iri price & promo 2014 full report

SPECIAL REPORT

Price and Promotion in Western EconomiesNew areas to explore for retail recovery

JULY 2014

IntroductionExecutive SummaryTurning Insights into ActionsPromotion is Sales, Right? Not NecessarilyPromotions do Still WorkMore Creativity Needed to Boost Promotion SuccessPrices and Margins set to RiseLocal versus GlobalShoppers Prioritise Food versus Non-FoodConclusionAbout the ReportCountry by Country Review

PRICE AND PROMOTION IN WESTERN ECONOMIES SPECIAL REPORT

Introduction

2

IRI is delighted to provide key insights into the world of price and

promotion across Europe and in the United States.

The IRI European Price and Promotion 2014 special report

reveals how, as the fast moving consumer goods (FMCG) industry is

poised for growth after years of struggle, consumer confidence

remains fragile. There are signs in the United Kingdom (UK), France,

Germany and the United States that with a little encouragement

shoppers will start spending again.

Despite this price wars continue and the industry must resist the

temptation to over-promote both in-store and online. Promotions do

not always transfer into sales and increased profit margins. Brands

must lose their focus on increasing sales volumes which doesnt

necessarily impact their critical bottom line.

Countries such as Spain, Greece and the Netherlands remain in the

grip of economic woe, but even here there are opportunities for sales

if pricing and promotion strategies are creative. Suppliers and stores

must also meet local needs and market conditions.

Consumer shopping behaviour has changed and will not revert to

pre-recession habits overnight. In the United States technology is

changing shopping behaviour faster than anywhere.

People are less loyal to brands and retailers and only by

understanding this and responding effectively will volume and value

sales begin to rise. Manufacturers and retailers must work together.

We would welcome your feedback on our findings.

Tim Eales

Strategic Insight Director

IRI

Authors photo


Executive Summary

improve the transparency of their

deals for sceptical shoppers.

Private label remains vital to

sustaining retailers margins in

the short term. Many chains are

investing in their own

manufacturing capacity and

taking an analytical approach to

assessing in-store space

constraints and consumer

demand.

Country summaries:

France: The price war

between Casino Group with its

hypermarket chain Gant has

had a negative impact on the

hard discounters. Value sales

in France grew by 1.7%, led

by food. Volume sales were up

by 0.8%, with non-food

performing strongest. The

average basket price is up by

0.9% as consumers take

advantage of discounts and

promotions to trade up.

Germany: Price competition

among retailers remains fierce

and is harming manufacturers

attempts to pass on rising raw

material and energy costs and

retailers efforts to boost

loyalty. Value sales have risen

1.6%, with food leading the

charge, although volume sales

fell 0.5% driven down by food

whilst non-food is increasing.

Retailers want to invest in

more manufacturing capacity

to grow their private label

ranges.

Greece: Manufacturers and

retailers expect more

economic pain and deeper

food/care, alcoholic drinks and

frozen food.

Manufacturers of household

products have seen their margins

continue to decline and the level

of trade promotion remains high

in this category as people trade

down or realise it is no longer

essential to buy particular

products.

The result of rising prices has

been a 1.0% jump in value sales

of food (2.7 billion Euros for the

European countries surveyed)

while non-food sales declined by

0.3% (219 million Euros for the

European countries surveyed).

Volume sales have declined

overall by 0.7% with food down

0.7% and non-food by 0.8%, in

Europe.

According to the European

Commission, any recovery will be

modest this year and only gather

momentum in 2015 when

retailers and manufacturers can

realistically start to experience

more substantial returns and

confidently increase prices

without having to promote so

aggressively. GDP in the

European Union is forecast to

expand by 1.6% this year and by

2.0% in 2015.

Not all promotions are

destined to drive increased

sales but there is a clear need

for more creative promotions,

such as themed offers,

experiential in-store events and

the use of mobile apps to ensure

that they deliver value for brands

and retailers alike. Innovative

promotions can help retailers

The length of the downturn

has meant aggressive pricing

and promotion strategies

have become normal practice

over the past six years.

Shoppers in France, Germany,

Greece, Italy, the Netherlands,

Spain, the UK and the United

States are now less loyal to

brands and retailers. They are

not only hunting out bargains but

expecting them.

Fierce price wars are taking place

across the Western world as

traditional stores battle for

market share between

themselves and try to compete

with the booming discounters

and convenience stores.

The proportion of FMCG products

sold on promotion rose by 0.8%

in 2013 but this hasnt resulted in

increased volume sales, which

are down in every sector

surveyed. The biggest declines

for food are in ambient, chilled

and fresh food.

An over-reliance on trade deals,

which has arguably damaged the

UK grocery sector in recent

years, is being repeated in some

countries, notably the

Netherlands and Italy.

Nevertheless, average prices

increased by 1.4% with food

prices accelerating faster than

non-food. Consumers in the

Netherlands have experienced

the highest rise in the cost of

their grocery shopping while the

Greeks have seen price deflation.

Categories showing the largest

average price increases are pet

3


Executive Summary

IRIs Shopper Sentiment Index

provides deep insight into how

the economy is impacting

consumers and changing how

they approach grocery

shopping. The index provides

perspective in terms of price

sensitivity, brand loyalty and

changes in spending required

to maintain desired lifestyles.

With a benchmark score of

100 based on Q1 2011

information, a Shopper

Sentiment Index score of

more than 100 reflects

consumers who are less price

driven, more loyal to favorite

brands and better equipped to

maintain their desired lifestyle

without changes.

The decline in the index for

the fourth quarter is an

indication that while

consumers are more

comfortable than they were at

the start of 2011, they are

finding it difficult to maintain

their desired lifestyle without

making changes. As a result,

they are becoming more price

driven and less loyal to their

favorite brands.

For the year, value sales were

up 1.6% as price rises were

possible in non-food (2.0%)

and food (1.4%). When

combined, food and non-food

unit sales were relatively flat,

up just 0.2%, led by food.

Spain: The Spanish love affair

with private label has

intensified while shoppers are

devoting more time to

preparing and managing their

shopping lists. As a result

volume sales dipped by 0.5%

with sales of food and non-

food both declining. Value

sales rose 0.7% as prices

increased. Manufacturers are

not focused solely on price but

are investing in innovation to

develop products that retailers

cannot replicate in their

private label ranges.

