Promotions are no longer working in the way that they used to amid pressure from commodity costs and the drop in loyalty towards brands from consumers.
The latest data from the just-food international basket, compiled by IRI, supports the notion that the promotional landscape is changing.
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The price of the basket increased in the US and in most of the European markets covered by the data. Recession-hit Greece and Spain bucked the trend in Europe but, broadly, higher raw material prices after recent poor harvests has pushed up the cost of goods.
What is interesting is that most of the price increases are coming from retailers’ own-label products, where the basket has increased in all countries. Conversely, in Spain, Germany, Italy and Greece, we are seeing a decline in the price of national food brands across the entire basket. As a result, the price of own-label products continues to drive closer to the price for an equivalent national brand in every country except the UK and US.
As the price of own label increases, the promotional intensity among retailers is easing. Many retailers are no longer adopting such aggressive promotional tactics in order to sell their products. Their focus on product quality at a good price has paid off, helped by the economic climate, as shoppers choose lower-priced and better value alternatives to their usual brands. National brands are working harder than own label to maintain their share dominance but only in the UK and France has a slowdown in own-label share growth been visible.
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Promotions are no longer working in the way that they used to, especially as consumers are becoming less loyal to brands continuously on promotion. Categories are not being expanded by promotions in the way they have often been in the past. Broadly, national brands are still using promotions but in the UK there is evidence that brands, like retailers, are starting to reverse their promotional intensity. Our data shows for example that promotional intensity in the UK declined from 53% to 51% of all products in our food basket in the first quarter of 2013.
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By GlobalDataIn the UK, at least, promotions may have reached a tipping point. Continually adding to the promotional spiral in order to drive volumes has not achieved the desired result. Other countries can learn from the UK experience. Now, more than ever, further analysis of how and when promotions work is critical.
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