What Does a Fifth of Sales in Trade Spend Buy?

How much do manufacturers spend on trade, and who checks it?

For many consumer goods manufacturers, which retailers and regulators call suppliers, payments to retailers are the largest cost after making the products. In 2017 Strategy&, a consultancy, put American trade spending at more than 200 billion dollars a year, about 20 percent of gross sales. In its 2016 survey, 63 percent of executives called their trade spending unsustainable. Only 19 percent had cut it as a share of sales over the previous two years.¹

Part of the reason is how the money is booked. Under American accounting rules, a payment to a customer reduces revenue unless it buys a distinct good or service, and PwC's guide concludes that a fee for a prominent shelf position does not count as one.³

In the quarter to May 2026, General Mills' North American retail business reported flat organic net sales, which exclude acquisitions, disposals and currency effects. Price and mix added 2 points and volume took 2 points off. Over the same quarter, Nielsen's measure of its retail sales fell 4 percent. The company attributed the gap to a 2-point benefit from trade expense timing and to changes in retailers' inventories. The same timing added 9 points to the segment's operating profit growth of 7 percent. Without it, profit would have fallen 2 percent (7 less 9).⁴ The release does not say the timing and the price gain are the same money, but the timing of trade money can move reported sales and profit as much as a pricing decision does.

In the accounts trade spend looks like a lower price rather than an investment, and its return is not shown beside it.

How does the retailer treat the same money?

Retailers book most trade money as a cut in the cost of the goods they buy, so the money goes straight into their gross margin.

In 2016 Britain's Groceries Code Adjudicator reported on an investigation into Tesco. It found that a percentage margin target was a key element of many of the joint business plans (JBP) Tesco negotiated with suppliers. It also found that Tesco had asked for payments to maintain that target "regardless of whether the planned growth had been achieved and regardless of whether Tesco had delivered on its own JBP commitments".² The case concerns one retailer, but any manufacturer can look for the same pattern in its own agreements: conditions that bind only the manufacturer.

Bain, another consultancy, found in 2021 that only 27 percent of joint annual plans in Europe had grown profit for both manufacturer and retailer over the previous five years. In nearly a quarter, margins fell for both. In the rest, margin moved from one side to the other, more often to the retailer.⁵

Retailers treat trade money as part of their margin, and most joint plans have not grown profit for both sides.

When is conditional money really conditional?

An invented biscuit manufacturer with three customers has a list price of 20.00 euros a case. Each case costs 12.00 euros to make, so its gross margin at list price is 40 percent (8.00 euros of 20.00). All its terms are a percentage of the list price.

A national grocer, customer A, buys 500,000 cases a year and receives 25 percent of the list price in four payments: a base discount of 9 percent, a logistics allowance of 3 percent, a growth rebate of 4 percent and promotion funding of 9 percent. A discounter, customer B, buys 300,000 cases and receives 19 percent, almost none of it conditional. A regional chain, customer C, buys 200,000 cases and can earn up to 18 percent, of which 11 percentage points depend on conditions.

In all, the manufacturer pays 4.26 million euros of trade money on 20 million euros of gross sales, which leaves 15.74 million of net sales. Its gross-to-net (GTN) rate, gross sales less net sales divided by gross sales, is 21.3 percent (4.26 divided by 20).

A receives 2.5 million (25 percent of its 10 million euros of sales), B 1.14 million (19 percent of its 6 million) and C 0.62 million. C's figure is 15.6 percent of its 4 million euros of sales rather than the full 18, because C missed some of its conditions.

A accounts for half of gross sales but takes 59 percent of the money and produces 40 percent of the gross profit (1.5 million of 3.74 million euros). C accounts for a fifth of sales, takes 15 percent of the money and produces 26 percent of the profit. Both profit shares are measured before the cost of serving each customer, which could narrow C's lead.

On paper, about half of A's money is conditional: the growth rebate and the promotion funding make up 13 of its 25 points (4 plus 9). The rebate is paid if A buys at least 95 percent of the previous year's cases, a target below what A buys in a normal year; the Academy's lessons call this fake conditionality. The promotion money is paid on every case A buys in promotion weeks, with no check that a display went up. Both have been paid in full for three years.

C's rebate, 5 percent of the list price, depends on its sales to shoppers growing at least as fast as the category, checked each quarter. Its promotion money, 6 percent, depends on displays that the manufacturer checks in store. C earned the rebate in three quarters out of four and passed four display checks out of five. It therefore received 8.55 of its 11 conditional points (three-quarters of 5 plus four-fifths of 6). Its payout rate is 78 percent (8.55 divided by 11).

