Commodity inflation has led manufacturers to look to increase prices and, according to the latest data from the just-food international basket, the price on shelf has risen. As SymphonyIRI’s Rod Street writes, retailers have reacted by using promotions less often and there are signs Every Day Low Price strategies are gaining traction.

Across Europe and in the US, retailers and manufacturers are coping with the rising price of food in different ways. A pattern of strategies becomes clearer from this quarter’s SymphonyIRI international basket prepared exclusively for 

Food costs are the highest and most volatile we’ve seen for nearly 20 years, putting intense pressure on manufacturers to increase the cost of their products. And they have. Our basket shows prices have risen over the last year in every country except Greece. During this period the price of our average basket increased most in the US, up by 5.6% from EUR18.96 (US$23.46) to EUR20.03. A 5% increase was also evident in the Netherlands and the UK. In Spain, the price increase was marginal, indicating the severity of recession and the resultant price sensitivity in this troubled economy.  

The situation in Spain – unlike Greece where the cost of an everyday basket of food actually decreased over the last year by nearly 3% from EUR25.70 to EUR24.76 – is heavily coloured by retailer own-label products. With retailers such as Mercadona growing their position on the back of a strong private-label offer, shoppers have become used to paying low prices every day. Compared to the same quarter in 2011, prices are rising in Germany, Netherlands and Italy.  

Indeed there are some signs in our basket to suggest pricing may be moving on from the promotional hi/lo game that we have seen in recent years. Promotional intensity has levelled and even declined in five of the seven major economies with only the Netherlands and Germany seeing growth. 

Could it be that Every Day Low Price (EDLP) approaches might gain traction in Europe in the face of the squeeze created by the recent rapid rise of promotional levels and the severity of the economic uncertainty created by the Eurozone? 

This would make some sense if shoppers are becoming entrenched in planning and budgeting for their shop. Where the budget becomes a much more fixed concern, people shop where they can be sure that they find the value they need to meet their budgets on their trip. More consistent money-saving strategies such as EDLP help them to make fast and smart choices and stay in control of their spending. 

In Greece, the cost of the basket remains the highest in Europe, even though it is the only country to have seen a decrease in the price of the basket over the last year. Retailers here are under immense pressure to help consumers during this period of severe austerity and have responded by increasingly moving to own-label products in certain categories to manage their budgets. This has widened the gap by a further four percentage points, starting to bring it closer to perhaps the two most aggressively priced private-label markets in Europe, Germany and Spain.

Greece and Spain have been the countries where the price gap between brands and private label is growing, reflecting the economic pressure being felt here. In every other country, the gap has been shrinking as retailers invest to create greater value add in the range that they offer, fighting head to head with national brands. 

Promotions have proved crucial for manufacturers to sustain volumes during this period of austerity as they struggle to demonstrate growth. But consumers, having become more frugal about what and how they purchase, are coming to expect promotions as the norm. As a result they are more alert about the real value they will gain, or not, from a promotion. So, while three-for-the-price-of-two offers may deliver total 30% cost savings, consumers now realise this still means they spend more if they only wanted one product.

The better retailers and suppliers get at optimising promotions to drive volumes profitably, the less value will truly be on offer to shoppers and the more likely we will start to see a ceiling on the volume of food products sold on promotion. More detail on the price and promotional pressure that now faces retailers and manufacturers in Europe as the recession continues will be explored in our SymphonyIRI June special report.