The IRI report is called Price and promotion in Europe: FMCG industry at a tipping point.
The amount of food and non-food goods sold on promotion was up by 2.7% in the last year, continuing a period of promotional intensity for many countries in Europe. Yet, despite a focus on deals, volume sales have started to decline, particularly in non-food categories, as consumers continue to cut back on perceived non-essential items. Overall volume sales dipped by 0.1% across Europe.
It seems that food and non-food promotions are not always boosting or sustaining volumes in the way that they used to. Tim Eales, strategic insight director at IRI, suggests that promotions have reached a tipping point.
“The UK, which has traditionally 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. The UK is just the tip of the iceberg.”
As food and non-food prices continue to rise – 1.8% across Europe on average in the last year, with food prices up 1.9% accelerating faster than non-food at 1.1% – the average shopping basket has increased by around €11 a month.
Confectionery was the most promoted category in Europe – up by 5.3% to 31% of all products 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 the 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,” said Tim Eales. “Powerful predictive analytics solutions will help pinpoint the best scenarios for lower investment and better ROI.”
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