Earlier this year, we received a frustrated email from a reader. He wrote: “Once and for all, I would like to know exactly what ACV is. You hear several definitions depending on the site you visit. Then I would like to know how to calculate it, what it tells me, and why suppliers should care.” A great list of questions about an important CPG metric!
First, what is ACV? ACV stands for All Commodity Volume. It is total retail dollar sales for an *entire* store across all products and categories. In the world of CPG, it’s a common way to measure the size of a store or retailer. Rather than a measure of physical size, like square footage, ACV reflects how much total business is done in that outlet.
Why would a supplier of a specific product care about overall retailer ACV? If you are looking to expand distribution, ACV can help you prioritize opportunities. Generally speaking, the bigger the retailer’s volume, the bigger the sales potential for your product. And ACV trends will give you perspective on the business health and growth potential for that retailer.
One source for data on retailer ACV is industry trade publications and company annual reports. For example, here’s a Progressive Grocer ranking of the top 50 supermarket chains which includes information on total retail sales.
If you purchase a Nielsen/IRI database, you can calculate total retailer ACV across all products (even if you are buying data only for one specific product category). I wrote a post on how to back into that ACV estimate.
So that’s what exactly what ACV is. Seems pretty straightforward, right? Why would my reader feel confused by seemingly different definitions? Probably because ACV is also an *input* into the most commonly used syndicated distribution measure, called “% ACV” aka “ACV Weighted Distribution”. Sometimes, when people use the term “ACV” they really mean “% ACV”. We’ve written buckets of posts about % ACV (start with this one) so I’m not going into detail on this most important of distribution measures. But I do want to illustrate here how % ACV is calculated, how it relates to raw ACV, and what it means to “weight” distribution. Here is a simple example of a market made up of 3 stores:
How big is this market overall?
Total Market ACV = 40 + 60 + 80 = $180 Million
What is distribution for Product X? There are two answers, depending on whether you are looking at unweighted or at weighted distribution:
Unweighted distribution = % of stores selling = 2 ÷ 3 = 67%
ACV weighted distribution = % ACV = (60 + 80) ÷ 180 = 78%
% ACV distribution is calculated by looking at total ACV in the stores where a product scanned, divided by total ACV for the market. Because Product X sold in the two larger stores in this three store market, its % ACV distribution is higher than its % of stores selling.
Why is % ACV considered the more insightful measure of distribution for your product? Because it represents your exposure to consumer spending. Sales potential in a high ACV store is theoretically better for every product, including yours. So you want to give your product more distribution “credit” for selling in those higher ACV stores.
Because ACV is used to calculate % ACV Distribution, you will see the term “ACV” in other measures as well (promotion measures and velocity measures). It all comes back to using ACV to weight distribution, though, no matter what the measure. So if you understand that concept, then you understand everything you need to know about how ACV is used in syndicated data.
I’ll end on this nerdy side note that may be of interest to some data obsessed readers: when Nielsen and IRI calculate the ACV that they use for weighting, they exclude some departments like lottery and pharmacy and gasoline because not all stores have those departments. Because of that, Nielsen/IRI ACV for a retailer may not match total retailer sales numbers reported in annual reports or other sources. Contact your data supplier for their specific list of departments included in/excluded from their ACV numbers. Note that ACV is usually updated on an annual basis.
Still have questions about ACV? Leave a comment below or contact us and we’ll do our best to answer your question.
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