As U.S. Economy Moves Into Post-Pandemic Phase, Manufacturers and Retailers Need to Evolve Pricing Practices; Innovators Have an Opportunity to Gain 3-5 Points in Topline Revenue Growth, 5-10 Points in ROI Improvement
CHICAGO – May 13, 2021 – The CPG industry is undergoing significant price inflation, driven by increased demand, out-of-stocks, and a reduction in promotions and premiumization. To support CPG manufacturers and retailers as they navigate this evolving environment, IRI®, a fast-growing global leader in innovative solutions and services for consumer, retail and media companies, announced today the release of a new research report, "Revenue Growth in an Inflationary Environment." IRI also will host a webinar on this topic on Thursday, May 20 at 1 p.m. CT; register here.
"Following traditional pricing practices alone will not be sufficient to increase revenues, boost market share and compete effectively in today's inflationary environment," said Dr. Krishnakumar (KK) S. Davey, president of Strategic Analytics for IRI. "Revenue growth leaders monitor their own as well as competitive price and promotion execution to identify and capture revenue growth opportunities, adapt their pricing to changes in shoppers' price sensitivity, and leverage the full spectrum of revenue growth management levers."
Current Market Conditions Create New Challenges
Manufacturer and retailer decision-makers are facing a new series of pricing challenges as the U.S. economy moves into a post-pandemic phase. In-home consumption in several categories is likely to decrease as more people are vaccinated and become increasingly mobile. The share of dollar spend for in-home compared to out-of-home consumption was approximately equal prior to the pandemic. In-home consumption share jumped to 66% in April 2020 and receded to 57% by December 2020.
Price sensitivity among consumers is increasing as they begin to purchase goods and services that were not available to them during the pandemic. The reduction in demand if prices increase 10% has increased from 16.3% in the 26 weeks ending Oct. 26, 2020, to 17.1% for the 39 weeks ended Feb. 28, 2021, among edibles. Among non-edibles, the increase is much more dramatic: demand reduction if prices increase 10% has grown from 8.5% in the 26 weeks ending Oct. 26, 2020, to 12.9% for the 39 weeks ended Feb. 28, 2021, an alarming 4.4 points.
Manufacturers and retailers are competing to retain new shoppers acquired over the last year to retain that added market share. Per publicly available information, Target's market share stood at 19.3% at the end of its last fiscal year and had grown to 20.5% at the end of its last fiscal quarter (Jan. 31, 2021). Dollar General's market share grew even more impressively, from 16.3% at the end of its last fiscal year to 21.6% as of Jan. 29, 2021, the end of its latest fiscal quarter. Similarly, among manufacturers during 2020, Germ X gained 20.2 million new households buying its products, while Angel Soft attracted 13.2 million new households, according to data from the IRI Consumer Panel, 52 weeks ending Dec. 1, 2020 versus year ago.
To Capture Growth Opportunities, CPG Companies Have a Need for Speed
In today's evolving, uncertain and highly competitive market, manufacturer and retail leaders must quickly discover new pricing and promotional opportunities and enable granular execution in the form of prescriptive and market-intelligence infused recommendations to teams in the field and in the store.
IRI's specific recommendations for manufacturers include:
- Frequently monitor price elasticity to capitalize on pricing opportunities in a supply-constrained environment.
- Track promotional effectiveness quantitatively and direct investments to the highest-return activities.
- Gain an understanding of price-pack opportunities across channels and consumers, and assess potential evolution, especially with e-commerce versus in-store.
- Create adequate opening price points and value products while driving sales of premium and super premium brands.
- Drive increased occasions and focus on innovation to realize value.
Recommendations for retailers include:
- Focus on attracting and retaining omnichannel shoppers who are less price sensitive and exhibit greater loyalty, using the right targeting, messaging and assortment.
- Build both value and premium offerings and manage the trade-in gap between value and maintain, and between mainstream and premium brands to fine-tune assortment.
- Understand the effect of pricing and promotion on specific shopper segments to drive penetration and incremental revenue.
- Strategically leverage promotions to drive growth where there is greater price reaction and return on investment.
- Monitor continuously price and promotional elasticity at granular levels and implement revenue growth management practices.
- Clearly articulate the banner's total value to customers and reinforce opening price point products as inflation increases and a segment of shoppers trade down and look for value products and retailers that potentially offer more value.
IRI is a fast-growing, leading provider of big data, predictive analytics and forward-looking insights that help CPG, OTC health care organizations, retailers, and financial services and media companies grow their businesses. With the largest repository of purchase, media, social, causal and loyalty data, all integrated into an on-demand, cloud-based technology platform, IRI is empowering the personalization revolution, helping to guide its more than 5,000 clients around the world in their quests to remain relentlessly relevant, capture market share, connect with consumers, collaborate with key constituents and deliver market-leading growth.
About the IRI Partner Ecosystem
IRI fundamentally believes that delivering differentiated growth for clients requires deep, highly integrated partnering with a variety of best-of-breed companies. As such, IRI works closely with a broad range of industry leaders across multiple industries and sectors to create innovative joint solutions, services and access to capabilities to help its clients more effectively collaborate and compete in their various markets and exceed their growth objectives. IRI is committed to its partnership philosophy and continues to actively enhance its open ecosystem of partners through alliances, joint ventures, acquisitions and affiliations. The IRI Partner Ecosystem includes such leading companies as 84.51°, Adobe, Alphonso, BDSA, The Boston Consulting Group, comScore, Dynata, Edge by Ascential, Edison, Experian, Facebook, GfK, Gigwalk, Google, Label Insight, Limbik, LiveRamp, MFour, Ogury, Omnicom, PlaceIQ, Pinterest, Profitero, SPINS, Univision, Valassis, Viant and others.
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