Shoppers are making savings where they can and making an effort to reduce waste, writes Tim Eales, director of strategic insight, SymphonyIRI Group.
As prices rise for most grocery items - during August 2012 in the UK they were up 2.6% compared to the same period the previous year - and earnings remain static for many, we’re seeing a return to some old-fashioned thrifty principles.
Volumes decline as purse strings tighten
As cautiousness about the economy continues, people are buying less, cutting back on discretionary spending and non-essentials, and reducing the frequency of purchase.
It’s a trend we can see across the whole of Europe. In the first half of 2012 sales value, driven by price rises, increased year on year in all countries except Greece while volume sales decreased everywhere except Spain and Italy.
In the UK, volume sales are continuing to decline in most food categories - with one of the biggest drops seen in confectionery, down 1.3% year on year as people buy fewer treats.
Consumers are returning to a ‘buy it when I need it’ approach to grocery shopping and not stocking up as much as they used to, demonstrated buy a decrease of 2.5% so far this year in frozen food: the fastest decline in volume sales across the major food sectors.
The sales volume of household goods has reduced in almost all European countries, as consumers prioritise food.
Over the 36 weeks ending 1 September 2012, the sales volume of household goods in the UK declined by 1.2% compared to the same period last year, whilst value sales rose by 2.6%.
With discounters and pound-style shops now selling household items at low prices, even the increase in promotional activity over the last year - up 3% to 59% of all household goods sold - has not been able to stave off the steady decline in volume sales.
Private label gains share as consumers trade down
The growth of retailers’ own label products continues, as consumers swap brands for cheaper equivalents.
The most recent report into Private label by SymphonyIRI shows that retailers are now challenging national brands in most countries in Europe, with share increasing across the board. Value share has notched up 0.5% to 35.6% in the last year, and unit share is also up 0.5% to 45.1%.
Private label share of food has increased in all countries in 2012, with the UK, Spain, the Netherlands, Italy and Germany leading the way.
Savvy shoppers hunt for value, not just cheapest
Shoppers are not only buying less and swapping brands for cheaper alternatives as they feel the pinch. They are also buying more wisely - getting creative and clever to find the best deals and the best value.
They are leveraging the multiple sources of online information available to them, and using a combination of different channels to control the cost of their basket across the entire grocery shop.
Manufacturers, recognising that quality is important to consumers and that there is still a place for brands in the grocery basket, have responded with strong promotion activity and sharper pricing and, in some countries in Europe, the emergence of every day low pricing (EDLP).
As a result, national brands are fighting back against retailers’ own labels - in the UK, for example, private label value share of household fell by 0.9% this year. National brands are still driving growth in many categories, effectively acting as category sponsors by tempting shoppers to try something new.
Rising pressure to promote
Trade promotion activity is increasing in most European countries, though the UK remains the undisputed champion with 54.4% of volume sales on promotion. Volume sales on deal in the UK have risen in all FMCG categories over the past year - 55% compared to 54% in 2011.
Consumers’ response to trade promotions is increasing in the UK, too, particularly in household and personal care. Promotion impact - the relationship between the sales achieved through trade promotions and their reach and frequency - has been higher overall this year.
By September 2012, this impact index had increased by 2 points compared with September 2011 having been gradually declining for several years, so the increase is something of a turnaround and signals consumers’ heightened sensitivity to making the most of promotional activity
The kind of deals consumers are attracted to is evolving, however. They have lost interest in ‘buy one get one free’ over the last year, preferring off-shelf activities and coupons that have immediate impact on the cost of their shopping basket for that week rather than the weeks ahead.
Sales from off-shelf displays year on year in the UK were 14.3% in 2012, compared with 13.8% in 2011.
Tough times calls for tough actions
Price volatility and price inflation are likely to be the norm for the foreseeable future, and will continue to outstrip wage growth, impacting shopping behaviour.
Brands must be proactive with strategies to retain shoppers and maintain or increase their share of basket even while shoppers are becoming more frugal with their purchases.
This means understanding the way customers are shopping today, and how this is likely to change in the future - including how they are responding to promotional activity - and being bold and innovative in acting on them with strategies to drive sales.
Brands in the household sector, in particular, need to review their brand propositions for saliency and value in the face of declining sales.