tailored to foodservice, many general TPM solutions claim to handle foodservice requirements but often fall short when dealing with the industry’s specific needs. 

Historically, the foodservice industry has struggled to be as data centric as retail operations. This is the result of both dated technology and limited data availability.  Unlike retail, that has an abundance of data through syndicated and retailer systems, foodservice operations often struggle to estimate volume, market share, and other fundamental KPIs. Many foodservice companies still rely on outdated systems, creating inefficiencies and a lack of visibility across the supply chain. This technological gap offers a competitive advantage for companies that embrace modern trade promotions management systems tailored to the unique needs and supply chain considerations of the foodservice industry. A best-in-class TPM strategy for foodservice companies balances promotions with the capabilities and constraints of the supply chain. 

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