Shoppers bought more on promotion in the second quarter, even amid signs of growing consumer confidence

Shoppers bought more on promotion in the second quarter, even amid signs of growing consumer confidence

While it's early days in announcing the end of the global recession that's dominated the food industry's thoughts for the last five years, it's clear that we're seeing some light at the end of a very long tunnel.

With confidence starting to seep back into most European economies, with the exception of one or two, it seems consumers are not only buying more, but are buying more multi-buys and more products on deal. However, that does not necessarily mean they are paying more per item.

This trend is being reflected in the latest quarterly IRI food barometer for just-food, which shows the price gap between national brands and retailers' own brands continues to shrink, according to the relative price index. 

That is down to the fact more people are buying products on promotion – so, essentially shoppers are spending less per pack on brands. As these products are usually branded, the average price paid for brands versus own label is coming down and the price gap is shrinking.

This is a continuation of a trend that we highlighted earlier in the year in our barometer for the first quarter - and is an interesting one. It is consistent across the board for all of the countries analysed in the data, with the notable exception of Germany, where the economic indicators over the last six months have not been as good.

The shrinking price gap is very illuminating and it is not just driven by a combination of falling branded prices (as paid by the consumer taking advantage of promotions) but also by increased own-label prices. Either way, it is playing into the hands of the discount supermarkets, which are doing neither and are winning share as a result (except in Germany and France). Mainstream retailers need to think long and hard as to how they should compete with the discounters on price and, of course, food manufacturers must continue to look at their ranges to attract more business with the cut-price grocers.

The basket price information in the barometer reflects how much people actually spend on their shopping rather than the advertised price in-store, which is what the retailers claim when they advertise. 

So our data shows that, on average, people are paying more in total for a typical shop in most European countries due to inflation across the basket, even the price paid per item may be lower. Spain and Greece are the only two countries that saw a drop in the cost of a basket, suggesting shoppers are still struggling with the effects of unemployment, rising prices and general economic instability. 

Meanwhile, in the UK, we continue to see more food sold on promotion than in any other market. In fact, the percentage volume sold on promotion increased by another 1.6 percentage points from 52.3% in the second quarter of 2013 to 53.9% in the same period this year. That compares to a rise of just 0.1% in the US, the second highest-ranking country.

It is interesting, however, to see countries like Italy jump by three percentage points and Spain by nearly five points year-on-year. This suggests retailers are recognising the need to shift more products on deal in order to retain market share in the face of strong price competition led by discounters that tend not to price promote.

So, as we start to see some glimmers of hope and consumer confidence returning to the high street after a difficult few years, it seems retailers are still allowing the price gap to close by continuing to promote themselves out of trouble.