FMCG promotions lose effectiveness

Warc, 11 July 2013

BRACKNELL: Promotions are no longer boosting sales volumes of food and non-food items in European markets and brand owners need to rethink their strategies, a new study has argued.

IRI, the market and shopper intelligence firm, collected sales, pricing and promotional data across seven European countries – France, UK, Germany, Greece, Italy, Spain and the Netherlands – for its report Price and Promotion in Europe: FMCG industry at a tipping point.

It found that while the amount of food and non-food products sold on promotion was up by 2.7% in the year to March 2013, overall volume sales had dipped 0.1% and suggested promotions had reached a tipping point.

Tim Eales, Strategic Insight Director at IRI, observed that promotions had helped consumers cope with rising prices but said that as shoppers became accustomed to them so loyalty towards brands and stores was lessened.

"As manufacturers try to regain some of the margin that has been gradually eroded since the economic downturn began, they need to think differently about how they use promotions to identify new paths for growth," he said.

"Clearer definition of goals and priorities that are developed with retailers and consideration of the multi-channel landscape are essential," he added.

Personal care saw the biggest year-on-year increase in promotions, up 7.0%, but volume sales fell by 1.0%. Household promotions increased 4.3%, and were between 5% and 13% in some countries such as Germany, France, Netherlands and Italy, but volume sales were down 1.3%.

Confectionery was the most promoted category across Europe, with 31% of all products sold on deal.

IRI noted that the promotions that continued to work best were easy for shoppers to understand and had real perceived value, such as offers linked to fuel.

"With high price inflation expected for remainder of 2013 and beyond, retailers and manufacturers must step aside from the margins battle and work together to define merchandising strategies using specific tactics such as occasions for special treats to drive impulse purchasing on non-essential items," said Eales.

"Powerful predictive analytics solutions will help pinpoint the best scenarios for lower investment and better ROI," he concluded.

Data sourced from IRI; additional content by Warc staff