The United Kingdom: A

change in direction from some

manufacturers has led to the

proportion of volume on

promotion dipping by 0.6%.

Rising consumer demand has

coincided with price cuts and

deals, although the proportion

of volume on promotion has

dipped by 0.6%. Value sales

growth was just 0.3% while

volume sales are down 1.6%.

UK shoppers like the

convenience channel and the

battle between supermarkets

and the discounters continues.

Retailers have come under

pressure to improve the

transparency of their

promotions and meet new

guidelines from the Office of

Fair Trading (now known as

the Competition and Markets

Authority).

The United States: IRIs

Shopper Sentiment Index fell

at the end of 2013 to 102.2,

the lowest point for the year.

deals, although there are

indications that shoppers are

beginning to spend again.

Food prices fell -1.1% on

average and non-food by

4.0%, fuelled by deep

discounting and promotions,

which helped volume sales to

increase by 0.3%. Value sales

dipped by 1.6% with non-food

down 2.9% and food by 1.2%.

More deals by national brands

have had an impact on private

label sales growth.

Italy: Italian consumers have

become savvy during the

economic downturn and are

less loyal to brands and

retailers. If we consider

hypermarket and supermarket

channels, value sales have

declined by 0.9%, driven by

non-food which has dipped by

4.3%. Volume sales have

decreased by 1.8% in the

latest year. Shoppers are

visiting different stores to find

the best prices, prompting

more promotions and deeper

deals.

The Netherlands: The level

of promotion has reached its

highest level in 10 years but

volume sales have declined

2.9%, further proof that

promotions dont always have

the desired impact. Value

sales are down 0.6%. For

manufacturers the rise in

some raw material costs

means prices have had to

increase at the shelf and this

has not gone down well with

consumers.

4


Turning Key Insights into Actions

5

Promotions dont always equal sales

The level of trade promotions has increased

by 0.8% but volume sales are down 0.7% in

Europe, proving that they are no longer

effective at meeting their longer term

objectives.

Retailers and brands must be creative, for

instance by meeting local shopper needs

with new promotion ideas and reducing their

reliance on price-led deals.

INSIGHT ACTION

Retailers netted an additional 2.5bn as

average prices increased by 1.4% with

food prices accelerating faster than non-

food in Europe. This resulted in a 0.7%

increase in value sales.

Shoppers will pay for innovative products

that add value in areas such as convenience

(2in1 or 3in1 products) and more specifically

for personal care, salon-quality and natural

and organic products.

Promotions are hitting a ceiling in the

UK and the Netherlands

To avoid losing the impact of promotions,

retailers and brands need more transparent

promotions. Promotions increase footfall and

volume sales across many categories but

retailers and manufacturers must be closer

to local shopper needs and be more critical

of a one size fits all approach. They must be

more innovative and avoid focusing too

much on price. They must invest in powerful

analytics solutions to make their deals more

efficient.

Local focus is key - Countries will

experience economic recovery at different

speeds so pricing and promotion strategies

must have a local focus.

Local brands can be more flexible and

responsive to consumer needs. Packs that

promote a products local origins or its

natural ingredients can appeal to a shoppers

patriotism. This is especially true in countries

where shoppers continue to face tough

times. By optimising their range assortment

and working together, retailers and

manufacturers can identify new areas of

mutual benefit.


Turning Key Insights into Actions

6

Some retailers are investing in their own

manufacturing capacity to boost their

private label sales. Stores that increase

the amount of private label on their shelves

and cut back on brands without growing the

size of their stores risk alienating shoppers.

Optimising range assortment is a critical and

complex challenge that retailers and

manufacturers must work on together to

overcome.

INSIGHT ACTION

Across Europe the debate continues

about how retailers can maintain their

margins in the short term as price wars

continue. The categories where prices are

rising fastest are pet care, alcoholic drinks

and frozen food, while price increases of

personal care and household items are below

the non-food average.

Price wars are unsustainable for

manufacturers, retailers and even shoppers,

who wont accept them if they mean lower

quality products. The emphasis must move

to improving the shopping experience and

meeting shopper needs, with innovation and

creative local promotions that match shopper

profiles and expectations - whatever

channels they use.


% figures show total market year-on-year changes

7

Promotions = Sales. Right?

Not necessarily.

The level of trade promotions

across Europe has increased by

0.8% but volume sales are down

0.7%, illustrating that

bombarding shoppers with deals

does not necessarily mean sales

growth.

The over-reliance on trade

promotions which has arguably

damaged the UK grocery sector

in recent years is being repeated

in other countries. The

Netherlands has seen the

proportion of products sold on

promotion increase by 8.2% in

just 12 months to reach its

highest level in 10 years. In Italy

there has been a 3.6% rise in

deals, across the categories

included in this study. However

volume sales declined in both

countries, by 2.9% and 1.8%

respectively.

This means that much of the

money being put forward by

manufacturers at the request of

retailers is at worst being wasted

and at best not generating the

return in volume sales that

everyone craves.

Ironically, trade promotions in

the UK are down 0.6% year on

year as the trade considers new

ways to excite offer-weary

consumers who shop more

frequently but buy fewer goods

each time they shop. Promotions

effectively hit a ceiling in the UK

and the average level of deal

depth is now falling. Deal depth

stands at about 26% (1 in 4 of all

products sold is sold on deal),

the same as in many other

European countries, but is on a

downward curve. In the first

three months of 2014 deal depth

fell 0.3% versus the first quarter

of 2013.

Manufacturers and retailers in the

Netherlands should take note of

what has happened in the UK. To

their credit they do accept that

there is a need to rein back their

own spending on promotions.

Mainstream stores have

reluctantly been forced to

Food and non-food volume sales are in decline at a total European level.

Small increase in promotional activity in Europe which is higher in the non-

food category (with the exception of Spain and the Germany).

Volume Sales on Promotion Evolution across Countries

Volume Sales Evolution across Countries

Promotions is Sales, Right? Not Necessarily


-0.7% +0.8% -2.9% -1.8% -0.5% -1.6% -0.5% +0.3% +0.2%

* Unit sales

* Unit sales

+0.8% +0.2% +8.2% +3.6% +0.7% -0.6% +1.2% +0.0%


Promotions do Still Work

8

Promotions do still work

It is not all bad news for

promotions. Among the

mechanics that work well across

Europe are round pound/euro

offers that help customers to

budget and calculate their

shopping. These deals also

enable the larger mainstream

retailers to compete with the

discounters.

