1. Distribution Measures This module covers the concepts of numeric distribution, all commodity volume (ACV), product category volume (PCV) and out-of-stocks. Author: Paul Farris Marketing Metrics Reference: Chapter 6 © 2010-14 Paul Farris and Management by the Numbers, Inc.

2. M EASURES OF D ISTRIBUTION Measures of Distribution Measures of distribution help managers understand the sales dynamics in the retail channel and improve their decisions for expansion and growth strategies. This overview explores three measures of distribution coverage: Numeric Distribution All Commodity Volume (ACV) Product Category Volume (PCV), including the impact of out- of-stock on net PCV. Definition Stock Keeping Unit (SKU) is a unique identifier for each distinct product or service that can be purchased. You will see SKU referenced throughout this presentation. A brand will typically include many unique SKUs. MBTN | Management by the Numbers 2

3. N UMERIC D ISTRIBUTION Numeric Distribution Definition Numeric Distribution: a percentage measure of stores that stock a given SKU or brand compared to the universe of stores in the relevant market. = (# stores that stock a brand or SKU) / (total stores in relevant market) Insight The number of physical stores involved in your supply chain has implications for delivery systems, cost of servicing, and market share. MBTN | Management by the Numbers 3

4. C ALCULATING N UMERIC D ISTRIBUTION Calculating Numeric Distribution OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct Numeric Distribution Example: The numeric distribution of Madre’s brand tortillas is calculated as follows: Numeric distribution = (stores carrying Madre’s) / (total # of stores) Numeric distribution = (3) / (4) = 75% Question 1: What is the numeric distribution of the 12 ct pack of Padre’s Tortillas? MBTN | Management by the Numbers 4

5. OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct C ALCULATING N UMERIC D ISTRIBUTION ( SOLUTION ) Calculating Numeric Distribution (Solution) 2 stores MBTN | Management by the Numbers 5 Answer: The numeric distribution of the 12 ct pack of Padre’s brand tortillas = (stores carrying 12 ct Padre’s) / (total # of stores) Numeric distribution = (2) / (4) = 50%

6. A LL C OMMODITY V OLUME (ACV) All Commodity Volume (ACV) ACV is a better measure of the total traffic that goes through the stores that stock your product or brand than numeric distribution. However, it does not say anything directly about how well those stores merchandise and compete in the relevant product category. Definition All Commodity Volume (ACV): a percentage measure of the total dollar volume of retail sales of stores stocking an SKU or brand versus total dollar volume sales in all categories. ACV (%) = (total sales of stores carrying a brand) / (total sales all stores) MBTN | Management by the Numbers 6

7. C ALCULATING % ACV Calculating % ACV ACV Example The % ACV of Madre’s brand tortillas is calculated as follows: % ACV = (total sales of stores carrying Madre’s) / (total sales all stores) % ACV = ($100k + $75k + $50k) / ($100k + $75k + $50k + $40k) = 84.9% Question 2: What is the % ACV of the 12 ct pack of Padre’s Tortillas? OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct MBTN | Management by the Numbers 7

8. C ALCULATING % ACV ( SOLUTION ) Calculating % ACV (Solution) OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct these stores MBTN | Management by the Numbers 8 Answer: The % ACV of the 12ct pack of Padre’s brand tortillas is: % ACV = (total sales of stores carrying 12ct Padre’s) / (total sales all stores) % ACV = ($100k + $40k) / ($100k + $75k + $50k + $40k) = 52.8%

9. P RODUCT C ATEGORY V OLUME (PCV) Product Category Volume (PCV) Insight When PCV is available, it is a better indicator of where consumers look to buy a particular category of product or service. Often marketers use ACV as a rough surrogate for PCV, but the risk of using ACV alone is over-emphasizing high traffic stores where a product category may be available, but not purchased at a rate indicative of the store’s overall volume. MBTN | Management by the Numbers 9 Definition Product Category Volume (PCV) represents the share of category sales by the stores that stock your brand. Note that the term, Product Category Volume, is not an industry standard. PCV (%) = (category sales of stores carrying a brand) / (total category sales for all stores)

10. C ALCULATING % PCV Calculating % PCV PCV Example: The % PCV of Madre’s brand tortillas is: % PCV = (tortilla sales of stores carrying Madre’s) / (tortilla sales all stores) % PCV = ($1000 + $500 + $300) / ($1000 + $500 + $300 + $400) = 81.8% Question 3: What is the % PCV of the 12 ct pack of Padre’s Tortillas? OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct MBTN | Management by the Numbers 10

11. C ALCULATING % PCV ( SOLUTION ) Calculating % PCV (Solution) OutletAll salesAll tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Store 1 $100,000$100012 ct, 24 ct Store 2 $75,000$50012 ct24 ct Store 3 $50,000$30012 ct, 24 ctnone Store 4 $40,000$400none12 ct, 24 ct these stores MBTN | Management by the Numbers 11 Answer: The % PCV of the 12ct pack of Padre’s brand tortillas would be: % PCV = (tortilla sales of stores carrying Padre’s 12ct) / (tortilla sales all stores) % PCV = ($1000 + $400) / ($1000 + $500 + $300 + $400) = 63.6%

