The consumer packaged goods (CPG) landscape is fast-paced, with brands vying for retail shelf space and consumer attention. Amid this competition, retail velocity emerges as a critical performance metric—far more insightful than raw sales figures. It serves as a guiding star for brands, helping them achieve sustainable growth and meaningful market expansion.
But what exactly is velocity, and how can CPG brands leverage it to secure their place in this dynamic industry? This comprehensive guide unpacks everything you need to know, from the fundamentals to actionable strategies, to master retail velocity and elevate your brand.
Understanding Velocity: The Cornerstone of Retail Success
Velocity is more than just a sales number; it’s the rate at which your product sells when it’s available to consumers on the retail shelf. Often described as the heartbeat of the CPG brand, velocity captures the effectiveness of a product’s performance in the market–usually measured as retail units sold per SKU per store per week. It is the ultimate indicator of whether your products are resonating with shoppers and meeting their needs.
In fact, velocity ranks as the third most crucial metric in retail analytics—right behind sales and distribution. Why? Because it evaluates not only the presence of your product but its power to move off shelves quickly and consistently. This makes it indispensable for CPG growth, whether you're a startup or an established player in the food consumer products sector.
The Fundamental Retail Equation: Sales = Distribution × Velocity
At its core, velocity is about how fast products sell relative to their distribution. A product may boast wide distribution, but if it isn’t moving off the shelves, the brand is underperforming. On the other hand, strong velocity can justify expanding distribution channels and negotiating premium shelf space.
Velocity effectively separates two scenarios:
- A product with low distribution but high velocity signals untapped potential.
- A product with high distribution but low velocity demands internal optimization to boost sales.
The Mechanics of Velocity Measurement
Retail velocity isn’t a one-size-fits-all metric; it varies based on what aspect of sales you’re analyzing. Two widely used methods of velocity measurement are:
1. Sales per Point of Distribution (SPPD)
- Best suited for analyzing sales within a specific retailer or market.
- Accounts for store size through All Commodity Volume (ACV)-weighted distribution.
- Expressed in dollars, units, or volume per distribution point, providing a granular view of product performance.
2. Sales per Million (Sales per $MM ACV)
- Ideal for cross-market comparisons, such as evaluating performance in different regions or channels.
- Normalizes sales performance across varying market sizes for a clearer picture of success.
Practical Example of Velocity in Action
Imagine two products with identical sales of 3,000 units:
- Product A: Low distribution but high velocity.
- Product B: High distribution but low velocity.
The strategies for these products are vastly different:
- For Product A, the focus should be on securing increased distribution based on strong performance metrics.
- For Product B, the goal is to optimize factors impacting velocity, such as pricing, packaging, or shelf placement.
Tools like deduction management software are invaluable in these scenarios, offering insights into hidden costs and inefficiencies that can affect velocity.
Factors Influencing Retail Velocity
Several factors can determine whether a product flies off the shelves or lingers unnoticed. These include:
- Product Quality and Packaging: Does your product meet consumer expectations?
- Pricing Strategy: Is your pricing aligned with market demand and competition?
- Shelf Placement: Are you visible where shoppers are looking?
- Seasonality: Are there fluctuations in demand throughout the year?
- Store Traffic and Availability: Are your products consistently stocked and easily accessible?
Brands that excel in food marketing strategies know how to fine-tune these factors for sustained velocity momentum.
Strategic Velocity Analysis
Analyzing velocity isn’t just about tracking a single number. To truly harness this metric, brands must dive deeper:
1. Identifying Velocity Hotspots
Break down velocity by:
- Product variations.
- Regional markets.
- Store formats and demographics.
2. Leveraging Velocity Insights for Growth
Use velocity data to guide:
- Expansion Strategies: Target high-performing zip codes or regions, using CPG go-to-market strategy insights to convince retailers of your product’s potential.
- Product Line Optimization: Introduce complementary items or adjust offerings to fill market gaps.
The Importance of Store-Level Analysis
While average velocity gives an overarching view, store-level data provides actionable insights. For example:
- Top-Performing Stores: Propose in-store displays or expanded shelf space.
- Underperforming Stores: Investigate local dynamics and work with retailers to improve sales.
Brands collaborating with food and beverage consulting companies often find tailored solutions to address these disparities effectively.
Working with Retailers: Using Velocity Data Strategically
Retailers value partners who bring data-driven insights to the table. Use your velocity metrics to:
- Propose visibility-enhancing investments, such as endcap displays or promotional campaigns.
- Address underperformance by identifying root causes, like poor placement or pricing misalignment.
When pitching these ideas, focus on how they align with the retailer’s goals, such as driving foot traffic or increasing basket sizes.
Key Takeaways
Mastering velocity is more than crunching numbers—it’s about building a narrative that aligns with your brand’s vision and market dynamics. Key points to remember include:
- Velocity reflects the quality of distribution, not just its quantity.
- Continuous, granular analysis uncovers growth opportunities.
- Data-backed strategies are critical for optimizing performance and achieving CPG marketing success.
Final Thought: Turning Velocity into Victory
In the fast-evolving world of CPG brand management, velocity is your ultimate growth lever. By understanding and strategically leveraging this metric, brands can outperform competitors and achieve sustainable success.
Ready to optimize your retail velocity and unlock your brand’s potential? Let Vdriven guide you with expert insights and strategies tailored to the unique challenges of the CPG industry. Contact us today to accelerate your journey to retail success.