IRIs research demonstrates that

the sales uplift on round euro

promotions is greater than an

equivalent discount that does not

take the price down to a rounded

price point. For instance, a price

cut from 1.50 to 1.00 will have

a bigger effect on sales than a

50% reduction from a different

price point.

Round euro offers are also a

response to shopper complaints

that deals can be too complex.

They demonstrate transparency,

something which has become an

important issue in the UK where

the Competition Markets

Authority has published

guidelines to ensure a retail

promotion does actually offer

consumers genuine savings.

Promotional support has declined

in Spain but leaflets still bring

positive results for the

hypermarkets. In France, IRIs

partner A3 Distrib which tracks

leaflet promotions has seen an

increase in activity following a

period of stability with shoppers

taking a particular interest in

BOGOFs. Leaflets are also

popular in Germany where, as in

introduce aggressive deals to

compete with the discounters,

although some categories can

still demand a premium price,

including cheese and freshly

squeezed orange juice.

Manufacturers in the Netherlands

certainly want to stop the deal

escalation. In the first few

months of 2014 there were signs

that promotional pressure is

stabilising, although the level of

deals remains worryingly high.

Manufacturers in Germany also

want to stop any escalation in

discounting and for retailers to

run productions that add value

and boost margins.

The huge investment in

promotions in Italy is designed to

sustain short-term sales although

here too there is an acceptance

that this could damage the

long-term health of the grocery

market. The opinion in Italy is

that too much effort is being

focused on promotions rather

than on other forms of

marketing.

Between 2012 and 2013 the

entire Italian grocery market lost

1bn due to promotions being

largely ineffective. This is

equivalent to the countrys FMCG

sector potentially growing by 1%.

The household category was one

of the most heavily promoted in

Italy but volume and value sales

still declined.


More Creativity Needed to Boost Promotion Success

9

the UK, consumers are making

fewer shopping trips and

increasingly using online price

comparison websites.

Retailers need to segment their

different audiences and work with

manufacturers to ensure the

effects of any new promotion

mechanic can be measured

accurately. They must invest in

analytics solutions to re-engineer

their promotions, retain margins

and meet consumers

expectations in terms of a

number of different factors - from

price to convenience. Shoppers

also prefer to use different retail

channels at different times so

any promotion must take this

into account and be adaptable.

More creativity needed to

boost promotion success

Promotions remain vital to

increase footfall and volume sales

across many categories but

retailers and manufacturers must

be innovative and think creatively

about which offers they run and

where they implement them.

To avoid promotions hitting a

ceiling and the deal-weariness

seen in the UK spreading across

Europe, retailers should think

differently for each country,

category and retail channel.

The industry must also be

cleverer at creating promotions

that take into account the

different buying behaviour

consumers display offline and

online.

Themed promotions are reducing

the negative hard-sell perception

held by some shoppers and make

the idea of funding it more

attractive to manufacturers.

Greece has seen a number of

themed promotions which are

often repeated and heavily

supported by retailers above-

the-line promotion. In the

Netherlands above-the-line

marketing has also raised

consumer awareness of themed

campaigns at a time when

shoppers are becoming weary of

promotions. We are also seeing

more experiential in-store

marketing events which enable

shoppers to see, feel, smell and

touch a brand. These can

enhance brand loyalty and

reduce over-reliance on price.

A prize worth having

The challenge

A multinational FMCG

manufacturer with presence in

health, hygiene and home

categories is facing a declining

trend in its volume share of

Brand A, especially its flagship

500g size. This is despite

heavy promotional support

throughout the year.

The clients business need

To understand if the decline

was due to the new entry or

price? Promotion? Portfolio?

The solution

IRI Marketing Foresight

analysis leveraged price and

promo data at store level for

the top 4 retailers, specifying

pre and post new entry of the

competitor.

The outcome

The manufacturer shared

findings with each retailer to

build a solid case for the

changes requested. As a

result:

Brand A increased volume

share 5pts in 6 months.

Re-allocation of spending

from trade to marketing

improved the brands P&L by

20%.

The analysis provided by IRI

has helped us greatly in

understanding subtle

dynamics in the market that

we could not spot with such

detail. We now have a

stronger plan that benefits

both our brand and the

retailers profit.


More Creativity Needed to Boost Promotion Success

10

cross-promotions to increase

average basket value and to put

more emphasis on premium and

natural products. Shoppers can

be persuaded to buy products

that complement or contribute to

their lifestyle, their demand for

quality or their wish to follow a

greener agenda. For instance,

Germany, Spain and Italy are

using feature promotions and

coupons to get products to the

front of consumers minds when

they walk into a store.

Manufacturers are being

innovative too. In the UK

producers are combining their

resources. In January Heinz and

Kingsmill joined forces to

promote eating beans on toast.

Across Europe suppliers are

taking advantage of economies of

scale to offer innovative products

that private labels cannot match

because of the manufacturing

costs involved. This can provide

them with the differentiating

factor they need to attract and

retain customers.

Retailers must be more creative

when it comes to improving the

in-store shopping experience. In

Spain work is being done to

improve in-store navigation,

more price transparency and the

re-design of shelves and

planograms to make displays,

pricing and promotions clearer to

shoppers.

Ultimately customers will respond

to new promotions and new

products they feel are special and

unique.

Creative promotions drive people

to spend at the point of sales

(POS) and boost impulse sales

which have been damaged during

the economic downturn.

What the recession has taught

the industry is how shoppers

respond as much to relevance as

they do to a good deal on price.

In the UK we have seen Marks &

Spencer enjoy incredible success

with its Dine in for Two for 10

promotion, for instance.

Retailers have to think differently

to capture shoppers

imaginations. In Germany Edeka,

the countrys largest

supermarket chain, has tried viral

video marketing as a new

mechanic to promote its private

label. Many retailers in Germany

are also investing in mobile

marketing and using apps to

communicate and tempt

consumers with coupons and

local offers.

