Grocery brands and retailers are under increased pressure to keep costs down for cash-strapped shoppers, according to SymphonyIRI Group’s European Pricing and Promotion Special Report.
As a result, promotions have increased across most countries in the last three years and account for more than 56% of all grocery products sold in the UK and an average of 25.6% in Europe.
Driven by soaring raw material costs, a 3% average price increase in grocery products across Europe is an attempt by retailers and brands to reclaim some of the margin lost since the recession began in 2008. Food inflation at 3.2% outstrips non-food at 2%.
However, shoppers are trading down and reducing their frequency of purchase in categories such as personal care and household, squeezing suppliers hard, said researchers.
Economic factors are playing an important role, with prices rising faster in Germany and the UK, where the economic situation is more positive, than Greece or Spain, said SymphonyIRI Group.
In the UK, food prices accentuated by input cost increases from a weaker pound rose by an average 5.1% and in Germany rose 3.3%. This compares to a 0.4% rise in Greece and 1.3% in Spain.
Consumers are holding their nerve in the face of rising prices and have responded by buying more carefully, with total Europe sales volumes for grocery up just 0.8% even as price increases drove value sales up 3.7%, said SymphonyIRI Group.
While food sales are still growing on average by 1%, non-food slipped to 0.3%. Greece and the UK, however, have recorded declining volumes, highlighting the shoppers’ fight to keep control of grocery expenditure in the current economic environment.
Promotions have proved crucial to sustaining volumes during a period of austerity that has seen consumers become more frugal about what and how they purchase, said researchers.
In major categories across Europe, confectionery has the largest volume of products sold on promotion at 29.2% followed by non-alcoholic drinks (28.9%) personal care (28.8%) and alcoholic drinks (28.5%).
“The strength of the new frugality facing FMCG brands and retailers can be seen in the price increases they have introduced. These increases, which primarily aim to cover rising costs, are still being mirrored in continuous promotions to sustain volumes as prices rise faster than earnings,”said Rod Street, executive vice president of consulting at SymphonyIRI Group.
”However, it is evident shoppers are increasingly in control. They are not only more price driven than ever before but they have come to expect promotions as the norm. As a result they are more confident to shop using different channels, such as online, and will spend time hunting out bargains and special offers.”