FMCG manufacturers and retailers are witnessing some of the biggest changes in consumer spending, with a return to the kind of shopping behaviours more reminiscent of the late 1970s and early 1980s due to inflationary pressures and a growing cost of living crisis.
According to IRI’s FMCG Demand Signals report – which looks at the impact of changing consumer demand on 230 FMCG categories, 2,000+ product segments and over 10 million SKUs across 14 major markets in Europe, the US and Asia Pacific – consumers are having to make difficult choices in their day-to-day spending.
Emerging from the pandemic and facing an unpredictable economic future of rising energy prices, slow wage growth, and inflationary pressures, shoppers are seeing their disposable income declining. 61% of consumers surveyed in Europe are worried about the impact on them personally, and over 70% have already made changes to how they buy and use everyday items.
More than half have cut down on essentials, including driving to work and reducing heating use; while around a third have dipped into their personal savings or are taking out loans to pay bills.
Changing shopper behaviours
Shopper habits are changing with new coping behaviours emerging because of ‘inflation fatigue’.
There’s an increased focus on where to shop – via another channel or retailer – to moderate the effects of the crisis. Across Europe, consumers will go to another shop if their regular brand isn’t available (26%), is not on promotion (34%), or if their usual retailer doesn’t have enough deal or offers available (41%). The discounters are benefitting the most as a result.
But more than this, shoppers are thinking ahead to get the best value and to stay within budget; 22% are making fewer trips and 58% are comparing prices more often between similar brands or products. In addition, around half are comparing how much product – such as washing powder – they need so that they use less and waste less. Other interesting trends to come out of our consumer survey is that shoppers are more likely to look for reduced items even if they are out of date (40%), read packaging labels (41%), and look at reviews of everyday products (27%).
As grocery prices continue to rise, consumers are making difficult trade-offs in their shopping, prioritising essentials, such as milk, butter and pasta, and reducing spend on discretionary items.
This is reflected in strong category performance within Chilled & Fresh, Ambient, Beverages and Personal Care, which has helped fuel a modest 1.5% growth in FMCG, adding €9bn compared to a year ago, and worth €593.4bn in overall value sales. Even as prices rise further, these categories will continue to do well. Others are struggling, however, with Alcohol sales down 5.0%, partially offsetting gains in other categories, and with YTD figures showing a further decline.
New occasions provide opportunities for FMCG brands
Understanding these new behaviours allows FMCG manufacturers to tap into new opportunities for growth and around new product innovation.
IRI’s report shows that consumers are already creating new occasions and moments for familiar everyday products, with more than one in four changing where they consume products – whether at home, on-the-go, or out of home.
Taking home-made packed lunches to work is making a return, while drinking speciality coffees and pre-mixed spirits at home replaces going out to a bar or restaurant. For manufacturers, this is an opportunity to look at new taste sensations and experiences, including premium products and accessories such as coffee bags, new sandwich fillings, condiments and more.
Showering at the gym and home hair care are also becoming popular again, creating a need for packaging, pack sizes and formats designed for portability and convenience, as well as new innovations in male grooming, and styling and colouring.
Where people eat and drink is changing, with fewer consumers planning to order cooked food to be delivered at home and eating out at restaurants, bars or cafes. However, we’re seeing a rise in those planning to cook fresh at home, cook at home for eating out of home and ordering fresh meal boxes and kits to cook at home.
Consumers will make room for new products, especially healthier options, with more planning to spend on ‘better for you’ food and drinks, plant-based products, and flavoured waters. But when it comes to choosing a new brand, shoppers in Europe consider price to be most important, along with availability and whether it’s on promotion or deal.
The return of Private Labels and EDLP
While retailers increased promotions last year to shift stock post-pandemic, particularly in non-food, we are starting to see fewer promotions and the return of everyday low pricing (EDLP) as the major supermarkets mitigate the impact of food price inflation. Retailers are trying to manage the impact of rising prices by optimising the range, pack sizes and price points, but strategies differ by category and value tier. One of the biggest beneficiaries is Private Labels.
Throughout the pandemic, national brands outperformed Private Labels, with shoppers comforted by buying brands they know and trust and could source easily. But Private Labels are returning to pre-pandemic levels, making up 36% of FMCG value sales in Europe (€216bn) – up from 34% as reported by IRI earlier this year.
As we know, consumer habits are changing, and part of this is questioning their loyalty to national brands as retailers expand the range of high-quality, innovative and well-priced options. Discounters have also expanded their portfolio of stores making these products available to a wider group of consumers.
Private Labels are poised to be the ‘third competitor’ to brands in several FMCG categories, having transformed to strategy-led, data-driven and differentiated substitutes. Their ability to grow value, volume and attract new consumers is a risk to smaller and mid-sized manufacturers – the so-called ‘Squeezed Middle’ – who could begin to struggle to match them competitively as economic conditions worsen.
The FMCG sector is keen to avoid another price war, although we anticipate that this is increasingly likely in early 2023 as the outlook for the FMCG market darkens.
Download IRI’s FMCG Demand Signals report
NamNews Implications:
- Few surprises hopefully given almost three years of fear, confusion and unprecedented change in the market.
- i.e. consumers have been living beyond their means (borrowed money) for years.
- We are now in a period of reckoning…
- And shopping around in search for value is but one means of coping.
- Learning lessons that will be difficult to roll back…
- In these circumstances, any growth will come at the expense of rivals…
- …be they brands or private labels.
- Where innovation secures a customer, then key to deliver more than it says on the tin, every time…
- Anything else is delusion.