Similarly, in the United States,

new media has moved into the

limelight. According to IRIs

MarketPulse survey, 10% of

consumers expect that

smartphone applications will

influence their brand decisions in

2014. Similarly, mobile

advertising will be a brand choice

influencer for 6% of consumers

in 2014, versus 4% in 2011.

In Italy some retailers are

developing different mechanics to

try to re-build longer-term

loyalty. Stores are issuing

coupons for entire categories

rather than just single products

and are allowing shoppers to

choose which items they would

like the discount applied to.

There is room to implement more

Technology-enabled marketing tools are quickly picking up steam.

Brand Selection Process for 2014 in the United States % of Shoppers

Source: IRI MarketPulse Survey Q4 2013

NEW MEDIA TOOLS

4%

4%

9%

5%

9%

5%

6%

9%

10%

11%

In-store Touch Screen

Mobile Advertising

Recommendations/Information fromwebsite/email

Smartphone apps

Online Advertising


Prices and Margins set to Rise

11

categories fail to excite the

shopper just when they start

having money to spend again.

Ultimately retailers and

manufacturers must work

together to find new ways to

attract and retain shoppers

without relying too much on price

cuts.

Prices and margins set to rise

as the feel-good factor

returns to Europe

Consumers are emerging from

the economic downturn battered

and bruised, having learnt to

shop differently and to do

without during the past six

years.

Across Europe average prices for

the categories surveyed for this

report increased by 1.4% with

food prices (1.7%) accelerating

faster than non-food (0.5%).

Shoppers in the Netherlands

have experienced the highest

price jumps, although some of

this rise is attributed to tax hikes

in some categories including

alcohol, plus increases in raw

material costs. The industry here

has tried a number of ways to

counter price increases including

experimenting with different pack

sizes. Margins, and prices, are

increasing faster than for national

brand prices because consumers

cannot easily compare private

label prices between retailers.

So even though the European

economy is improving there could

be damaging consequences this

year from aggressive price wars

and over-zealous range

assortment strategies.

The result will be less money for

manufacturers to spend on

research and development or to

invest in talented staff. It could

also mean smaller brands

disappear for ever. The outcome

would be that less competitive

Average prices have increased by 1.4% across Europe in the last year. Food

prices have accelerated faster than non-food prices in most countries and

the highest price rises have been seen in the Netherlands while the lowest

observed are in Greece.

Price Evolution across Countries% figures show total market year-on-year changes

* Unit sales

+1.4% +0.9% +2.2% +1.0% +1.2% +1.9% +2.0% -1.9% +1.4%

Food Average in Europe +1.7%

Non-Food Average in Europe +0.5%


Local versus Global

12

that by buying local he or she is

helping their region and keeping

employment in the country. The

Buy British campaign has also

been used for many years as a

nationalistic marketing message

by the UK food industry.

There are opportunities for

manufacturers to benefit by

thinking local even if their brands

are distributed and marketed

nationally. They should be able to

identify regional and local

variations in tastes and

preferences and create new

products that meet the needs of

shoppers.

There are many opportunities to

get closer to consumers at a

country, regional and even town

level to ensure the right

promotions reach the right

people at the best time for them.

In Germany, for instance, there

is a determination to slow the

rise in discount promotions and

move to more creative local and

retailer-specific deals that protect

margins. In a promotion-

intensive category such as

confectionery, in Germany top

brand Ferrero is taking the lead.

It has introduced nationwide

promotions but complemented

these with different offers around

the country that are specific to

particular retail key accounts and

vary by type and timing to

prevent aggressive price

competition. The quality of

displays has also improved with

some brands, such as M&Ms,

attempting to gain permanent

high-value displays in

Local versus global

European consumers react

differently to brands, prices and

deals depending on where they

live, which is why one-size-fits-all

global promotions do not always

work.

Price sensitivity is often key to

determining which promotions

will work the most effectively in

particular countries. In some

markets such as the UK,

Germany and France prices are

fairly inelastic and rises do not

substantially hit demand. Prices

are much more elastic in

countries where the local

economy is struggling to

improve. Price elasticity can also

vary by category in different

countries.

Manufacturers have moved in

recent years to more

international and standardised

promotional strategies to control

costs and maintain a more

homogenous brand image across

countries.

Yet shoppers feel enormous pride

towards their local brands and

their heritage, particularly in

food. Local brands can be more

flexible and responsive to

consumer needs while packs that

promote a products local origins

or its natural ingredients can

appeal to a shoppers patriotism.

This is especially true in countries

where shoppers continue to face

tough times. In Greece, for

instance, consumers have rallied

around their own producers in

defiance against the European

Union which many people

mistrust. In France there is a

proud citizen shopper who feels

Average European price elasticity for the FMCG sector at -1.08.

South Europe, most hit by the economic crisis, is rightfully more elastic.

FMCG Price Elasticity across Europe, by Country

Source: IRI Price elasticity analysis with modelling period ending 2012 2013

*EU average price elasticity, based on numeric average of countries analysed


13

strategically-important stores.

Retailers in all countries that de-

escalate the sheer number of

offers could also see sales rise.

They can replace national

promotions with less frequent

retailer or locally-specific ones

that allow for deals to continue

for longer. Shoppers want to be

sure that any special offer is not

just another promotion on the

on-going conveyor belt of deals

they have witnessed since 2008.

Large local brands are winning

sales in the UK. According to IRI

measurements, UK favourites

include Warburtons, McVities,

Cadburys Dairy Milk, Lucozade

and Nivea.

To succeed locally retailers must

ensure that their price and

promotion strategy is linked to a

number of factors. These include

provenance as consumers

demand greater transparency

and traceability in the supply

chain, especially following the

horsemeat scandal.

European shoppers are also

concerned, depending on where

they live, about food miles and

sustainable packaging. Fresh

food and ambient food are two

categories widely-affected by

shoppers concerns about how far

the food they are buying has

travelled.

Retailers and suppliers should

also tailor their promotions to

country-specific needs so

different messages resonate

more effectively with segmented

consumer groups across Europe

and the United States.

We are seeing this in the

Netherlands with more

discounting in the north east

region where shoppers tend to

buy larger volumes of private

label. While in the cities there is

extra emphasis on deals that add

value and promote premium

products.

