Andrew Mitchell, Executive Vice President International, IRI
With many countries now in their third lockdown during the pandemic, we’re seeing signs of recessionary-type behaviour as consumers adapt to their circumstances and change the way they shop. Lower prices and the need for value are very much back on the agenda as they were in the last major recession of 2008-9.
While the circumstances this time are very different, this COVID-led recession is showing some similar patterns. FMCG organisations can learn from these to help them plan for the future.
During the last recession, price inflation impacted the cost of raw materials leading to price increases, which in turn impacted volume sales and needs-based purchasing. The grocery sector witnessed a ‘flight to value’ as shoppers focused on controlling spend, taking advantage of the many promotional deals on offer, and limiting the number of shopping trips.
This increase in promotions, coupled with the rise of the discounters, led to a price war and the erosion of margins for retailers. Today, price has become a talking point once again.
But we’re not necessarily seeing the same type of consumer behaviour as we did 10 years ago. Spending has not fallen in ways we might expect. For example, IRI analysis shows that the average price UK shoppers are willing to pay is on the rise. Some of this is due to the transfer of out-of-home to in-home consumption, and a switch to more in-store spending. But it’s also coming from everyday brands, with average prices increasing because of fewer promotions.
Shoppers see ‘value’ in buying familiar brands, trusting them to deliver quality and outweighing any increased cost. So as consumers ‘reconnect’ with brands they trust, manufacturers and retailers can use this to understand how to shift the ‘value equation’.
UK supermarkets are using initiatives like every day low pricing, while in Europe, promotions are back as a way to re-engage with cash-strapped shoppers and offer the best price options.
Brands and retailers will need to address their value strategy as the pressure on low prices increases from both cash-strapped shoppers and those who can afford discretionary spending. Opportunities like targeted promotions for ‘cooking at home’ options based on different shopper profiles, or creating themed ‘events’ to deliver a different kind of customer experience.
New product development and innovation will also play a role in the context of this recession. For example, adapting pack sizes for people making fewer shopping trips, or creating premium ‘occasion’ products for in-home consumption.
With online shopping continuing to grow, this presents both challenges and opportunities for the industry. In the last 12 months, retailers have had to rapidly expand online delivery capacity in extremely challenging circumstances. Continuing to invest in these services to meet the growing demand for online will be critical, as well as finding other ways to meet shopper needs, such as partnering with food delivery companies.
The pandemic has changed the way we live – and shop. How we as consumers value products is also changing. We have high expectations of retailers today despite difficult and challenging times, and both retailers and brands will have to continue to adapt to meet these expectations.
For more insight, read Andrew Mitchell’s article in Warc