H1 FMCG sales in "main European countries" were down 0.2% by value, with volumes dipping 0.4%

H1 FMCG sales in "main European countries" were down 0.2% by value, with volumes dipping 0.4%

The spat between Unilever and Tesco in the UK over price grabbed the headlines last week but, across Europe, for different reasons, price remains a critical issue for the FMCG sector. Consumers remain price sensitive despite improving economic conditions and are wasting less, meaning growth is hard to come by. IRI's Anne Lefranc looks at ways suppliers and retailers could work together to drive sales and profits.

The recent high-profile dispute in the UK between Tesco and Unilever following the consumer goods group's reported move to try to increase prices by 10% unmasked some of the underlying tensions within Europe's FMCG sector.

Unilever blamed rising costs caused by the falling value of the pound but Tesco, fighting a price war with the discounters, was having none of it. Thankfully, the situation was resolved within 48 hours.

But every retailer and food producer across Europe is under pressure to increase margins that have remained frustratingly flat - despite improving economic news and growing consumer confidence.

The financial crash of 2008 should be a distant memory by now with all countries except Greece recording positive growth in their GDP, wage growth and falls in unemployment.

Yet the effect the crash had on FMCG retailing still haunts the industry, which reluctantly has had to accept the post-recession shopper remains incredibly price sensitive. In the first six months of 2016, FMCG sales in the main European countries were down 0.2% by value year-on-year.

Price frustratingly remains the battleground in the UK and France but there has been a slowdown in promotions in most countries, particularly in the UK and Italy. What makes the situation between Tesco and Unilever in the UK so unfortunate is retailers and manufacturers have made a real effort in recent years to collaborate. 

Both parties are sharing data to improve the shopping experience in an attempt to move the market away from such a reliance on price. Positive conversations take place across Europe every day on range assortment to get maximum value from different categories. This includes ensuring individual stores meet the needs of local consumers. So why are FMCG sales and margins not rising by as much as the industry would expect eight years after the global financial crash?

Ultimately, retailers and manufacturers need to do more to adapt to changes in shopper behaviour. Consumers have become used to buying what they need when they need it as they try and waste less. Volume sales in the first half were down 0.4%. 

In many countries, national brand owners need to be more innovative around NPD. They could learn a lot from the smaller brand owners that have had to work incredibly hard since the financial crisis to convince retailers to stock their products.

Meanwhile, private label is coming under pressure across the continent as the price gap with national brands shrinks.  IRI's latest private label report reveals own-label's value share of the total FMCG market dipped by 0.9% to 38.3% in 2015.

One answer is for retailers to work with manufacturers to ensure the focus is on categories where there is potential for growth and for profit. For example, they need more confidence to promote premium products that are selling well in many categories. In the first six months of the year, sales of organic products were up by 19% in France and by 11% in Italy.

In 2017 there will also be a greater need for manufacturers across Europe to differentiate themselves.  They must ask the hard questions. What makes them unique? Why are people buying their product rather than a rival's and what is their special brand identity?

With retailers investing heavily in new channels to provide consumers with greater choice, manufacturers have been able to broaden their distribution, but not all these channels are making money. Click and collect is a response to customer demand but it is still more profitable to persuade a customer to shop in the supermarket.

Shoppers certainly want something different and retailers and food manufacturers can oblige because they have the data and technology at the fingertips to meet local needs. They just need to match these tools with some innovative thinking and a more effective price and promotion strategy to take full advantage of Europe's improving economic situation.