Shoppers prioritise food as

non-food sales suffer

Although everyone must eat and

people can opt out of buying some

non-food items, the evidence from

IRI is that both sectors continued

to suffer.

Despite the proportion of volume

sold on promotion rising by 0.8%

average volume sales have

declined for food (0.7%) and non-

food (0.8%). Only France saw

volumes rise across both sectors.

Volumes are down in every sector

surveyed, with the biggest

declines for ambient, chilled and

fresh food.

When it comes to prices, food

does better than non-food with

manufacturers and retailers able

to regain some lost margin. Any

additional return, however, was

compromised in 2013 by the high

degree of promotions in many

categories as the trade chased

volumes.

Food value sales rose by 1.0% but

non-food dipped by another 0.3%,

although the only categories to

actually see falls across Europe

were confectionery (blamed on a

late Easter) and household. The

decline in both of these categories

was enough to bring down the

overall performance of the food

and non-food sectors.

Arguably the category facing the

toughest time is household as

consumers trade down or stop

buying items they view as non-

essential.

Shoppers Prioritise Food versus Non-Food


All food sectors are growing value sales at a total European level with the exception of confectionery (caused by the late Easter in 2014). The level of growth contributed by chilled and fresh food appears to be a strong indicator of overall value sales growth.

14

In the Netherlands there is a shift

from the supermarkets to other

channels for non-food, including

drugstores and online.

Shoppers are also buying multi-

use cleaning products and

investing in more efficient

technology.

In the United States some people

are even substituting food

products such as vinegar for

cleaning products to save money

and to be more environmentally

friendly.

There are still some areas where

national brands do well, including

in laundry powders and washing

up liquids.

Retailers are looking closely at

their range assortment in

household, although they must

be careful not to remove those

national brands that consumers

remain loyal to.

One category that could reverse

its recent slump is personal care

which should do well as each

country comes out of its

economic slump. This category

was growing before the recession

because it thrives on a shoppers

willingness to experiment and to

treat themselves. This is

something they are unwilling to

do when money is tight. When

people do have money they are

prepared to try different hair

sprays or shampoos that claim to

offer something different.

Do it yourself personal care

products offer consumers a

chance to enjoy a salon

experience at home.

Self-administered spa

treatments, such as facials,

manicures and pedicures, have

become commonplace

throughout the downturn.

Demand for these products will

continue to grow as innovators

launch products that are more

powerful and pampering, at a

cost well below salon treatments.

Personal care and pet food are in marginal value sales growth at a European level but a larger decrease in household sales means that non-food sales are in overall decline at a total level. Germany and France join the United States as the only countries in non-food value growth.

Non-Food Categories Value Sales across Countries

Food Categories Value Sales across Countries

Shoppers Prioritise Food versus Non-Food




Conclusion

15

Delicate consumer confidence across Europe and the United States must be nurtured by retailers and manufacturers through the clever use of pricing and promotions.

If the industry can resist the urge to over-promote and ensure that its deals are clear and transparent then shoppers will spend.

People will trade up and accept price rises if they can see real added value, innovation or relevance when shopping in particular categories.

The increase in average prices has had an impact on volumes but consumers will still buy products they need. Trade promotions are on the rise but if these deals are to fuel an increase in volumes the industry must be more creative, both offline and online.

Retailers and manufacturers must also optimise their range assortment locally, regionally and nationally using a granular level of information. Analysis into the contribution every product and promotion makes will help retailers to differentiate themselves and plan their price and promotion strategy.

Countries will see economic recovery at different speeds over the next year so pricing and promotion strategies must have a local focus whilst retailers ensure that the in-store shopping experience is the best it can be.


About the Report

16

About IRI. IRI is a leader in delivering powerful market and shopper information, predictive analysis and the foresight that leads to action. We go beyond the data to ignite extraordinary growth for our clients in the FMCG, retail and over-the-counter healthcare industries by pinpointing what matters and illuminating how it can impact their businesses across sales and marketing. Move your business forward at IRIworldwide.eu

International Headquarters: 1 Arlington Square, Bracknell, Berkshire RG12 1WA, UK, +44 1344 746000

Copyright 2014 Information Resources, Inc. (IRI). All rights reserved. IRI, the IRI logo and the names of IRI products and services referenced herein are either trademarks or registered trademarks of IRI. All other trademarks are the property of their respective owners.

This report contains data gathered from seven countries in Europe: France, Italy, Spain, the United

Kingdom, Germany, the Netherlands and Greece. Data has also been collected from the United

States. The data has been sourced from IRI Infoscan retail databases for the 52 weeks ending

February (or March) 2014 and 52 weeks ending February (or March) 2013.

Macro-categories we are looking at are: chilled and fresh food, ambient food, frozen food, non-

alcoholic drinks (it includes tea and coffee), household, personal care, confectionery, pet food/pet

care and alcoholic drinks (it doesnt include wine for the UK and for Greece it includes beer and

ouzo only).

The market channels used for each country in this report are as follows:

Country Channels used

UK Hypermarkets, supermarkets, Boots and Superdrug

SP Hypermarkets and supermarkets

GR Hypermarkets and supermarkets

GY Hypermarkets, supermarkets and hard and soft discounters

NL Hypermarkets and supermarkets

IT Hypermarkets and supermarkets

FR Hypermarkets and supermarkets

USMulti-outlet with c-store (supermarkets, drugstores, mass market retailers,

gas/c-stores, military commissaries and select club and dollar retail chains)

To gain insight into opportunities across specific categories, segments, channels or retailers, contact your

IRI client service representative regarding custom analyses leveraging the following resources:

IRI InfoScan Census is a syndicated retail tracking service that enables manufacturers and retailers

to acquire industry insights used to make better business decisions. IRI InfoScan Census utilises the data

that IRI collects from grocery, drug and mass merchandise retailers to provide the most comprehensive

and accurate syndicated data offering in the FMCG sector. With access to accurate, granular detail by

category, geography, measure and time period, clients have the tools needed to develop marketing and

sales strategies based on product performance, distribution and promotion responsiveness.

