Marketing Forecasting at Post Foods division of Ralcorp Holding

Marketing Forecast

At Post Foods,
Division of Ralcorp Holdings.

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Fostering Demand Planning and Forecasting for Nearly 30 Years!

Main Topic
The topic of this presentation is forecasting
fast moving consumer goods from a
Marketing point of view.

Examine the business drivers and spending
that impact a brand performance and how
to quantify them into a forecast.

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Agenda
• Forecasting at Post Foods
• How We Build the Forecast
• S&OP Consensus Process
• Marketing Forecast Tools
– Inputs
• The Drivers
– Driver Details
• External Factors
• Forecast Accuracy Measurement & Actions
• Measures of Success
• Challenges and Solutions
• Next Steps and Questions

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Post Foods
• Founded by C. W. Post in 1895
• Was part of General Foods and then Kraft Foods until 2008 when
Post was acquired by Ralcorp Holdings
• Headquartered in Parsippany, NJ
• Over $1 Billion gross revenue - ~40% of Ralcorp net revenue
• #3 Ready to Eat Cereal, grown by 125% over the last 6 years
• 4 Plants plus several co-packers and 6 warehouses
• 103 SKU’s
• ~8 primary brands

• Customers include major grocery stores, mass merchandisers,
club, drug stores and Dollar stores
• David Zatz – Marketing Forecast Planner
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Forecasting at Post Foods
• Scope
• Consumer goods – Ready To Eat Cereal; US Domestic only
• Short term and medium term – current quarter through next
fiscal year – this is Tactical S&OP, not Strategic
• Longer range forecasting is done less frequently for
capacity analysis and is outside the scope of this
presentation
• Focused on Brand but calculated at SKU
• Results drive Production Planning, Deployment and
Financial forecast

• Methodology
• Monthly Cycle and monthly buckets
• Strive to arrive at “one number”
• Avoid changing the forecast for next month
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How We Build the Forecast
• Marketing drivers forecast impact vs. year ago
by brand

• Sales force bottom up forecast used for the
short term one to four month time period, built
mostly by customer and geography

• Statistical forecasting at the SKU level used for
scheduling and deployment

• All the voices come together in a monthly
S&OP process to arrive at one number to drive
the business and report up to corporate

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S&OP Consensus Process

Different
• Drivers
• Goals
• Units of
measure
One Number

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S&OP Consensus Process (cont.)
• Risks and Opportunities are discussed but not
included in the forecast – our version of a “range”
forecast

• Gaps in our numbers are used to alert management to
issues which may drive policy decisions to guide us to
one number

• This method works for Post Foods and other fast
moving consumer goods brands because a large
portion of customer sales are driven by trade
promotion, and consumer consumption is driven by
advertising and promotion. The Marketing Manager
is the general manager of the brand. Sales and
Marketing report separately to the President.
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Marketing Forecast Tools
The Marketing Forecast uses several techniques to arrive at the
numbers presented during the S&OP meetings.

•Expert opinion and judgmental approach; reliance on the
expertise of others

 Nielsen syndicated data
 Consumer Insights – Marketing Mix Analysis
 Sales and Customer behavior

•Time series and trend projections using market changes to predict
turning points
•Planned Marketing programs quantified into impact on expected
customer shipments
•The use of Nielsen market data to compare drivers to year ago
statistics
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Inputs
• Monthly shipment history by SKU
– Customer level history is used to examine
outlier data

• Nielsen syndicated consumption data
• Other Marketing and consumer insights
analysis for each brand

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The Drivers
• Equity
– Advertising
– Consumer Promotion
– Base Velocity
• Innovation
– New Products
• Price / Merchandising
– Merchandising
– Base Price
– Distribution
• Other Channels
– Wal-Mart, Club, Dollar
• Other
– Trade Inventory

These use a combination of Art and Science

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The Drivers (cont.)

