New research from Circana highlights that innovation (NPD) by Small to Medium Enterprise (SME) manufacturers is fuelling growth in the UK FMCG sector. However, retaining distribution remains the linchpin for sustained success in response to large manufacturers who are intensifying sales promotions. The study is urging SMEs to leverage data strategically to secure their position and compete effectively against industry giants.
Despite easing inflation and lower interest rates, growth in the FMCG market has slowed. Large manufacturers are increasingly relying on volume share as the primary pathway to growth, with sales promotion as the key enabler.
Alex Lawrence, Senior Strategic Insight Director at Circana, commented: “Fuelled by innovation, SMEs are disproportionately contributing to market growth, providing 22% of all NPD value sales (vs. their 15% value share) in the last 12 months. They are, however, more vulnerable in the Major Multiple Grocer Channel (MMG) – a cornerstone for sustained growth.
“But with the MMG channel accounting for 85% of FMCG market value, retaining and building distribution in this channel is the key to sustaining growth. SME products will tend to have lower rates of sale, increasing their risk of delisting, making retailer range reviews and refreshes a crucial battleground for SME manufacturers.
“With pressure on volume share growing, SME brands must develop a competitive advantage.”
SMEs – defined for the purpose of Circana’s research as manufacturers with less than £100m turnover across all categories – have made significant strides. In the past 12 months, they have contributed £20.1bn to total store sales, experiencing 7.3% growth. Over the last 13 weeks, SMEs maintained share growth, up 0.2 percentage points from last year. Currently, SME manufacturers hold 15% value share, while large branded manufacturers account for 49% and private label 36%. However, SMEs played a pivotal role in NPD value sales, contributing 22% to drive overall market growth.
Circana notes that while SME manufacturer growth mirrors the overall market slowdown, there’s a crucial difference; SME unit sales declined over the last 13 weeks. Further analysis of the top 500 brand value share winners across total store confirmed that 94% of brand winners gained volume share, making this growth crucial in the current climate.
It shows that large manufacturers have turned to sales promotion to drive volume share and compete with private label. That coupled with their scale and larger budgets, means they have been able to secure additional store displays, most notably in non-food sectors. This helps them sell more goods without risking a reduction in profits from the increased sales promotion investment.
Lawrence concluded: “For FMCG SMEs, securing premium secondary display location with high gate fees is expensive and sales promotion will likely be from the product shelf location, greatly increasing the risk of margin and profit loss. As a result, range and distribution is a much more crucial battleground for smaller brands and an aspect of the marketing mix where SMEs need to establish a competitive advantage to drive growth in the second half of the year.”
Circana has issued the following advice to SME manufacturers:
- Retaining and gaining distribution for existing products: Use robust and granular data in your range reviews and refresh processes to demonstrate your market and competitor SKUs and illustrate growth contribution and opportunities to retailers.
- Collaborate: Add an extra data level to be able to converse with retailers about having secondary display locations.
- Innovate: Continue driving NPD to capture consumer interest, maintain relevance and seek out emerging innovation opportunities.
NAM Implications:
- The problem will be securing attention in a soon to be Retail Media world…
- …against the big potential spends of major brands in the mults.
- SMEs will need exceptional levels of innovation to punch against major rivals…
- …making creative use of first-party data in accessing current and new shoppers in the aisle.
- Fingers crossed…