IRI Marketing Foresight is a unique marketing mix management solution that delivers the most

accurate marketing ROI and efficiency measures. It's the only solution that gives a full category view that

allows you to anticipate and simulate your own and competitor actions. IRI Marketing Foresight provides

FMCG manufacturers and retailers with actionable results to plan, monitor, analyse and optimise their

marketing mix and budgets.

FOR MORE INFORMATION

Please contact your IRI Consultant or send an email to [email protected]

SPECIAL REPORT

Appendix

Country by Country Review


18

Shoppers were the winners in the

price war which gripped France in

2013. Casino Groups president

Jean-Charles Naouri wanted to be

as competitive as rival chain

Leclerc and his determination to

succeed resulted in deflation for

the FMCG sector. The price war

also had a negative impact on

the hard discounters.

As the fight for market share

became increasingly bloody,

prices for national brands fell by

1.6%. Overall value sales in

France grew by 1.7%, led by

food. Volume sales were up by

0.8%, with non-food performing

strongest. France was the only

European country not to see a

decline in food volumes.

The French economic recovery

remains delicate with the country

obliged to meet the Eurozones

deficit requirements while

unemployment is unlikely to fall

for many months. In this context

and with tax rises for many

people, aggressive retailer price

competition will continue for the

foreseeable future.

The aftermath from such a tough

pricing battle in 2013 has been

bitter with early 2014 seeing

some tense commercial

negotiations between retailers

and manufacturers. With both

sides trying to hold their ground

products have been de-listed in

some stores that are looking

closely at their range assortment.

Some retailers have been

persuaded to adjust their private

label prices so the savings for

shoppers are less blatant.

Retailers promotion strategies

are equally hard-hitting and

shoppers are responding,

particularly to BOGOFs. Although

the overall level of promotion for

most retailers has stabilised, with

the exceptions being Carrefour

Group and Gant.

Trade promotions for national

brands are rising but falling for

private label as click and collect

becomes more popular. It now

accounts for about 4% of the

market and private label has a

greater share in click and collect

as retailers use their websites to

display everyday items rather

than impulse products which are

easier to promote in-store.

The average basket price is up by 0.9% which indicates that many French

consumers are taking advantage of the aggressive price and promotion

activity to trade up.

Volume on promotion has increased by 0.2% in France during the latest year.

Volume on Promotion by Category France

Average Price Increases by Category France

Trends in France

Year-on-year % change in average

Category label above each bar shows latest year % volume on deal.

Food Average +1.0%

Non-Food Average +0.3%


Trends in France

19

The on-going price war has not

had an impact on the price that

people are ultimately paying.

The average basket price is up by

0.9% which indicates that many

French consumers are taking

advantage of the aggressive price

and promotion activity to trade

up. They are also switching from

private labels to national brands,

although private label in France is

decreasing more in value than in

volume.


20

With the worlds fourth largest

national economy and a

population of 82 million,

Germany is leading Europes

economic recovery, but many

challenges still exist for its FMCG

sector.

Price competition amongst

retailers remains fierce and this

is scuppering attempts by

manufacturers to pass on rising

raw material and energy costs.

The stores are also busy trying to

decipher who exactly is their core

customer in 2014. Loyalty is

quite an old fashioned concept it

seems.

The high density of stores and an

increase in discount outlets

means most consumers are

shopping in different places at

different times depending on the

occasion and their specific

category needs. People have no

qualms about visiting a

discounter one day and trading

up to a mainstream retailers

private label or a national brand

the next. This trend is likely to

continue throughout 2014 as

each traditional retailer

benchmarks itself against the

likes of Aldi and Lidl, who

continue to increase their own

selection of national brands.

This led to a rise in value sales

(1.6%) with food leading the

charge, although volumes fell

0.5% with food performing worse

than non-food.

Retailers still like to use leaflets

and discounting to tempt

shoppers but seasonal-themed

promotions and events are

growing in popularity. Lidl is

promoting premium products

around national holidays while

the convenience sector is

focusing on the food on the go

concept.

Nevertheless, the convenience

sector continues to struggle as

regular retailers introduce

convenience zones in their own

stores and open for longer.

Multi-channel shopping is not yet

a reality in Germany. Consumers

are gathering information online

in greater numbers but they still

prefer to shop in-store where

they can take advantage of

The increase of national brands at hard discounters contributes partially to

price increase.

Volume on promotion has increased by 1.2% in Germany during the latest year.

Average Price Increases by Category Germany

Trends in Germany

Year-on-year % change in average

Volume on Promotion by Category GermanyCategory label above each bar shows latest year % volume on deal

Food Average + 2.5%



Trends in Germany

21

promotions. There are some

signs that e-commerce and

hybrids such as click and collect

could make a greater impact this

year.

Product innovation is grabbing

shoppers imaginations. In the

beverages category the Die Limo

carbonated lemonade from Eckes

has been a successful launch

into the higher priced refreshing

soft drink for adults category.

Retailers want to invest in more

manufacturing capacity to grow

and differentiate their private

label ranges. We have already

seen the launch of the Edeka

winery, Rheinfels Kellerei.


22

Italian consumers have certainly

become savvy shoppers during

the economic downturn. They

watch in-store and online pricing

and promotions carefully and are

much less loyal to brands and

retailers than they were before

the financial crisis.

An IRI Shopper Insights survey

reveals how consumers pay more

attention to prices, up 43%, than

they did a year ago and how they

are more interested in

promotions (up 23%). They are

also increasingly using

promotional flyers to compile

shopping lists so they avoid

impulse purchases.

It is understandable why Italian

consumers are so focused on

price and promotion when buying

their weekly shop. The economic

situation is improving but it

remains difficult for many people,

with unemployment high and

extreme pressure on family

budgets.

Value sales have declined by

0.9%, affected largely by a 4.3%

slump in non-food. Household

saw the biggest fall while among

the categories experiencing a rise

in value were pet care, alcoholic

drinks, ambient food and

confectionery.

Volume sales have decreased by

1.8% in the latest year with the

deepest declines suffered by

household, personal care and

frozen food.

Shoppers are visiting different

shops to find the best prices and

deals so retailers are working

harder to woo shoppers with

more promotions and deeper

deals. Promotional pressure at

Christmas 2013 was 29%, up 2.2

points in a year, while across

2013 promotional activity

increased by 3.6%.

