Don’t believe your year-over-year comps

For startups, though, annual YOY comps are the default periodization in which scanner data gets sold to them. They often have nothing better because finer-grained periodization costs significantly more to obtain. There is nothing wrong with YOY comps when your brand is prominent and slow-growing. How slow growing? At or below long-term inflationary trends. 3% or less.

However, early-stage brands that capture media attention tend to be fast-growing businesses with 50% annual growth. When growth occurs this quickly, deceleration can also happen quickly. When the brand is small, fast growth can also decline with a single chain delisting. The early-stage world is full of topline volatility.

YOY comps can obscure understanding of performance and mislead investors and the public

Figure 1 below shows an apparent uptick in annual growth that looks good when using a past 52-week YOY comp:

Yet, underneath this apparent ‘growth’ was much more significant growth followed by a mid-year decline, due to persistent out-of-stocks at a new account, for example (see figure 2 below):

figure 2

This is where YOY comps obscure an entrepreneur’s understanding of their performance and misleads investors and the public, and it comes down to the structure of the data being used.

Identifying problems early

Public firms buy weekly datasets on large retainers from IRI and Nielsen to monitor their largest brands’ performance in ruthless detail.

Big brands do this not because they are worried about annual topline trends but because they are concerned about seasonal or other sub-quarterly fluctuations in volumes that affect earnings.

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