The pressure on volume sales remains, IRI argues

The pressure on volume sales remains, IRI argues

European politicians may be proclaiming the end of the consumer recession, but when it comes to food sales, retailers and manufacturers are continuing to find business tough. 

Economic data points to a modest pick-up in Europe's largest economies including Germany, France and the UK, and an upturn in confidence in countries worst hit by the financial crisis including Portugal, Ireland, Italy, Greece and Spain. In fact, Euro area GDP grew by 0.3% in the final quarter of 2013.

Yet for many consumers food prices continue to outstrip wage inflation and have done so for more than five years. The poor sets of financial results published by leading food retailers in recent weeks is further evidence that any recovery is not filtering through to European shoppers.

People still have to eat, of course, which is why food has been resilient against on-going price rises in many countries since the downturn began. 

According to IRI's 2013 European Pricing and Promotions report, average food prices have risen by 1.9% across Europe. The problem for the food industry is that the pressure on volume sales remains, despite heavy promotional activity by stores and food brands.

It means supermarkets have some tough decision to make. They will find it difficult to squeeze their suppliers any further, so to increase volumes in the short term they may have to reduce their own margins to genuinely offer better value. This is a risky strategy, but ultimately shoppers want price stability if their wages remain flat or rise only slightly. 

However, manufacturers must balance any new pricing strategy against the impact on their business costs of rising commodity prices for items such as flour, sugar, spices, wheat and rice fuelled by soaring demand elsewhere in the world. In the UK the price of flour has risen by 12% since the beginning of 2014. 

Realistically, volumes in many categories are unlikely to rise until European consumers see a real jump in their wages.

Retailers must also not ignore shifts in shopping habits that have emerged during the crisis and which are unlikely to alter even when consumer confidence returns.

Shoppers have taken control during the recession. They are less loyal to national brands in many categories, have fewer worries about buying private label products or shopping across different retail channels at different times, as evidenced by the rise of the discount retailers in the UK.

People have also got used to wasting less food, particularly fresh produce, and become accustomed to buying smaller baskets of items, which is one reason for the on-going growth in the convenience sector. The days of the big weekly shop at the beginning of the month are over for many consumers who want to be sustainable and sensible in the way they buy food.

On a positive note, the personal recession has had little impact on some households. This means there are opportunities for volume and value growth through well-targeted food promotions aimed at those consumers for whom the recession remains mostly other peoples' problem.