FY 11 FY 11 FY 11 FY 11 FY 11 FY 11 FY 11 FY 11 FY 11 FY 11
10/26/2010 Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2010 Actual $ 15.6 $ 14.5 $ 14.6 $ 15.0 $ 16.7 $ 16.3 $ 16.1 $ 14.3 $ 17.6 $ 14.0
2011 $ Prior Call $ 15.3 $ 13.5 $ 14.2 $ 16.9 $ 16.9 $ 18.3 $ 17.2 $ 14.8 $ 16.9 $ 16.9
2011 Curr Call $ 12.3 $ 10.7 $ 11.3 $ 16.9 $ 16.9 $ 18.4 $ 17.5 $ 15.0 $ 16.9 $ 16.9
$Chg vs. Prior Call $ (3.0) $ (2.8) $ (2.8) $ - $ - $ 0.1 $ 0.3 $ 0.2 $ (0.0) $ (0.0)
Bridge Items: $ - $ - $ - $ - $ - $ - $ -
WM Growth $ (2.7) $ (3.0) $ (3.1) $ - $ - $ - $ - $ - $ - $ -
Club $ (0.1) $ (1.0) $ 0.4 $ 0.1 $ 0.1 $ 0.4 $ 0.1 $ 0.1 $ 0.1 $ 0.0
Advertising $ (0.9) $ (0.6) $ (0.1) $ 0.3 $ (0.1) $ 2.1 $ (0.2) $ (1.3) $ (0.4) $ 1.2
Merchandising $ (1.0) $ 0.1 $ 0.1 $ (1.3) $ (1.7) $ (0.2) $ 0.9 $ 0.9 $ (0.7) $ 0.8
New Products $ (0.1) $ (0.2) $ 0.1 $ 1.0 $ 0.7 $ 0.8 $ 1.0 $ 1.0 $ 0.9 $ 0.9
Consumer Promotions $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Base Velocity $ 0.3 $ 0.3 $ 0.3 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1 $ 0.1
Base Price $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Distribution $ (0.1) $ (0.2) $ (0.2) $ (0.1) $ (0.1) $ (0.1) $ (0.1) $ (0.1) $ (0.1) $ (0.1)
Inventory $ 1.4 $ 0.3 $ (0.1) $ 1.0 $ (0.4) $ (0.6) $ 0.0 $ (0.3) $ 0.4 $ (0.4)
Other $ (0.2) $ 0.5 $ (0.7) $ 0.7 $ 1.6 $ (0.2) $ (0.3) $ 0.4 $ (1.0) $ 0.3
Sum of the Drivers $ (3.2) $ (3.8) $ (3.3) $ 1.8 $ 0.2 $ 2.1 $ 1.4 $ 0.8 $ (0.8) $ 2.9
2010 Actuals + Drivers $ 12.3 $ 10.7 $ 11.3 $ 16.9 $ 16.9 $ 18.4 $ 17.5 $ 15.0 $ 16.9 $ 16.9

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Driver Details
Equity
Advertising and Consumer Promotions are
calculated based on planned spending and packages
sold on consumer promotion. We’re developing a tool
to break that down to flavors and SKU’s.

Innovation
For New Products, we include the first 12 months of
shipments as new products volume and multiply that
by an incrementality factor. Early ships are a
challenge for new products.

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Driver Details (cont.)
These drivers are calculated for past months
using Nielsen syndicated data:
Merchandising
Base Velocity
Base Price
Distribution
For Trade Inventory, we compare monthly
customer shipments to a year ago and monthly
consumer consumption to a year ago
Other channels (Wal-Mart, Club, Dollar) are fed
directly from mangers of those businesses.
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External Factors
• We use factors to control the results
– Incrementality
– Elasticity
– Velocity Weight Factor
– Competitive Activity
• As the marketplace changes, we use these
factors to adjust the drivers
• For example, over the last two years we’ve
seen a much greater sensitivity to price
changes so we can adjust the elasticity to
reflect this market change.
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Forecast Accuracy Measurement & Action
• Every month we measure forecast accuracy at the brand,
top customers and SKU levels and use that to make
adjustments going forward.

• For example, will the missed forecast last month result in
something that will continue for future months or was it a
one-time event that will result in the opposite affect in the
short term?

• When the absolute error is greater than the threshold, both
customer shipments and consumer consumption are
examined closely

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Measures of Success

• Spend our Marketing and Trade Promotion dollars
to maximize returns and drive our business
forward as planned – making revenue and profit
targets
• Maintain inventory levels and customer fill rate
targets while minimizing production disruptions
and costs
• Anticipate the impact of business decisions
• Allow Marketers to focus on Marketing
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Challenges & Solutions
• Forecasting new categories • Use similar products and Bases

• Deviating from the focus of forecast • Focus on one number and emphasize
accuracy for other business needs best guess; adjust inventory policy for
like inflating the forecast where tight capacity; better utilize risks and
capacity is tight opportunities

• Getting timely and accurate input • Develop and adhere to a firm schedule;
from all systems and people get senior management support

• Converting the forecast into different • Define the standard conversion rates,
units of measure, levels of product maintain and use them for reporting
aggregation, geographies, and and integrating results
more…

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Challenges & Solutions (cont.)
• Nielsen data is split into months of • Where necessary spread the monthly
4-4-5 weeks but shipments and shipments into a 4-4-5 pattern for
forecasts are on calendar months comparison to consumption

• Determining trade inventory levels • Combine industry standards with
estimates and past patterns

• Expanding complexity into other • Fold other categories into existing
grocery categories (different systems

manufacturing, lead times, etc.)

• Profitability by brand and SKU is • Develop the calculation for customer
calculated and used to drive profitability – partner more closely
decisions but profitability by with customers
customer is unknown
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Next Steps
• Deeper analysis for Risks & Opportunities
followed by appropriate action
• Develop Sales tools and expand their role in the
S&OP process
• Expand SKU level bottom up calculation in the
marketing forecast models to include
– Lift
– Distribution changes
– Other channels
– Advertising campaigns and promotional events
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Questions

DLZatz@gmail.com

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Marketing Forecasting at Post Foods division of Ralcorp Holding

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