By Daniel Hunt, Price & Promotions Commercial Consultant at IRI
The turbulence of 2020 has caused considerable changes in consumer behaviour and how both consumers and brands are valuing products. We’ve talked before about how this recession is very individual and our responses will be very different. This is borne out in the data where, despite much uncertainty and the UK entering a recession, spending in the FMCG sector hasn’t necessarily fallen in ways that many may have expected. In fact, IRI’s latest data analysis reveals a number of ways in which the average price we are willing to pay for our shopping is on the rise.
The price is right
Since the start of the national COVID-19 lockdown, retail sales of consumer packaged goods (CPG) have grown by around £6.2 billion*. Within this overall rise in sales, the average price paid for products has increased by four percent across the total retail store. This is being led by food and drink (up six percent) but other goods are also up (two percent).
The first reason for this is that there are fewer promotions across the board. Digging into the figures, we can see that there are around 11% fewer items on promotion** and the average promotional discount has dropped ~1%pt to 22.8%***. Whether this is down to the supply chain or commercial decision making, it’s clear that retailers and suppliers are pulling back on deals and promotions, and this could well be a good thing for brands.
There is, as always, a mixed picture. Grocery categories are losing more promotions than non-food. This highlights a dichotomy in the response. Boots and Superdrug who were hit hardest by restrictions due to their high street locations and temporary store closures have increased the number of promotions in their heartland categories, perhaps in a bid to try and encourage footfall, regain some of the lost revenues or move stock through the supply chain. In an opposite move Tesco, Asda and Sainsburys are reducing non-food promotions faster than grocery, signifying that they perhaps see this as an opportune time to make strategic changes.
As it is typically branded goods which are on promotion, it is a fair expectation that this reduced level of discounting might benefit own label items. However, this has yet to be the case. In fact, the share of value sales for own label products has also dropped. Whilst this is only happening at a rate of about one percentage point overall, it has done so in 85% of categories. This is another strong indicator of the rise in value ahead of volume.
Number of items on promotion**
Tried and tested
As anticipated in my previous paper, Recession Resilient Pricing, there has been genuine volume growth in premium price products due to the transfer of purchase from out-of-home to the supermarkets. A higher proportion of these inhibited out-of-home sales will be coming from the more affluent end of society who will be less price-conscious and see more value in brands.
Don’t be mistaken though. The bulk of volume share shifting up the value tiers is not coming from the premium and luxury end of the market, but from everyday brands lifting themselves out of the cheapest section of their markets. Exploring individual categories shows some of the largest everyday brands are maintaining their volume share while their average price is increasing (mainly due to fewer promotions).
This shows that, right now, shoppers are seeing more value in the familiar brands and trust them to deliver quality and satisfaction which outweighs the increased cost in the value equation. This could be down to shoppers spending less time browsing and making choices in-store due to health and safety concerns and so de-risking the decision by defaulting to the familiar and comfortable. In addition, many shoppers, particularly the more affluent who are now transferring out-of-home spend to in-store purchases, will have a higher propensity to buy brands if prestige is considered an important factor in the perception of value. The important point here is that whilst the usually highly promoted everyday brands are reducing their discounting, they are managing to hold the volume and realise more value from their products.
This suggests that many shoppers are willing to pay more than many brands understood. So now, brands should use this moment, where consumers are seemingly reconnecting with their goods, to really understand how to shift the value equation and remove the need for such a high level of promotions and deals. This is evident as you can see when brands pull away from the lowest priced own label goods, there are very low levels of volume left behind. Previously, they were effectively promoting into a void by dropping prices to a level where there was very little natural demand.
Where demand for their products is currently high, brands have a fantastic opportunity to reset some fairly established norms at a time when retailers are keen to reduce the number of promotions in favour of value in everyday pricing. Offering value is essential but it’s worth exploring whether that means offering cheaper prices or whether there is inherent value in a brand which was perhaps previously overlooked. We may be living in unprecedented times, but undervaluing your brand is one of the lessons that we can start to study for the future.
However, it is striking that the main consumer trends we saw in the last recession are the exact opposite of what is currently playing out. When we learn to live with the virus and the looming recession really starts to bite into consumer spending in our industry, we are likely to see a return to the main factors outlined in one of the latest research papers published by IRI:
Demand in Recession in Western Europe: The Increased Need for Value
- Consumption migrating from branded products to private label
- Shoppers favouring value channels such as discounters
- Increased promotion [and everyday price competition]
So, while some brands have been experiencing an ‘Indian Summer’ on value, there could be a harsh winter ahead – and getting the value proposition right could make all the difference.
* Source: IRI Retailer Advantage | Total Market | Food & Non-Food, w/e 29 Feb 2020 – 26 Sep 2020
** Source: IRI Promotext, Latest 8 weeks 26/09/2020 for Major Mults excluding Co-Op
*** Source: IRI Major Mults Latest 13 weeks August 2020