Money is conditional only if the retailer could miss the condition and lose the money.

What does a change in list price do to trade money?

Terms set as a percentage of the list price move with it. If the manufacturer raises its list price by 5 percent and A's terms stay at 25 percent, A receives 125,000 euros more a year (25 percent of the extra 500,000 euros of gross sales) for the same cases and the same activity. Its logistics allowance rises from 0.60 to 0.63 euros a case (3 percent of 20.00 and of 21.00). Full-pallet deliveries save the manufacturer freight and handling costs, and that saving does not rise with the list price.

The rule works in reverse when the manufacturer cuts its list price. A 5 percent cut takes it to 19.00 euros. With A's terms still at 25 percent, each case sold to A earns the manufacturer 2.25 euros instead of 3.00 (19.00 less 12.00 of cost and 4.75 of terms). To earn the same gross profit it must sell a third more cases to A, because 3.00 divided by 2.25 is 1.33.

If A insists on keeping its 5.00 euros of trade money a case, its rate rises to 26.3 percent (5.00 divided by 19.00). Each case then earns 2.00 euros (19.00 less 12.00 and 5.00). The manufacturer must sell 50 percent more (3.00 divided by 2.00 is 1.5). Those extra cases depend on shoppers, and the shelf price is A's decision: A may pass on all of the cut, part of it or none.

Percentage terms give the retailer more money with every list-price increase, and a cut costs the manufacturer most when the retailer keeps its euros per case. Restating each term in euros per case, at the current and the planned list price, shows what a change hands to the retailer.

Why are regulators paying attention?

Regulators now ask what each payment to a retailer buys. French commercial law makes a company liable if it obtains a benefit and gives nothing, or clearly too little, in return,⁶ and a law of August 2026 requires a retailer that asks for a price cut to back the request with objective evidence.⁷ In 2018 Germany's Federal Court of Justice upheld the main points of the competition authority's case against Edeka, a grocer that had asked manufacturers to help pay for refurbishing stores it had bought.⁸

Britain's grocery code bars the biggest grocers from making suppliers pay for a listing or for a better shelf position. The exceptions are promotions and, for listings, genuinely new products.⁹ The rules differ by country and mainly govern how retailers behave.

A manufacturer that can say what each payment buys is answering the question the regulators now ask.

What should a manufacturer check before the 2027 negotiations?

Many manufacturers do not see their whole bill, partly because it is negotiated at several tables. German retailers now negotiate at regional, national and international level, and a consultant said in August 2026 that manufacturers can lose several points of margin this way without seeing the total.¹⁰ One page per customer, covering every level, brings it together. It runs the gross-to-net bridge (gross sales at list price, all trade money on and off the invoice, net sales). It then shows gross profit and the cost to serve, the customer's share of sales, money and profit, the payout rate on each conditional term and the best-case ROI. The key account manager should take it into the negotiation.

At A, the page shows where to act: each payment can be tied to something A does. The rebate would be paid only when A's sales to shoppers grow at least as fast as the category and the agreed displays and leaflet features have run. The promotion money would be paid on displays the manufacturer has checked and on the units shoppers bought during the event, with no link to the price A charges on its shelf, which is A's decision.

On the Academy's planning assumptions, close to C's record, the rebate's earn rate would be 70 percent and the promotion money's 80 percent. The rebate's full value is 400,000 euros a year (4 percent of A's 10 million euros of gross sales) and the promotion money's 900,000 (9 percent). At those earn rates the expected costs are 280,000 and 720,000 euros (full value times earn rate). That saves the manufacturer about 300,000 euros a year (1.3 million less 1.0 million). Returning a third of that to A as higher rates on the conditional terms, the Academy's rule of thumb, leaves 200,000 euros. A's best-case ROI rises from 60 to 74 percent (1.7 million euros of gross profit divided by 2.3 million of trade money), still below 100 percent. The rest of the gap to 100 percent comes from A's base discount, which is a question about list price and channel rather than about conditions.

The strongest objection is that much trade money buys access rather than performance: a discounter's base discount, such as B's, is the price of being on its shelves, and retailers rarely accept conditions on it. Conditions also cost money to run and to dispute, and retailers value conditional money below money they can count on, which is why A gets a third of the saving back. The case for conditions is strongest where, as at A, the money is large and the conditions weak.

In France, suppliers with worldwide sales under 350 million euros must, on a trial basis, close their 2027 negotiations by 31 January 2027.⁷ Those talks, and the annual rounds elsewhere, are likely to depend more on what each payment buys.

A manufacturer that has tested its trade money customer by customer, and given its sales team the one-page check, can negotiate over activities both sides can verify rather than over percentages.

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