The categories most heavily

promoted were confectionery,

personal care, non-alcoholic

drinks and household. Some 80%

of FMCG categories registered an

increase in deal pressure in 2013

with deals especially aggressive

in the supermarkets and

drugstores.

It is noticeable that with so much

emphasis on promotion in Italy

Italian shoppers have become savvy. They watch in-store and online pricing

and promotions carefully and are much less loyal to brands and retailers.

Volume on promotion has increased by 3.6% in Italy during the latest year.

Trends in Italy

Average Price Increases by Category ItalyYear-on-year % change in average

Volume on Promotion by Category ItalyCategory label above each bar shows latest year % volume on deal

Food Average +1.3%

Non-Food Average -0.5%


Trends in Italy

23

retailers are not always getting

their range assortment or price

positioning correct within

different categories. Premium

products, private labels and

convenient items need to be

more clearly available on the

shelf.

A lack of differentiation in

promotion activities between

retailers has also been a

problem, while there is not

enough coordination between in-

store offers and the above the

line advertising designed to

support them.

National brands are still more

heavily promoted than private

label.


24

The level of promotion in the

Netherlands has reached its

highest level in 10 years as

retailers and manufacturers try

desperately to boost volumes

that have fallen by 2.9% in the

past year. Value sales are down

0.6%.

The grand coalition government

of the pro-business Liberals and

the centre left Labour Party is set

to hold power until 2017 which

does provide business with some

stability in a country hit hard by

economic difficulties. GDP fell

0.8% in 2013 but is expected to

return to growth this year as

consumer confidence improves

steadily.

The FMCG sector certainly needs

some good news as prices have

soared on the back of tax

increases on alcoholic drinks and

rising raw material costs. In non-

food, retailers are facing a hard

time competing against budget

stores that provide the same

products at often lower prices.

Retailers are trying to regain

shopper loyalty. Albert Heijn, the

market leader, began the year

with personalised email

promotions and more online

deals. It is facing tough

competition from the discounters

like Aldi and Lidl and regional

players like Nettorama and

Hoogvliet. It is focusing on price

to dispel a perception held by

many shoppers that it is

expensive. It has also revamped

its basic private label range.

The C1000 retail brand has

almost disappeared as all its

stores are rebranded as Jumbo

and position themselves as price

competitive thanks to the every

day low price (EDLP) formula.

The difficulty it faces now is how

to retain its price-driven image

as it grows from a strong

regional player to a national

chain.

Smaller players such as Spar and

MCD have the highest prices but

this fits their strategy which is to

focus on delivering good

customer service and

convenience.

For manufacturers the rise in

The FMCG sector certainly needs some good news as prices have soared on

the back of tax increases on alcoholic drinks and rising raw material costs.

Volume on promotion has increased by 8% in the Netherlands during the latest year.

Trends in the Netherlands

Average Price Increases by Category NetherlandsYear-on-year % change in average

Volume on Promotion by Category NetherlandsCategory label above each bar shows latest year % volume on deal

Food Average +2.2%Non-Food Average +2.3%


Trends in the Netherlands

25

some raw material costs means

prices have had to increase. This

has not gone down well with

consumers, and suppliers have

tried to soften the blow by

producing bigger value packs or

by reducing pack sizes to reach a

unit price that shoppers find

more acceptable.


26

The relationship between

retailers and manufacturers has

changed in Spain since the start

of the financial crisis as

consumers love for private label

has intensified.

Private label is up in many

categories as stores such as

Mercadona, Lidl and Aldi position

themselves as private label

supermarkets while other stores

continue to take the stance that

promoting national brands too is

the best way to grow sales. Milk

and beers are two of the clearest

examples where private label

remains strong and prices have

fallen.

Spanish shoppers are devoting

more time to preparing and

managing their shopping lists.

They are comparing flyers and

coupons from different retailers

and checking prices online,

although ecommerce is still a

relatively immature area.

Volume sales dipped by 0.5%

last year in 2013 with sales of

food and non-food both declining.

Value sales, however, increased

by 0.7%.

Price rises (1.2%) helped value

sales of food increase with

promotional support for food up

1.8%, led by national brands.

This has closed the price gap

with private label. The 3-for-2

mechanic has been particularly

popular.

Manufacturers are not focused

solely on price. They are also

investing in innovation and

producing products that retailers

cannot replicate in their private

label ranges at a lower price.

There are examples at the 1

price point, including Thins (from

Bimbo), Yatecomo (G. Blanca)

and Snats (Grefusa).

Stores remain reluctant to cut

the price of their own label food

because of rising raw material

costs so the narrowing of the

price differential is a slight

concern for them.

Volume on promotion overall has

increased by 0.7% in the past

year with confectionery (28.8%)

and alcoholic drinks (26.6%)

having the highest percentages

on deal. Categories to see a

Price rises (1.2%) helped value sales of food increase with promotional

support for food up 1.8%, led by national brands.

Volume on promotion has grown by 0.7% in Spain during the latest year.

Trends in Spain

Average Price Increases by Category SpainYear-on-year % change in average

Volume on Promotion by Category SpainCategory label above each bar shows latest year % volume on deal

Food Average +1.4%



Trends in Spain

27

reduction included frozen food,

personal care and household.

The differences in promotions

and prices across Spain are

affected by the impact of private

label in each region.

All this is happening amid an on-

going economic struggle. GDP

growth has stagnated in Spain

and the countrys attempt to

boost exports has stalled. It

means consumer spending will

remain tight and unemployment

frustratingly high for some time.

There are signs that retailers and

manufacturers are working more

effectively together. They are

finding ways to rotate range

assortment and sell higher

volume quantities of particular

products more cheaply for

shorter periods of time.


28

Official government figures

confirm that the UK is on the

road to recovery with retail sales

up 3.2% in May 2014 as

consumer confidence returns and

politicians debate raising interest

rates to cool the housing market.

The Office for National Statistics

says strong food sales were

behind the rise in retail sales as

consumers celebrated the late

Easter holidays. It is not all good

news, however, as many families

are still waiting to see their

wages rise and there has been an

increase in food banks and high

personal debt across the country.

A change in direction from some

manufacturers has led to the

proportion of volume on

promotion dipping by 0.6%.

