SPECIAL REPORT
Price and Promotion in
Western Economies
New areas to explore for retail recovery
JULY 2014
Executive Summa...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
Introduction
2
IRI is delighted to provide key insights into the w...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
Executive Summary
improve the transparency of their
deals for scep...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
Executive Summary
IRI’s Shopper Sentiment Index
provides deep insi...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
Turning Key Insights into Actions
5
Promotions don’t always equal ...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
Turning Key Insights into Actions
6
Some retailers are investing i...
PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT
About the Report
7
About IRI. IRI is a leader in delivering powerf...
of 7

Price and Promotion in Western Economies

This fourth annual European report on the pricing and promotion of fast-moving consumer goods (FMCG) highlights the continued failure of promotions to boost volume sales. Manufacturers need to conduct an urgent review of their promotional strategies to assess whether pricing and promotion is working to the benefit of the long-term future of the brand. This IRI report provides 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.
Published on: Mar 4, 2016
Published in: Retail      
Source: www.slideshare.net


Transcripts - Price and Promotion in Western Economies

  • 1. SPECIAL REPORT Price and Promotion in Western Economies New areas to explore for retail recovery JULY 2014 Executive Summary
  • 2. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT Introduction 2 IRI is delighted to provide key insights into the world of price and promotion across Europe and in the United States. The IRI European Price and Promotion 2014 special report reveals how, as the fast moving consumer goods (FMCG) industry is poised for growth after years of struggle, consumer confidence remains fragile. There are signs in the United Kingdom (UK), France, Germany and the United States that with a little encouragement shoppers will start spending again. Despite this price wars continue and the industry must resist the temptation to over-promote both in-store and online. Promotions do not always transfer into sales and increased profit margins. Brands must lose their focus on increasing sales volumes which doesn’t necessarily impact their critical bottom line. Countries such as Spain, Greece and the Netherlands remain in the grip of economic woe, but even here there are opportunities for sales if pricing and promotion strategies are creative. Suppliers and stores must also meet local needs and market conditions. Consumer shopping behaviour has changed and will not revert to pre-recession habits overnight. In the United States technology is changing shopping behaviour faster than anywhere. People are less loyal to brands and retailers and only by understanding this and responding effectively will volume and value sales begin to rise. Manufacturers and retailers must work together. We would welcome your feedback on our findings. Tim Eales Strategic Insight Director IRI Author’s photo
  • 3. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT Executive Summary improve the transparency of their deals for sceptical shoppers. Private label remains vital to sustaining retailers’ margins in the short term. Many chains are investing in their own manufacturing capacity and taking an analytical approach to assessing in-store space constraints and consumer demand. Country summaries: • France: The price war between Casino Group with its hypermarket chain Géant has had a negative impact on the hard discounters. Value sales in France grew by 1.7%, led by food. Volume sales were up by 0.8%, with non-food performing strongest. The average basket price is up by 0.9% as consumers take advantage of discounts and promotions to trade up. • Germany: Price competition among retailers remains fierce and is harming manufacturers’ attempts to pass on rising raw material and energy costs and retailers’ efforts to boost loyalty. Value sales have risen 1.6%, with food leading the charge, although volume sales fell 0.5% driven down by food whilst non-food is increasing. Retailers want to invest in more manufacturing capacity to grow their private label ranges. • Greece: Manufacturers and retailers expect more economic pain and deeper food/care, alcoholic drinks and frozen food. Manufacturers of household products have seen their margins continue to decline and the level of trade promotion remains high in this category as people trade down or realise it is no longer essential to buy particular products. The result of rising prices has been a 1.0% jump in value sales of food (2.7 billion Euros for the European countries surveyed) while non-food sales declined by 0.3% (219 million Euros for the European countries surveyed). Volume sales have declined overall by 0.7% with food down 0.7% and non-food by 0.8%, in Europe. According to the European Commission, any recovery will be modest this year and only gather momentum in 2015 when retailers and manufacturers can realistically start to experience more substantial returns and confidently increase prices without having to promote so aggressively. GDP in the European Union is forecast to expand by 1.6% this year and by 2.0% in 2015. Not all promotions are destined to drive increased sales but there is a clear need for more creative promotions, such as themed offers, experiential in-store events and the use of mobile apps to ensure that they deliver value for brands and retailers