The UK’s Office of Fair Trading’s new guidelines on offers will shake up the way products are promoted, argues IRI’s UK director of analytics and shopper knowledge Richard Moule – and manufacturers are set to gain the most.
The sheer number of food promotions has left shoppers confused, manufacturers worried about their margins and retailers facing fines because they are misunderstanding and misinterpreting the law.
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In the UK, the Office of Fair Trading (OFT) has introduced a set of principles to ensure deals are not misleading or inaccurate. The challenge for the industry is to make sure promotional strategies comply.
The guidelines will mean food prices rise in the short-term in some categories such as yoghurts and alcohol where retailers have been criticised for running never-ending promotions.
The OFT guidelines address whether the comparison between the current and previous prices is meaningful and relevant. The OFT argues that when a product is on deal for most of the year it is its actual price – rather than any deal for shoppers. The guides should also stop food prices being artificially inflated to make a later discount appear more attractive.
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It is forecast that, in categories where people buy more than they usually would because of a promotion, such as yoghurt, volumes could fall by between 5-20% in the short-term as the OFT principles are complied with.
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By GlobalDataTesco’s GBP300,000 penalty in August for misleading customers over whether its strawberries were genuinely half price meant it was accused of damaging consumer trust. The promotion contravened the Unfair Trading Regulations Act 2008 and emphasised how easily shoppers can be misinformed when the pressure to promote to increase short-term volumes is so intense.
During the economic downturn shoppers have proactively used promotions to manage their weekly grocery budget but the degree of suspicion has been growing.
However, the new OFT guidelines should mean shoppers become more pro-active in seeking out innovative or price-driven offers. Currently, less British shoppers choose a supermarket based purely on the promotions they will find inside compared to any other country in Europe.
Manufacturers will gain the most from the new guidelines. Brand owners can be more selective about which promotions they agree to and will not be forced to run year-long deals. Most have wanted to de-escalate their promotions for some time to improve their margins but have craved category-wide support.
Whatever happens over the next few months in the UK, it is clear, meanwhile, that the promotions landscape is changing across Europe.
We could see more one-off deep deals on food because these are perceived by shoppers as having real value. Shallow long-term promotions are more damaging because they re-set the shopper’s perception of what a product is worth, and this can be difficult for a food brand to recover from.
The trend to round-pound pricing could also increase because it is a clear and concise offer which helps shoppers to budget. In the UK it is estimated 35% of purchases in supermarkets are now made on the round pound.
Of course, the OFT principles are incredibly difficult to enforce so it will ultimately come down to how the trade interprets and applies them. Will there be spot tests or a whistle-blower hotline for shoppers, for instance?
We could see rival retailers and manufacturers snitching on their competitors where they see the principles being breached. The courts will ultimately decide if a commercial practice is fair or not and hit the offender in the pocket.
Tesco’s on-going attempts to rebuild consumer trust continued this week when it announced it was looking again at some promotions to reduce food waste. After revealing it had generated almost 30,000 tonnes of food waste in the first six months of the year, it will run promotions for smaller bags of salad and end multi-buys on large packs. Tesco has also relaunched its upmarket finest private-label range to show how it works closer with British farmers and manufacturers.
Promotions are at a tipping point and food brands want retailers to be more innovative and to reduce their reliance on trade deals. The new OFT principles could be the incentive everyone needs to make that happen.
More IRI insight into promotional strategy compliance with the OFT principles can be found here.
