FMCG promotion levels reach tipping point as retail price war continues, IRI finds

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Promotions: tipping point?

Promotions: tipping point?

The latest Europe wide analysis into the pricing and promotion of fast-moving consumer goods (FMCG) by market and shopper intelligence firm IRI highlights the failure of promotions to boost sales volumes.
 
The amount of food and non-food goods sold on promotion has decreased by 0.8% in the UK over the last year compared to the year ended 31 March 2013, but remains the highest in Europe at 59% for non-food items and 55% for food items. Food promotions were down 1.3% and although non-food promotions increased overall by 1.3% some categories did decline. The biggest drop in non-food was seen in petcare, down 4.7%.
 
Promotions are no longer boosting or sustaining volumes in the way that they used to.
 
Tim Eales, strategic insight director at IRI, suggests promotions have reached a tipping point. “The UK, which has had the highest level of trade promotions in Europe, is showing signs of a decline in promotional intensity,” he said. “FMCG manufacturers may be losing patience with expensive trade promotions that are not bringing the volume rewards they used to.
 
“Promotions have helped shoppers meet the rising cost of their grocery shopping baskets, but they eventually become used to them. After a while their loyalty towards brands and stores erodes which makes it difficult to raise prices in the future. As manufacturers try to regain some of the margin that has been gradually eroded since the economic downturn began, they need to think differently about how they use promotions to indentify new paths for growth. Clearer definition of goals and priorities that are developed with retailers and consider the multi-channel landscape are essential. The UK is just the tip of the iceberg.”
 
The IRI report, “Price and promotion in Europe: FMCG industry at a tipping point”, is claimed to provide FMCG marketers and retailers with valuable insight across countries enabling them to benchmark market trends and plan future paths to growth that use price and promotion effectively. The longest economic downturn for a generation and the change in shopping habits provides an opportunity to revisit pricing and promotional strategies in mature markets that can then be deployed in the emerging markets.
 
As food and non-food prices continue to rise – 1.8% across Europe and 2.9% in the UK in the last year – the average shopping basket has increased by around £15 per month.
 
Shoppers are cutting back on perceived non-essential categories such as household, personal care and even alcohol.  Personal care had the biggest year on year increase in promotions – up 2% to 64% – but volume sales fell by -1.7%. Household volume sales also had a 2% increase in promotions but sales volumes fell by 0.6%.
 
Alcoholic drinks – which had the highest volume on deal last year – reduced its promotional intensity by 3% to 69% but remains the most promoted category. The second most promoted category is confectionery (67% volume sold on deal) as suppliers and stores tried to convince shoppers to indulge themselves.
 
Some promotions still work, in particular those that are clear and simple for shoppers to understand and have a real perceived value such as offers linked to fuel and round pound/euro pricing which helps shoppers to budget.
 
“With high price inflation expected for remainder of 2013 and beyond, retailers and manufacturers must step aside from the margins battle and work together to define merchandising strategies using specific tactics such as occasions for special treats to drive impulse purchasing on non-essential items. Powerful predictive analytics solutions will help pinpoint the best scenarios for lower investment and better ROI,” said Eales.