alike. Innovative promotions can help retailers The length of the downturn has meant aggressive pricing and promotion strategies have become normal practice over the past six years. Shoppers in France, Germany, Greece, Italy, the Netherlands, Spain, the UK and the United States are now less loyal to brands and retailers. They are not only hunting out bargains but expecting them. Fierce price wars are taking place across the Western world as traditional stores battle for market share between themselves and try to compete with the booming discounters and convenience stores. The proportion of FMCG products sold on promotion rose by 0.8% in 2013 but this hasn’t resulted in increased volume sales, which are down in every sector surveyed. The biggest declines for food are in ambient, chilled and fresh food. An over-reliance on trade deals, which has arguably damaged the UK grocery sector in recent years, is being repeated in some countries, notably the Netherlands and Italy. Nevertheless, average prices increased by 1.4% with food prices accelerating faster than non-food. Consumers in the Netherlands have experienced the highest rise in the cost of their grocery shopping while the Greeks have seen price deflation. Categories showing the largest average price increases are pet 3
  • 4. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT Executive Summary IRI’s Shopper Sentiment Index provides deep insight into how the economy is impacting consumers and changing how they approach grocery shopping. The index provides perspective in terms of price sensitivity, brand loyalty and changes in spending required to maintain desired lifestyles. With a benchmark score of 100 based on Q1 2011 information, a Shopper Sentiment Index score of more than 100 reflects consumers who are less price driven, more loyal to favorite brands and better equipped to maintain their desired lifestyle without changes. The decline in the index for the fourth quarter is an indication that while consumers are more comfortable than they were at the start of 2011, they are finding it difficult to maintain their desired lifestyle without making changes. As a result, they are becoming more price driven and less loyal to their favorite brands. For the year, value sales were up 1.6% as price rises were possible in non-food (2.0%) and food (1.4%). When combined, food and non-food unit sales were relatively flat, up just 0.2%, led by food. • Spain: The Spanish love affair with private label has intensified while shoppers are devoting more time to preparing and managing their shopping lists. As a result volume sales dipped by 0.5% with sales of food and non- food both declining. Value sales rose 0.7% as prices increased. Manufacturers are not focused solely on price but are investing in innovation to develop products that retailers cannot replicate in their private label ranges. • The United Kingdom: A change in direction from some manufacturers has led to the proportion of volume on promotion dipping by 0.6%. Rising consumer demand has coincided with price cuts and deals, although the proportion of volume on promotion has dipped by 0.6%. Value sales growth was just 0.3% while volume sales are down 1.6%. UK shoppers like the convenience channel and the battle between supermarkets and the discounters continues. Retailers have come under pressure to improve the transparency of their promotions and meet new guidelines from the Office of Fair Trading (now known as the Competition and Markets Authority). • The United States: IRI’s Shopper Sentiment Index fell at the end of 2013 to 102.2, the lowest point for the year. deals, although there are indications that shoppers are beginning to spend again. Food prices fell -1.1% on average and non-food by 4.0%, fuelled by deep discounting and promotions, which helped volume sales to increase by 0.3%. Value sales dipped by 1.6% with non-food down 2.9% and food by 1.2%. More deals by national brands have had an impact on private label sales growth. • Italy: Italian consumers have become savvy during the economic downturn and are less loyal to brands and retailers. If we consider hypermarket and supermarket channels, value sales have declined by 0.9%, driven by non-food which has dipped by 4.3%. Volume sales have decreased by 1.8% in the latest year. Shoppers are visiting different stores to find the best prices, prompting more promotions and deeper deals. • The Netherlands: The level of promotion has reached its highest level in 10 years but volume sales have declined 2.9%, further proof that promotions don’t always have the desired impact. Value sales are down 0.6%. For manufacturers the rise in some raw material costs means prices have had to increase at the shelf and this has not gone down well with consumers. 4
  • 5. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT Turning Key Insights into Actions 5 Promotions don’t always equal sales – The level of trade promotions has increased by 0.8% but volume sales are down 0.7% in Europe, proving that they are no longer effective at meeting their longer term objectives. Retailers and brands must be creative, for instance by meeting local shopper needs with new promotion ideas and reducing their reliance on price-led deals. INSIGHT ACTION Retailers netted an additional €2.5bn as average prices increased by 1.4% with food prices accelerating faster than non- food in Europe. This resulted in a 0.7% increase in value sales. Shoppers will pay for innovative products that add value in areas such as convenience (2in1 or 3in1 products) and more specifically for personal care, salon-quality and natural and organic products. Promotions