Category: ACV

In this blog, we’ll understand precisely what %ACV distribution is, and why you as a manager should be paying maximum attention to it. The contents of the blog are as follows:

• What is %ACV
• Why managers should care about it
• How to calculate %ACV, and
• Some points to consider when using it in your data analysis

The total sales made is the bottom line of all your efforts, but for a commodity to sell, it needs to be present in stores, and the right ones at that. Distribution, therefore, is widely considered as the most important sales driver, and %ACV helps you get your distribution right.

WHY SHOULD MANAGERS CARE ABOUT %ACV?

Here are some reasons: 

%ACV helps managers understand the quality of their distribution networks, so they are not deceived into feeling cozy because their products are seemingly well-distributed, when, in fact, they might be well-distributed only at the surface level. %ACV can answer why certain products are not selling in an area despite widespread distribution in that area.  

On the other end of things, CPG managers get to know which retailers are the fastest at moving products off their shelves, and categorize them as such. Managers can then focus on specifically targeting these stores and ensuring distribution’s on point there. Knowing which stores are the best performing also provides a blueprint which can be referred to and possibly replicated.

If managers care about their distribution goals, and what’s really going on at the store-level, they should care about %ACV. 

WHAT IS %ACV DISTRIBUTION?

%ACV Distribution, simply known as %ACV, stands for All Commodity Volume. It is a metric that can be understood as the ‘percentage of stores selling, where each store is prioritized based on its size’. This figure is then compared to the sales of other (rival) retailers, territory-wise.

Now, size here means the total annual sales of the store, called All Commodity Volume (ACV). This means that the larger the store you are present in, by (ACV) size, the more weight is assigned to it. 

However,

IT’S ALL ABOUT SCANNING

Being present in a large store means nothing if your product is not getting scanned. Your brand may have a dedicated shelf or shelf tag in a store, but if

• The product’s out of stock, or
• Is in stock, but is not moving out (customers aren’t purchasing it)

it won’t be captured under %ACV distribution in the Nielsen and the IRI data.   

%ACV distribution helps managers understand the quality of their distribution networks. The golden word to gauge quality is ‘scanning’. 

HOW IS %ACV CALCULATED?

The formula to get Retailer %ACV is this:

(ACV of that retailer/ ACV of all the retailers) * 100

The City of Mumbai has 3 retailers (oh, the oversimplification) selling your brand. 

Assume the details are as such:

Now, if your brand is present in Retail Store 1 and Retail Store 2, then the distribution by % of stores is 80%, but the distribution by %ACV is 90

How we arrived at 90 for %ACV is thus:

[(ACV of Store 1 + ACV of Store 2) divided by Total ACV]

(80 + 100) divided by 200 = 90.

The entire column of ‘%ACV’ is similarly calculated.

Similarly, if your brand is present in Store 1 and Store 3, then the distribution by % of stores would be 70%, but the distribution by %ACV would only be 50%. 

Studying these two scenarios in light of the %ACV distribution metric helped us understand the classical ‘I am present in many stores, therefore I should be selling more’ mistake that a manager may make. Store 2 is clearly the most valuable store, even with a lesser number of outlets (30) than Store 1 (50).

To revise, %ACV is meant to categorize, or value stores based on their ACV size, which is the total annual sales of a store, and target the largest store.  

SOME POINTS TO CONSIDER WHEN PERFORMING %ACV DISTRIBUTION 

When using %ACV distribution in your data analysis, keep in mind the following points:

1. Scanning = Quality of distribution

An actual product scan is what counts – and it’s all that counts. Nielsen does not consider your product to be distributed when it is sitting in a store shelf and not moving out, and you should follow the same reasoning. Retail authorization means nothing – our focus is on the quality of distribution

2.  Can’t add distribution up 

%ACV distribution is non-additive, meaning that if one UPC (Universal Product Code) has 20% distribution and another has 25%, you can’t just add up and conclude that total distribution is 45%. Neither markets, nor products, nor periods can be added. If you do, that would be incorrect, not to mention you may end up with a distribution of more than 100%.

Use the periods, markets, and products available in your database for analysis, without adding them up

3. Don’t go weekly for non-perishable items

For non-perishable items, you might want to look at longer distribution periods such as 12 weeks for slow-moving products, or 4 weeks for relatively faster-moving products. Conducting 1-week analysis for slow-moving products, for example, will lead to grossly incorrect conclusions, because these products have longer purchase cycles and do not get scanned on a weekly basis. As such, you might be finding faults with your distribution infrastructure when there are none.

Of course, as you widen the territory of analysis on a weekly basis, you will see units being sold, but micro-analysis at retailer-level or for a specific item is not possible in this manner

4. Be careful with 52-week analysis as well

Longer periods of distribution-related numbers are often extrapolated from smaller data chunks. Now, if the current distribution is fluctuating i.e. moving up or down rather than being stable, and the small data chunk is relatively stable, the extrapolation will not represent the current fluctuation. The extrapolation may consider the average or the maximum of the week/s within the smaller data chunk, and produce a year-long picture or that basis

5. Individual item distribution vs Total brand distribution

Total brand distribution will always be higher than individual item distribution, since every store will hold your brand, but not all stores will hold every product variety you produce. Discrepancy is to be expected, except for super-seller products which every store wants to keep

Until next time!

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