Achieving a healthy sell-through rate is a big deal for any food & beverage CPG. But let’s be honest: it’s not the easiest thing in the world to understand.
So before we start discussing how you can improve your sell-through rate and operate a more profitable business, let’s set a few things straight about what a sell-through rate actually is.
What is the sell-through rate?
Sell-through rate is a calculation (usually a percentage) that compares the amount of inventory a retailer takes receipt of from a manufacturer/supplier versus the amount sold to customers. This is usually measured over a single month.
Let’s say a grocery store buys 100 cans of vegetable soup from a vegetable soup supplier. After a 30-day period, the store sells just 20 cans to customers and has 80 left in stock. That leaves the retailer with a sell-through rate of 20%.
A low sell-through rate isn’t ideal. It might mean that the store bought more units of a product than it needed to meet consumer demand. The goods could also be retailed at too high a price — leaving shoppers searching elsewhere to find a better deal.
A high sell-through rate, on the other hand, suggests that a product is popular or scarce. With high sell-through products, the retailer will want to keep their stock levels stable — if possible — to accommodate demand. Investing in larger quantities obviously incurs more expense than the retailer may have planned for, but a high sell-through rate increases the likelihood of securing a good (or great) return.
So, in short: you can use sell-through rates to estimate how quickly a product will sell and what revenue it will generate.
Why is the sell-through rate useful for wholesale CPGs?
Tight inventory management is crucial for CPGs selling wholesale. Manufacturing products in bulk incurs big costs, so you want to balance production with sales and get your products stocked and sold quickly to maximize returns.
Understanding the sell-through rate for each of your variants informs your supply chain decisions and reduces much of the guesswork that might otherwise be involved.
If retailers struggle to sell a particular type of pasta sauce, for example, then they’re unlikely to order it from you again. Calculating the sell-through rate would show you that this pasta sauce failed to generate satisfactory revenue and may hint at a lack of product/market fit.
How to understand low sell-through rates
Understanding the core reasons why customers aren’t interested in buying specific goods from retailers can help you make smarter choices in the future.
So what can you do to pick customers’ brains — identifying why they’re leaving some of your products on shelves, while others sell in their thousands?
Work with retailers to gather feedback
Retailers should be able to give you a veritable feast of insights into customer preferences and behaviors that explain low sell-through rates. They’re the people working with shoppers day in, day out.
In brick-and-mortar establishments, retailers will be interacting with customers and possibly helping them find the products they’re looking for. A shopper might explicitly tell them why they choose one brand or item over another (e.g. taste, ethics, availability, and so on).
Or they could realize the difference between two products for themselves: one may simply offer better value for money than the other. Perhaps it’s just a case of too little merchandising — can shoppers actually see your product on shelf?
Online retailers, though, may need to delve a little deeper. They might ask customers to complete a quick survey form after a transaction to explain what attracted them to a specific product.
Either way, those insights are available to capture if your retail partner will help you gather them.
Explore shopping and societal trends
Retailers will hold a lot of insights into your products’ success. But don’t overlook the cultural changes that take place outside of the grocery aisles, too.
For instance, vegetarianism and veganism are more common in the US than ever. 8% of people aged 18 to 34 follow a vegetarian diet, as do 7% of 35- to 54-year olds. Meanwhile, the vegan food market is expected to be worth $24.06 billion by 2025 as people embrace healthier, more ethical diets.
Retailers in communities with large numbers of vegetarian and vegan customers may find meat products have a lower sell-through rate than they used to — turning their wholesale interest to plant-based goods instead. CPGs looking to capitalize on the plant-based boom would be well positioned to cater to retailers in this case.
How can you improve sell-through rates?
Feeling a little disappointed by your current sell-through rate? Not to worry. Here are some ways to bring the percentage up.
Use promotions to move old stock
Shoppers love discounts. That’s why this one is the oldest trick in the book: if you’ve got slow-to-move stock, then put on a promo and watch it fly off the shelves.
Promotions may lead to lower profit margins, sure. But discounting goods to increase their appeal will prevent unnecessary waste, while creating space for new (higher sell-through) items.
Test new ideas with customers before they go into production
Innovation is a fun — and fundamental — way to grow your brand and make new sales… but you should never dive in blind.
Customer research at the concept stage gives an early indication of how popular a product may be. Then, taste testing and other product verification is an essential go/no go stage-gate to get through, too.
Partner with an effective distributor
Sometimes a low sell-through rate is no more complicated than wrong place, wrong time. Is your product really being stocked in the right location? Does the store’s clientele match your target audience? Are your products visible enough on-shelf?
These are all important questions to ask yourself — and questions a supportive CPG distributor will be asking you as well.
At Buffalo Market, your sell-through success is our success. We’ll help you get your products in the right places at the right time, and in front of the right shoppers, too. If you’ve got questions about your sell-through rate and how to make it better, then get in touch with our team today.