Adapt or die – this is how Britain’s consumers are shaping the FMCG sector

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By Richard Hanwell, associate director, The Sterling Choice

Hanwell: unique insight

Our position at The Sterling Choice between client and candidate gives us a unique insight into the FMCG sector. Working closely alongside established brands and retailers, we are witnessing, first-hand, the challenges that the industry is facing and where changes need to occur.

The present day is a critical time for the food and FMCG sectors; since the Brexit vote in June last year, we have witnessed uncertainty grow with regards to the war of the aisles playing out between supermarket chains and brands. Just how will the economic shift impact the price of our shopping baskets?

Competition is currently at an all-time high; the ‘Big Four’ supermarkets have been pushing back on brands, blaming Brexit for increased costs on the shelves. This pricing escalation, coupled with the evolution of customer tastes and unfavourable media coverage undermining reputation has led to many firms considering how they can cut back investments in order to ensure that customers remain loyal.

‘Own Label’ is on the rise – does this come as a real surprise, given the fact that we already know that consumers are price conscious and driven by in-store offers? Supermarkets have embraced this opportunity by heavily investing in product innovation and developing a wide range of products that allow them to compete with brands. The perception of own-label ranges has experienced a dramatic shift; once aimed at customers with low incomes and since 2011, when there was a push behind these types of products, they are no longer considered to be the substandard choice. In fact, in a 2016 YouGov report, it was revealed that consumers believe “there isn’t much difference between leading brands and supermarket brands”, and this can be attributed to three driving factors – quality, price and ethics. The types of products in which we have seen the most dramatic increase in own label include cereal bars (15.1%), frozen fish (3.4%), sweets (3%), cake (3%) and wine (1.9%).

Even Waitrose, who established itself  as the store of choice for the affluent customer has been forced to succumb to own-label products. As it has been well-documented in the press, the brand entered its own-label journey in order to secure the consumer that had been lost to the European discounters – proving that even well-established and prestigious retailers are not immune to the appeal of pound-conscious shoppers.

As we previously touched upon – there are three driving factors behind the rise of own label products. The first is quality, and data suggest that the quality of own label is no longer a concern to consumers; a study in 2014 by Nielsen reported that 71% of UK consumers believe that own label quality has improved. Aldi and Lidl have cleverly capitalised on the suspicion that surrounded their offerings, and implemented campaigns that addressed the concerns head on, shocking the entire industry into action. Since then, we have seen retailers rapidly expand their new product development to create extensive own label ranges that include ‘value’ options along with luxury offerings, securing a broad appeal.

The next driving force is price; the majority of shoppers are seeking deals in the wake of Brexit, leading to a surge in popularity for own-label products. Latest findings support this, with a number of reports highlighting that 48% shoppers would opt for own label items in a bid to cut back on their food bills. However, as the stigma has been dropped from own label, its reputation means that the ranges can command similar prices to that of branded products. As the price war is ongoing, but as we are witnessing, there are far more factors involved in own label evolution than cost.

‘Ethics’ is the final driving force that we will cover. The attitude of today’s consumer has changed with morals, welfare and quality all being at the forefront of shopper’s minds. Retailers have recognised this shift in behaviour and as a result, have adopted an ethical stance behind their own label items to foster these new attitudes, while also commanding a higher price for the purpose.

One example of this is the Morrisons’ Milk For Farmers 2015 campaign which, in response to the publicised milk price protests, saw the own-label launch of Milk for Farmers. This range offered consumers the chance to buy their milk at a higher cost, but with the added peace of mind that they were contributing the extra cost back to the UKs farmers. The moral trend is continuing to expand; however, it appears that some supermarkets brands are merely paying lip service to the movement. Tesco came under fire after it was found that there was no substance behind its “farm” ranges, with many of the products coming from overseas.

Brands must strive to ensure that their products truly are aligned with these modern values, rather than implementing vacant and transparent marketing tactics. With high-end supermarkets such as Waitrose joining the battle in 2016, it’s a sign of the times that supermarkets are enticing conscious customers who are after reasonable prices underpinned by ethical justification; 59% of shoppers have said that the place of origin was as important as price.

These conscious customers often view retailers and brands with an element of distrust. The rise of social media has meant that businesses are fighting a constant battle when it comes to managing brand reputation and we are all aware of the ‘food fraud’ scandals that have led to outrage with regards to misleading paying, and often loyal, customers.

Brands need to understand that this lack of transparency that the sector is often shrouded in, is the very thing that is forcing customers elsewhere. The price war that has raged between supermarkets has lost relevancy – the era of ‘deal-hunting’ shoppers is behind us, and those that remain are savvy customers that demand more than a good price. Shoppers are now aware that these so-called deals are often a clever ploy that leads to overspending. A report by Kantar World Panel in 2016 revealed that there were indeed fewer promotions in supermarkets, in order to put a renewed focus on own-label lines. Another survey by the Money Advice Service found that the majority of consumers find supermarkets deals too complex and led to an overspend of £1,200 each year.

Food provenance is an area of interest that is ever increasing; the horse meat scandal that arose in 2013 shone a spotlight on the sourcing of food and shoppers want their chosen supermarket to be transparent in the food origin and back local producers. The consumer of today values authenticity, and this fresh perspective has begun to dominate the food industry in more ways than just the grocers. The demand for honest and ethical produce and brands has seen a number of home-grown food brands arise, with savvy food entrepreneurs jumping on the trend and filling the gap that large brands and retailers have not only ignored, but created.

It’s become clear that aligning brand values with the consumers has become the pinnacle of retailers gaining a trusted reputation with consumers. Not only will style over substance not be tolerated, it will be plastered on social media for all to see – potentially damaging your brand for the foreseeable future.

With great challenges, often come great opportunities – and currently, we are presented with the opportunity to transform and innovate. We created the Vision Shift Report to highlight the actionable insights that could stimulate the FMCG sector and establish a dynamic mindset for change. There are a number of parties that are well aware of the fractures in the sector, but transformation CAN happen if all parties collaborate. It’s time to adapt for die – and only those willing to challenge the outdated will succeed.

(A Retail Times’ sponsored article)