Most of this decline has come

from a reduction in private label

deals. The volume on deal in

some categories (pet food

42.8%), alcoholic drinks (54.9%)

and personal care (64.5%)

remains high.

In 2013 value sales growth was

0.3%, below the European

average (0.7%) while volume

sales were down 1.6%.

UK shoppers like to use the

convenience channel. As a result

the major supermarkets such as

Tesco and Sainsburys are

winning a greater share of this

market as people shop more

frequently but have smaller

baskets. As the supermarkets

gain sales in this sector they

must continue to battle the

discounters who are expanding

their range of national brands.

The supermarkets are

responding. Morrisons is cutting

prices by an average 17% and

some products by as much as

60%. Tesco has put poundshops

inside 300 of its stores. Top-end

retailer Waitrose has added the

lower price Essentials range to

its own label offering, while

Sainsburys has Brandmatch

which automatically reduces the

cost of an item to the lowest

price amongst itself, Tesco and

Asda. Retailers have come under

pressure to improve the

transparency of their promotions

with the Office of Fair Trading

Rising consumer demand has coincided with price cuts as supermarkets

must continue to fight against hard discounters to gain sales growth.

Volume on promotion has decreased by 0.6% in the UK during the latest year.

Trends in the United Kingdom

Average Price Increases by Category United KingdomYear-on-year % change in average

Volume on Promotion by Category United KingdomCategory label above each bar shows latest year % volume on deal

Food Average +1.9%



Trends in the United Kingdom

29

issuing new guidelines to ensure

shoppers can trust the deals they

see. Last summer Tesco was

fined 300 000 for misleading the

public over a half-price offer on

strawberries.

Manufacturers want to reduce the

level of promotions but they are

struggling to convince the

retailers.

Online shopping is growing with

Morrisons having finally joined

the party in January to increase

competition.

Click and collect is driving

incremental sales with a potential

roll-out of collection points such

as schools and at underground

stations in London.

Discounters are gaining market

share and are challenging other

retailers: Aldi vows to double in

size over the next seven years.


Trends in Greece

30

The optimists in Greece believe

the worst of the countrys

economic woes are over but any

return to growth will be very

slow.

This means more pain for

manufacturers and retailers as

well as their customers as

unemployment remains high at

more than 25% and wages stay

flat. Soup kitchens are still

appearing in some of the more

affluent areas of major cities.

The result will be more retail

price wars and aggressive

promotions, although the

shopping malls are becoming

busier. Food prices fell 1.1% on

average and non-food by 4.0%

with household and personal care

suffering particularly badly. Yet

discounting and deals helped

volume sales increase very

slightly by 0.3% which provides

some reasons to be cheerful.

Value sales have dipped by

1.6%, with non-food down 2.9%

and food by 1.2%. The only

category to see a value and

volume increase was

confectionery, while price rises in

non-alcoholic drinks turned off

consumers and this category saw

the greatest value decline

(9.4%).

The discounters including Lidl

have been investing in above the

line advertising to promote their

lower prices and the fact they

now stock national brands, and

this has fuelled some of the price

competition. The difficult trading

environment has meant many

smaller retailers have continued

to be taken over by larger rivals.

Manufacturers continue to play

their part by reluctantly reducing

their prices or launching lower

quality products to protect their

own margins as best they can.

Retailers have had to be cleverer

when devising promotions. There

have been more tailored

activities where one retailer

heavily discounts a commodity

product, such as milk, for a

couple of days a week. Among

the categories aggressively

promoted in this way have been

laundry/detergents, shampoo

and pasta.

The on-going promotion of

national brands has meant

private label sales have stabilised

in Greece.

Retail price wars and aggressive promotions impacted prices with household

and personal care suffering particularly badly. Yet discounting and deals

helped volume sales increase very slightly by 0.3%.

Average Price Increases by Category GreeceYear-on-year % change in average

Food Average -1.1%

Non-Food Average -4.0%


31

The U.S. economy slipped

backwards by 1.0% in the first

quarter of 2014, according to the

U.S. Commerce Department,

following the coldest winter in 20

years which hit consumer and

business spending.

The setback illustrated how the

U.S. recovery remains as delicate

as Europes, especially as

consumer expenditure accounts

for more than two-thirds of all

economic activity.

U.S. shoppers are very

technically savvy and are

entering stores armed with

mobile apps and offers on their

mobile devices. Some stores are

allowing customers to pay for

their groceries using the internet

currency Bitcoins.

Yet consumers still demand

excellent in-store customer

service or they will switch

retailer.

Value sales were up 1.6% with

the chilled and fresh, and

ambient food categories driving

growth as food sales (1.9%)

accelerated faster than non-food

(1.0%). Price rises were possible

in both sectors with the non-food

average up 2.0% and food by

1.4%. Among the categories

seeing above average price rises

were pet food/care, chilled and

fresh food, and confectionery.

When combined, food and non-

food volume sales were flat, up

0.2%, with food performing

better. In non-food, retailers

attempted to buck a fall in unit

sales with an increase in

promotions, particularly in

household and personal care,

while the number of deals on

food remained flat. The

exceptions here were frozen food

and non-alcoholic drinks.

Wal-Mart remains the largest

retailer followed by Kroger Co but

convenience stores, dollar stores

and pharmacy chains such as

Walgreen are taking a greater

market share of grocery sales.

There is strong competition

building in the United States to

offer same-day home delivery

and the big internet players are

getting involved. AmazonFresh is

now available in Seattle, Los

Angeles and San Francisco, while

Price rises were possible in both sectors. Among the categories above

average price rises were pet care, chilled and fresh food, confectionery and

alcoholic drinks.

Units on promotion has increased by 0.1% in the United States during the latest year.

Trends in the United States

Average Price Increases by Category United StatesYear-on-year % change in average

Units on Promotion by Category United StatesCategory label above each bar shows latest year % volume on deal

Food Average +1.4%



Trends in the United States

32

Google is working with pharmacy

chain Walgreens to deliver food

orders the same day. Retailers in

Europe will be watching closely to

see how cost-effective this

service is and whether it really

does provide retailers with a

competitive advantage.

Not everyone has suffered during

the recession. U.S families that

have maintained their level of

disposable income have taken

advantage of pricing and

promotions to trade up in many

categories.

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