Consumer confidence remains fragile and is likely to stay that way for some while, but there are encouraging signs that shoppers will start spending again. However, price wars by the retailers continue, with aggressive pricing and promotion strategies.
An over-reliance on offering trade deals has arguably damaged the UK grocery sector in recent years, so the industry needs to resist the temptation to over promote in-store and online and focus instead on increasing sales volumes that do not impact their bottom line.
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We know that promotions do not necessarily translate into sales. IRI’s forthcoming Price and Promotion in Europe report – our third annual report focusing on pricing and promotion in FMCG – highlights the very fact promotions are still failing to boost volume sales.
But there is an ongoing concern that a culture of price wars is developing across Europe, posing the question of how FMCG marketers and retailers will maintain their margins in the long term. The amount of food and non-food goods sold on promotion was up by 0.8% in the last year to 27.5%, and, although it is a slower increase than in previous years, it continues a period of promotional intensity for many countries.
This increase in promotions has not boosted volume sales, which in fact continued to decline by 0.7%, proving they are no longer effective in parting shoppers from their money. Petcare and petfood saw the biggest increase in the volume of goods sold on promotion in the last year, increasing promotions by 4.8% to 21% and while value sales increased to EUR7.4bn (US$10.11bn), volume sales declined by 2.3%.
The promotional intensity in the alcoholic drinks category also increased and remains the most-promoted category across Europe. Again, while we saw value sales increase by 2.5%, sales volumes once again declined by 0.1%.
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By GlobalDataOn the other hand, we are seeing rising costs, with average prices increasing by 1.4% and food prices increasing faster than non-food. Prices are rising fastest in pet care, alcoholic drinks and frozen food, while price increases of personal care and household items are below the non-food average.
So while we’re experiencing some level of consumer confidence, the European Commission suggests that any recovery this year will be modest and only really gather momentum in 2015. It’s only then that retailers and manufacturers will start to see more substantial returns and confidently increase their prices without having to promote so aggressively.
Not all promotions are destined to drive increased sales – that’s obvious from our latest report. But what is clear is that the industry needs to be more creative in its promotional activity, such as themed offers, experiential in-store events and the use of mobile apps and social media to deliver value for brands.
Plus, innovative promotions can help retailers become more transparent about deals with sceptical shoppers and engage with them more effectively to win hearts and minds.
