Promotions in the European fast-moving consumer goods (FMCG) segment are failing to boost company sales volumes that have eroded brand loyalty, according to a report by market and shopper intelligence firm IRI.
According to IRI’s European Price and Promotions report, the amount of food and non-food goods sold on promotion increased 2.7% in the past year – yet volume sales have started to decline as consumers continue to cut back on perceived non-essential items. Overall volume sales dipped by 0.1% across Europe.
Tim Eales, Strategic Insight Director at IRI, said in the report that promotions have reached a tipping point.
“The U.K., which has traditionally had the highest level of trade promotions in Europe, is showing signs of a decline in promotional intensity,” he said. “FMCG manufacturers may be losing patience with expensive trade promotions that are not bringing the volume rewards they used to.”
Promotions have helped shoppers meet the rising cost of their grocery shopping bills, according to the report, but customer loyalty to brands and stores has eroded – which makes it difficult to raise prices in the future.
As manufacturers try to regain some of the margin that has been gradually eroded since the economic downturn began, they need to think differently about how they use promotions to indentify new paths for growth, Eales said.
“Clearer definition of goals and priorities that are developed with retailers and consider the multichannel landscape are essential,” Eales explained. “The U.K. is just the tip of the iceberg.”
As food and non-food prices continue to rise – up 1.8% across Europe on average in the past year, with food prices up 1.9% accelerating faster than non-food at 1.1% – the average shopping basket has increased by about 11 Euros per month.
Shoppers are cutting back on perceived non-essential categories such as household and personal care. Personal care had the biggest year on year increase in promotions – up 7.0% – but volume sales fell by -1.0%. Household volume sales fell 1.3% despite a 4.4% increase in promotions, which was as high as 5%-13% in some countries such as Germany, France, Netherlands, and Italy. Non-food promotions overall rose by nearly 5%.
Confectionery was the most promoted category in Europe – up by 5.3% to 31% of all products sold on deal – as suppliers and stores tried to convince shoppers to indulge themselves. The report says that some promotions still work, in particular those that are clear and simple for shoppers to understand and have a perceived value such as offers linked to fuel.
“With high price inflation expected for remainder of 2013 and beyond, retailers and manufacturers must step aside from the margins battle and work together to define merchandising strategies using specific tactics such as occasions for special treats to drive impulse purchasing on non-essential items,” Eales said. “Powerful predictive analytics solutions will help pinpoint the best scenarios for lower investment and better ROI.”