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  1. Analysis
April 2, 2013

just-food confidence survey: Frugality forces companies to adapt

After six years of economic turbulence, the FMCG sector is getting used to operating in challenging trading conditions, believes SymphonyIRI consultant Rod Street. Reflecting on the just-food confidence survey, Street says companies are adjusting to shopper demand for value and are searching out new ways to drive growth.

After six years of economic turbulence, the FMCG sector is getting used to operating in challenging trading conditions, believes SymphonyIRI consultant Rod Street. Reflecting on the just-food confidence survey, Street says companies are adjusting to shopper demand for value and are searching out new ways to drive growth.

Comparing the results of this year’s just-food confidence survey with last, the views for outlook and consumer confidence were somewhat more depressed than last year – but that was encouraging. 

It feels like people are getting used to the environment of bad economic news. All in all, bad news is the old news. My experience in working with clients in the consumer goods sector is that people have got used – in year six in this unique period of economic turbulence – to the problems we’ve got.

People recognise it is not just a difficult economic environment but also an increasingly difficult competitive environment – much more competition, many more promotions, much tighter regulation and continued volatility on commodity prices.

All this from the just-food survey does reflect what we see in SymphonyIRI. The European Commission pushing back recovery into the back end of 2013 reflects retail sales that fell 1.7% in the euro area last year. We can see that same volume pressure in the markets we cover. Grocery markets – food and non-food – are only going up by 1-3% and that is being driven very heavily by price. Food has basically held its position but in volume terms it’s broadly flat. Volumes have fallen in Italy and in the Netherlands and in most other places there has been under 1% growth.

That reflects a sense of frugality. We see that not just in the markets you might expect, say in southern Europe, but in other markets, including in Germany, where, last year, non-food dropped and food volumers were virtually flat. The volume pressure reflects the difficult economic environment shoppers are in, where they are expecting things to get worse.

SymphonyIRI recently completed a study across Europe talking to 26,000 shoppers. Forty per cent of those believe their financial situation will worsen this coming year. Whilst food is a priority, they are sharply focused on value. Price and value is a new perspective that has crept in and is now entrenched in shoppers’ views. They are looking at any way they can to manage their hard-pressed food budget. That can be looking at private label – private-label is up across Europe pretty much everywhere other than France. Half of what little market growth there was was driven by private label. Moreover, promotions have stayed high and have actually grown slightly. That leaves suppliers having to adjust and work out how best to address this value segment.

Within this context, people are beginning to find ways to drive growth in an environment that’s continuing to be difficult. However, looking at the just-food survey, and the companies that are growing faster, fewer companies are reporting they expect to grow over 10% this coming year than last year. That might just be realism, that might be just be a reflection of the sample, but what is clear is that the successful businesses are doing more for less. They’re not getting any more investment in exports, in R&D or in sustainability than they were in the last survey. What they’re actually doing is making the best of what they can. Doing more for less and from that identifying and exploiting the opportunities they think face them.

There is a real pressure to find growth opportunities. If you’re sat in Europe, which is probably the most difficult geographic area in the industry, the pressure is to find a succession of small steps whereby you can grow. The assumption is that there is not going to be market growth, it’s got to be a way of out-performing what’s there. That means looking at where the growth is, which channels are growing – convenience, online – or making best of innovation, or where best to put money between the categories and brands they operate in. All that has been the response to shoppers’ hunt for value.

What’s most notable about the thinking within companies is that the world economy is not going to change for quite a while. It’s not going to get any worse but it’s not going to get any better. People are assuming that the shape of the world economy we are experiencing now is how it is going to be and they have to find growth in an environment that is going to be broadly static at best. That means a real corporate focus on where you can get growth. Companies must adjust. And that has a couple of implications. 

In strategic terms, it means looking at channels, geographies and categories and prioritising those that provide a platform for growth. In operational terms, it is looking at streamlining costs: in terms of product, in terms of better efficiencies, in manufacturing, down the supply chain or within sales and marketing.

Nevertheless, success on the corporate side requires a tremendous degree of resilience because you are planning for the longer game. It’s about growth over a number of years. It’s about not taking the quick win by cutting prices or by deep promotions that you’re going to have rescind to competitors when they retaliate, which will then wipe value out of the category. It’s about the agility of the business to respond quickly to trends it sees and a drive to get a real edge in the eyes of the shopper in your product and your brand.

Do you expect promotional activity to increase during 2013?
Answer Options Response Percent
Yes 56%
No 15.2%
Remain similar to 2012 28.8%
Do you anticipate any changes to the regulatory environment in your key markets during 2013?
Answer Options Response Percent
Become tougher 48.8%
Become more relaxed 4.8%
No major changes 46.4%
What change do you expect to see in commodity prices in 2013?
Answer Options Response Percent
Higher 52.4%
Lower 2.4%
Volatile 26.2%
Roughly the same as 2012 19%
Will you seek to pass swings in commodity prices down the supply chain?
Answer Options Response Percent
Yes 52.4%
No 19%
Not applicable 28.6%
Which retail channel do you expect to offer the greatest opportunities for growth in 2013?
Answer Options Response Percent
Convenience 28.7%
Online 35.7%
Mobile 7%
Big box 8.7%
Traditional 20%
What will your R&D and innovation expenditure be in 2013?  
Answer Options Response Percent
Higher than 2012 33.9%
Lower than 2012 13.6%
The same as 2012 52.5%
How many new products do you plan to launch in 2013?  
Answer Options Response Percent
More than 2012 46%
Less than 2012 17.7%
About the same as 2012 36.3%

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