Seemingly conflicting pieces of research published over the last two weeks, which show both food inflation easing off and households switching to own-label to combat rising prices, highlight the challenge for FMCG companies as they try to remain competitive during the current trading environment.
That’s the message from category management specialists The Category Management Company following a survey by consumer group Which? found that 46% of respondents had bought more own-label goods in the last year because of food inflation. This trend was supported by data from Kantar indicating that 54% of spending at discount retailers like Lidl and Aldi was coming from the ‘ABC1’ social demographic group. And yet this is at a time when rises in the cost of a supermarket shop appear to be slowing down as food price inflation eases, although the figure is only just returning to March 2022 levels with households still feeling a squeeze on disposable income.
So, how should FMCG suppliers be responding?
“What is certainly true is that doing nothing and waiting for the latest tsunami of events to wash over us is not an option,” said Patrick Finlay, Managing Director at The Category Management Company.
“Many big companies will be reacting to these pressures already by building ‘war chests’, protecting themselves from the pressures of inflation and immediate retailer volume growth expectations. Whilst this can work, it is only ever a short-term measure.”
Finlay suggests that the secret is to address the challenge through both short-term operational and long-term strategic lenses.
“First, focus on what they can do now with what they’ve got,” he said. “Thinking about how to fix the basics and optimise and protect what they already have. For example, is their range, distribution and channel execution firing on all cylinders? Getting the category management basics right can unlock revenue and volume for supplier and retailer alike. Taking the heat off whilst focusing on the bigger strategic prize.”
Finlay adds that the second thing to do is to invest in the long term.
“No one has ever saved themselves rich,” he said. “It has been proven that investing during the most fiscally difficult times has generated long-term benefits. This can take the form of above-the-line investment, which leads to long-term loyalty. But, also by developing long-term strategies, category visions for example. Setting out the roadmap today, by planning a strategic course for the next three to five years to deliver value-added volume.
“By devising a category vision, suppliers are taking a proactive stance to help cushion some of the unforeseen events caused by inflationary pressures whilst maintaining direction and long-term purpose.”
NAM Implications:
Surviving in a new norm flat demand market means growing at the expense of the competition.
And patently that includes own-label…
…especially where a combination of brand price increases and improved quality of own-label puts pressure on the brand premium.
All that remains is to deliver more than it says on the tin, every time…