12. S TORE VERSUS B RAND M EASURES Store versus Brand or SKU Measures Marketers often refer to a grocery chain’s ACV. This may be either a dollar number (the chain’s total sales of all categories in the relevant geographic market) or a percentage (their share of those dollar sales). Finally, marketers sometimes refer to a chain’s share of a specific category’s sales in a market. This is equivalent to the chain’s % PCV, as defined earlier. Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insight into whether the chain is performing above or below average in selling a particular category as compared to other stores or chains in the relevant market. If the ratio of (PCV / ACV) > 1 that means that chain is performing comparatively better in the particular product category in question than the other chains. Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insight into whether the chain is performing above or below average in selling a particular category as compared to other stores or chains in the relevant market. If the ratio of (PCV / ACV) > 1 that means that chain is performing comparatively better in the particular product category in question than the other chains. These metrics can also be applied to particular chains. For example, numeric distribution of a chain would equal the number of stores in a particular chain divided by the total number of stores in the market. MBTN | Management by the Numbers 12

13. Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Question 4 What is the numeric distribution for Chain 1 of stores carrying tortillas? MBTN | Management by the Numbers 13

14. W ORKING WITH C HAIN S (E XAMPLES ) Working with Chains (Examples) Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct 25 stores MBTN | Management by the Numbers 14 Answer: The numeric distribution for chain 1 is calculated as follows: Numeric distribution = (chain 1 # of stores) / (total # of stores carrying tortillas) Numeric distribution = (25) / (25 + 12 + 10 + 20) = 37.3%

15. W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Question 5 What is the % ACV for Chain 1? Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct MBTN | Management by the Numbers 15

16. W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct MBTN | Management by the Numbers 16 Answer: The % ACV of Chain 1 is calculated as: % ACV = (Chain 1 total sales) / (total sales all chains) % ACV = ($1,000,000) / ($1,000,000 + $750,000 + $500,000 + $300,000) % ACV = 39.2%

17. W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Question 6 What is the % PCV of Chain 1? Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct MBTN | Management by the Numbers 17

18. W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct MBTN | Management by the Numbers 18 Answer: The % PCV of Chain 1 is calculated as: % PCV = (Chain 1 tortilla sales) / (total tortilla sales all chains) % PCV = ($10,000) / ($10,000 + $5,000 + $3,000 + $4,000) = 45.45%

19. W ORKING WITH C HAINS (E XAMPLES ) Working with Chains (Examples) Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Padre’s Tortillas SKUs stocked Chain 1 25$1,000,000$10,00012 ct, 24 ct Chain 2 12$750,000$5,00012 ct24 ct Chain 3 10$500,000$3,00012 ct, 24 ctnone Chain 4 20$300,000$4,000none12 ct, 24 ct Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insights about whether the chain is performing above or below average in selling a particular category as compared to the store or chain’s overall sales. % PCV Chain 1 = 45.45% % ACV Chain 1= 39.2% Chain 1 ratio of PCV to ACV = (45.45%) / (39.2%) = 1.16 The ratio is greater than 1. Thus, Chain 1 is performing comparatively better in the particular product category in question than the other chains. Insight: Comparing the ratio of a specific chain’s % PCV with its % ACV provides insights about whether the chain is performing above or below average in selling a particular category as compared to the store or chain’s overall sales. % PCV Chain 1 = 45.45% % ACV Chain 1= 39.2% Chain 1 ratio of PCV to ACV = (45.45%) / (39.2%) = 1.16 The ratio is greater than 1. Thus, Chain 1 is performing comparatively better in the particular product category in question than the other chains. MBTN | Management by the Numbers 19

20. O UT - OF -S TOCKS Out-of-Stocks Being “listed” by a chain means that the headquarters buyer has “authorized” distribution of the brand/SKU at the store level. For various reasons, being listed does not always ensure presence on the shelf. Local managers may not approve distribution or the product may be distributed, but “out-of-stock.” Out-of-stocks are often expressed as a percentage. Be careful to note whether the percentage is numeric, ACV, PCV, or percentage of distributing stores for a given chain. MBTN | Management by the Numbers 20

21. C ALCULATING PCV N ET OF O UT - OF -S TOCKS Calculating PCV Net of Out-of-Stocks Question 7 What is the PCV Net of Out-of-Stocks of Madre’s Tortillas? Definition PCV Net of Out-of-Stocks: the sum of the % PCV of each chain multiplied by (1-% OOS) Outlet# of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Avg. Out-of- Stocks for Madre’s SKUs Chain 1 25$1,000,000$10,00012 ct, 24 ct5% Chain 2 12$750,000$5,00012 ct10% Chain 3 10$500,000$3,00012 ct, 24 ct12% Chain 4 20$300,000$4,000none MBTN | Management by the Numbers 21

22. C ALCULATING PCV N ET OF O UT - OF -S TOCKS ( CONTINUED ) Calculating PCV Net of Out-of-Stocks (cont.) Outlet # of Stores All chain sales All tortilla sales Madre’s Tortillas SKUs stocked Avg. Out-of- Stocks for Madre’s SKUs Chain 1 25$1,000,000$10,00012 ct, 24 ct5% Chain 2 12$750,000$5,00012 ct10% Chain 3 10$500,000$3,00012 ct, 24 ct12% Chain 4 20$300,000$4,000none MBTN | Management by the Numbers 22 Answer: Total all tortilla sales = ($10,000 + $5,000 + $3,000 + $4,000) = $22,000 % PCV Chain 1 = (($10,000) / ($22,000)) x (1 -.05) = 43.2% % PCV Chain 2 = (($5,000) / ($22,000)) x (1 -.10) = 20.5% % PCV Chain 3 = (($3,000) / ($22,000)) x (1 -.12) = 12.0% PCV Net of OOS of Madre’s Tortilla’s = 43.2% + 20.5% + 12.0% = 75.7%

23. F URTHER R EFERENCE 23 Further Reference MBTN | Management by the Numbers Marketing Metrics by Farris, Bendle, Pfeifer and Reibstein, 2 nd edition, chapter 6.