Warc, 21 July 2014
LONDON: Total value sales for FMCG goods in Europe amounted to €345bn in 2013, but a new report warns retailers and brands that they need to look beyond promotions, which may have increased sale values but not volume sales.
According to the latest "Price and Promotion in Western Economies" report from retail analysts IRI, the quantity of food and non-food products sold on promotion increased 0.8% to 27.5% last year.
While European retailers increased value sales by 0.7%, or €2.5bn, the report said promotions and discounting did not increase volume sales.
Volume sales continued to decline, falling -0.7% in food categories and -0.8% for non-food items, raising questions about whether European retailers will be able to maintain their margins in the long term.
Now in its fourth year, the IRI report collects data across seven European countries – France, the UK, Germany, Greece, Italy, Spain and The Netherlands – and it found the alcoholic drinks category increased its promotions by 2.8% to 35%.
Although this helped to increase value sales by 2.5% for the category, sales volumes decreased by 0.1%, the report said.
Similarly, the pet care and pet food category increased promotions by 4.8% to 21% last year and, although its sales value increased by 1.2%, volume sales fell by 2.2%.
"Price wars are unsustainable for manufacturers, retailers and even shoppers, who won't accept them if they mean lower quality products," said Tim Eales, strategic insight director at IRI.
"Brands must lose their focus on increasing sales volumes and look to develop more innovative and 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," he added.
Speaking to the Retail Times, Eales went on to advise retailers to be as transparent as possible when launching promotions.
He said retailers should communicate effectively with their customers, while also ensuring their discounts are genuine to prevent "promotion-weariness" and to comply with Office of Fair Trading guidelines.
Data sourced from IRI, Retail Times; additional content by Warc