are hitting a ceiling in the UK and the Netherlands To avoid losing the impact of promotions, retailers and brands need more transparent promotions. Promotions increase footfall and volume sales across many categories but retailers and manufacturers must be closer to local shopper needs and be more critical of a ‘one size fits all’ approach. They must be more innovative and avoid focusing too much on price. They must invest in powerful analytics solutions to make their deals more efficient. Local focus is key - Countries will experience economic recovery at different speeds so pricing and promotion strategies must have a local focus. Local brands can be more flexible and responsive to consumer needs. Packs that promote a product’s local origins or its natural ingredients can appeal to a shopper’s patriotism. This is especially true in countries where shoppers continue to face tough times. By optimising their range assortment and working together, retailers and manufacturers can identify new areas of mutual benefit.
  • 6. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT Turning Key Insights into Actions 6 Some retailers are investing in their own manufacturing capacity to boost their private label sales. Stores that increase the amount of private label on their shelves and cut back on brands without growing the size of their stores risk alienating shoppers. Optimising range assortment is a critical and complex challenge that retailers and manufacturers must work on together to overcome. INSIGHT ACTION Across Europe the debate continues about how retailers can maintain their margins in the short term as price wars continue. The categories where prices are rising fastest are pet care, alcoholic drinks and frozen food, while price increases of personal care and household items are below the non-food average. Price wars are unsustainable for manufacturers, retailers and even shoppers, who won’t accept them if they mean lower quality products. The emphasis must move to improving the shopping experience and meeting shopper needs, with innovation and creative local promotions that match shopper profiles and expectations - whatever channels they use.
  • 7. PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT About the Report 7 About IRI. IRI is a leader in delivering powerful market and shopper information, predictive analysis and the foresight that leads to action. We go beyond the data to ignite extraordinary growth for our clients in the FMCG, retail and over-the-counter healthcare industries by pinpointing what matters and illuminating how it can impact their businesses across sales and marketing. Move your business forward at IRIworldwide.eu International Headquarters: 1 Arlington Square, Bracknell, Berkshire RG12 1WA, UK, +44 1344 746000 Copyright © 2014 Information Resources, Inc. (IRI). All rights reserved. IRI, the IRI logo and the names of IRI products and services referenced herein are either trademarks or registered trademarks of IRI. All other trademarks are the property of their respective owners. • This report contains data gathered from seven countries in Europe: France, Italy, Spain, the United Kingdom, Germany, the Netherlands and Greece. Data has also been collected from the United States. The data has been sourced from IRI Infoscan retail databases for the 52 weeks ending February (or March) 2014 and 52 weeks ending February (or March) 2013. • Macro-categories we are looking at are: chilled and fresh food, ambient food, frozen food, non- alcoholic drinks (it includes tea and coffee), household, personal care, confectionery, pet food/pet care and alcoholic drinks (it doesn’t include wine for the UK and for Greece it includes beer and ouzo only). • The market channels used for each country in this report are as follows: Country Channels used UK Hypermarkets, supermarkets, Boots and Superdrug SP Hypermarkets and supermarkets GR Hypermarkets and supermarkets GY Hypermarkets, supermarkets and hard and soft discounters NL Hypermarkets and supermarkets IT Hypermarkets and supermarkets FR Hypermarkets and supermarkets US Multi-outlet with c-store (supermarkets, drugstores, mass market retailers, gas/c-stores, military commissaries and select club and dollar retail chains) To gain insight into opportunities across specific categories, segments, channels or retailers, contact your IRI client service representative regarding custom analyses leveraging the following resources: IRI InfoScan Census® is a syndicated retail tracking service that enables manufacturers and retailers to acquire industry insights used to make better business decisions. IRI InfoScan Census utilises the data that IRI collects from grocery, drug and mass merchandise retailers to provide the most comprehensive and accurate syndicated data offering in the FMCG sector. With access to accurate, granular detail by category, geography, measure and time period, clients have the tools needed to develop marketing and sales strategies based on product performance, distribution and promotion responsiveness. IRI Marketing Foresight is a unique marketing mix management solution that delivers the most accurate marketing ROI and efficiency measures. It's the only solution that gives a full category view that allows you to anticipate and simulate your own and competitor actions. IRI Marketing Foresight provides FMCG manufacturers and retailers with actionable results to plan, monitor, analyse and optimise their marketing mix and budgets. FOR MORE INFORMATION Please contact your IRI Consultant or send an email to EU.Marketing@IRIworldwide.com

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