In the current inflationary environment, where FMCG manufacturers are looking to pass on the full impact of cost increases to consumers, retailers are poised strategically to hold prices of their private label products in categories where they want to increase penetration and grow value sales.
This is one of the predictions from IRI’s biannual ‘FMCG Demand Signals’ report that was published today. The study reveals how national brands throughout Western Europe grew total FMCG value sales by €35bn (+0.6%) to 67.3% over the last year despite private label widening the price gap by almost 100 basis points (BPS) by increasing on and offline promotional activity. These offers were withdrawn during the last five weeks of the analysis period on the back of the supply-side disruptions and underlying input price increases.
The report also shows that during the pandemic, consumers throughout Europe sought reassurance from buying recognized and trusted brands in almost every FMCG category, despite retailer-owned private labels widening the price gap by offering discounts and promotions.
Ananda Roy, International Senior VP of Strategic Growth Insights at IRI, commented: “As the indexed price gap widened between national brands and private labels, you would have expected to see shoppers opting for the substitutes that offered better value. Surprisingly, this didn’t happen.
“Throughout the major European markets analysed in the Demand Signals study, consumers chose trusted, nationally distributed brands. In response, several retailers offered significant promotions and discounts especially in the period covering Q4 of 2020 and Q1 of 2021 to no avail. In addition, private labels, who often rely on smaller contract manufacturers, were also unable to meet spikes in demand due to lower inventory levels and their own supply-side disruptions.”
Roy added: “As inflationary measures hit parts of Europe and national brands raise their prices, retailers must decide exactly where they will allow price increases to flow directly through to consumers. Undoubtedly, we will see price hikes for many staple national brands. In categories where major supermarkets and discounters wish to see greater private label penetration, they may decide to hold back and offer more affordable prices.”
The private label categories that are expected to see these trends are impulse categories such as chocolate, especially in seasonal gift packs; ambient foods and pre-packed meals, alternative breakfast or light meal ‘better for you’ cereals, grain bars and protein-rich functional foods and drinks, and at-home cooking sauces, condiments and kits.
To compile the report, IRI studied billions of FMCG transactions from across the US and several of the largest European and Asia Pacific markets to understand how consumer demand has shaped category values across more than 230 different food and non-food segments, and to provide insight on what drives commercial value.
Overall, FMCG value sales grew 3.1% to €579bn in the year to July 2021, with chilled & fresh and ambient food accounting for more than half of all sales (51.3%).
During the report period, which covered stay-at-home lockdowns across key European markets, IRI found that the structure of food-vs-non-food contribution did not change significantly, with food making up on average 80% to 85% of category value. However, the retail channel split did reflect how people bought more food at supermarkets, hypermarkets and discounters.
With the easing of mobility restrictions during the second quarter of this year, online sales declined marginally from highs just above 8% to around 7.5% of overall category value – somewhat more resilient than analysts had predicted as hybrid purchase behaviour seeking ‘deals’ and convenience continue.
IRI stated that it remains to be seen whether the meteoric rise of grocery-delivery services and apps will continue as food prices rise, already wafer-thin retailer margins are eroded, more delivery services become chargeable, and online promotions continue to be withdrawn in the second half of this year.
Other highlights from the report:
- UK leads growth in wine sales – In the UK, wine increased by €803m, with sales in Germany (€139m) and Greece (€19m) also rising. Specialty beers grew to €279m in France with beers and craft beers impacting growth in Italy (€203m), Spain (€186m) and Netherlands (€83m).
- Shoppers opted for fresh and healthy – Chilled and fresh foods grew 3.4%, largely due to demand for cheese (Germany, €426m and Spain, €67m), fresh packaged fish (UK, €214m) and smoked fish (France, €198m, up 25%) and chilled meats (Italy, €218m). But with consumers still working from home, chilled sandwiches (UK, down €217m) and soft pasta (France, down €50) and margarines witnessed continuing declines.
- No freeze on frozen – Frozen foods was the joint-second fastest-growing category in FMCG at 4.4% along with drinks. This was driven by frozen fish and meat and ice-cream (From €45m in France, €44m in Spain and €17m in Italy respectively) at the start of seasonal highs in late spring and an unseasonably warm early summer. The casualties were frozen pizzas, vegetables and herbs across markets.
- A healthy thirst – Functional food and drinks are a new trend that continues to grow. This includes people seeking ‘better for me’ sports and energy drinks. Growth was led by Italy, France and Germany. The category already commands €155m in the UK which grew 9%. Coffee in all its forms (beans, pods, single-serve cups, specialty drinks) delivered the highest category value of around €500m.
- Mixed picture for non-food – The huge rise in sales of gardening tools, supplements, DIY and home-improvement items did not offset the significant decline across personal and household care categories; notwithstanding panic buying of toilet paper, face tissues and anti-bacterial wipes.
- Health and hygiene first – Household products, including carpet cleaners, aromatic oils, cleaning products and disinfectants rose in sales. All forms of cleaning products made up €150m across the UK, France and Spain.
- Cosmetics fail to cover up decline in non-food – Personal care produced interesting results as the demand for personal hygiene products declined as people continued to work from home and an air of informality influenced consumer choices. Cosmetics and lip makeup in France were down by €65m; deodorants and body sprays in Germany and the Netherlands dropped by around €45m, and hairspray and colourants in Italy dropped by €13m.
- Masks and medicines – The extensive use of face masks, hand sanitisers and cleaners meant we had fewer coughs, colds and allergies, wiping out €165m in the UK alone from the purchase of decongestants and anti-allergens.
- Restful retailing – As staying healthy remained a priority for many shoppers, sales of pharmacy and healthcare accessories increased. Aromatherapy, aromatic oils and candles that help facilitate lower stress levels and improve sleep, delivered €200m across UK, Italy and France.
- US FMCG returns to growth – Manufacturers aggressively reduced stock levels during the first half of 2021, particularly in food and drink, with pricing, promotions and range optimisation. In the five weeks leading to the end of June, fewer promotions, and price points for private label only slightly lower than national brands, enabled total FMCG value share to return to growth (+2.3%).
Download a copy of IRI’s ‘FMCG Demand Signals’ report
NAM Implications:
- (Despite private label price reductions) “Throughout the major European markets analysed in the Demand Signals study, consumers chose trusted, nationally distributed brands”.
- A lesson here for any national brands contemplating shrinkflation as a way out of current cost issues…?
- This IRI report well worth a line-by-line comparison by suppliers and retailers alike…
