Promotions at tipping point
The IRI European Price and Promotions Special Report 2013 states: “The FMCG [fast moving consumer goods] industry is at a tipping point with manufacturers and retailers at odds over how to sustain and grow volumes as consumers expect deals and actively hunt them out.”
Examining data from the whole of 2012, the study observed volumes sold on promotion across Europe rose by just 0.1% for food and actually fell by 1% for non-food.
It also found that in the UK, the level of promotional activity declined for the first time since IRI records began.
‘First decline ever’
“In the UK the volume on promotion is down 0.7%, the first decline ever,” the study stated. “The cost of price reductions in the UK is a staggering £13bn on packaged groceries alone.”
UK food promotions fell by 1.3% compared to an increase in non-food promotions, against the pattern in Europe as a whole, where the volume of food on promotion rose 2.3% last year.
“Consumers,” stated IRI, “have adapted to shopping in tough times and are promotion weary.”
The report concludes that the trade must collaborate more intensively to deliver creative promotions offering genuine value to shoppers to retain their interest.
The high level of brand promotions was also holding back sales of own-label products in the UK, so retailers were cutting back on trade promotions, IRI claimed.
Promotional slowdown
Despite the promotional slowdown as the trade reassesses its options, levels of UK promotional activity remained high in some areas, such as frozen food. Almost half of that category (49.5%) was sold on promotion in 2012, despite a fall in volume (see graph above) according to IRI.
The current level of promotions is unsustainable for manufacturers, IRI claimed, as they cannot afford to lose more profit margin. But retailers are demanding deep discounts for sporting events in a desperate bid to keep hold of shoppers.
“Now manufacturers such as Procter & Gamble are beginning to question the effectiveness of expensive trade promotions after five years of margins being squeezed.”
Processors are also concerned that relentless promotions are training consumers to expect low prices, so the only option available to them is to keep prices low and reduce pack sizes to claw back lost margin.
Tim Eales, IRI strategic insight director, urged suppliers and retailers to work together rather than draw up battle lines.
“With high price inflation expected for the remainder of 2013 and beyond, retailers and manufacturers must step aside from the margins battle and work together to define merchandising strategies ...”
