The UK leads Europe when it comes to promotional reliance, with over half of all goods sold on promotion. This is according to a report – Price & Promotion in Western Europe: Encouraging Signs of Recovery –released by global insight leader IRI examining price and promotion in FMCG markets across Europe.
The report reveals that 54.6% (by volume) of all goods are now sold on promotion in the UK – almost double the figure for Europe (28.6%) – on overall UK sales of €82.4 billion for the period (52 weeks ending May 2015). This year’s figures show a rise over the previous year of 0.6% overall and by 0.8% for food. For non-food, promotional activity actually fell – specifically in household and pet food & care categories.
This year’s increase also reverses the trend seen in last year’s report, which showed a 0.6% drop of volume on promotion, largely driven by a reduction in private label deals. However, the most recent IRI UK data trend to October 2015 shows that once again the grocery industry, particularly through food and drink, is making a concerted effort to reduce the overall level of promotional activity across both brands and private labels, with levels falling consistently since the beginning of the year.
Despite such high levels of promotion in the UK, this year’s report shows a drop in both volume and value sales of 1.5% and 1.6% respectively. This compares to Germany, where 13.2% of volume of goods are sold on promotion (a 0.6% rise over the previous year) but which saw a 2.3% rise in volume sales and a 3.4% rise in value sales, suggesting that promotions can be more effective in some markets than in others.
Tim Eales, director of strategic insight IRI, and co-author of the report, says: “This reliance on promotions has created a worrying pattern of behaviour, which manufacturers and retailers could find hard to recover from, but it seems they are trying. There’s a danger that high levels of promotional activity have become ingrained into the psyche of UK shoppers, which would make the challenge of bringing customers back to buying at normal prices very difficult indeed. Manufacturers need to work harder to re-educate consumers about having a more sustainable balance between promotion and standard prices.”
In terms of promotional activity trends in the UK, the report also highlights:
- All categories measured had promotional activity rates of 44% or more, with three categories at 64% and over. At 68.2% soft drinks was the most heavily promoted, followed by personal care and confectionery, the latter of which saw the biggest point rise in promotional activity, up by 2.3 points on last year.
- Just over half of all categories increased their volume on promotion in the last year, while just under half increased deal depth, down across the latest year as a whole.
- In specific categories – 83% of volume sold for cola was on promotion; deodorant & body sprays had an 81% volume of sales on promotion; and hair conditioner 80%.
- There were declines in sales volume in all categories, with a 1.5% fall in volume sales overall and significant losses for all categories with the exception of soft drinks, which, boosted by increased sales of bottled water, was almost static.
- Value sales declined in all but two categories – alcoholic drinks and household goods – and by 1.6% overall, with food down by 1.9% and non-food by 0.4%. The most dramatic fall was in chilled & fresh food, where value sales fell by 3.8%.
- The UK market declines were despite price rises in six of the nine categories measured. Only ambient, chilled & fresh food and soft drinks saw prices fall.
The IRI report also highlights that round point price points are increasing in popularity in the UK and, as such, manufacturers are often value engineering pack sizes in order to hit the required price points. Customer favourability seems to be moving away from BOGOF (buy one get one free) offers to a multi-buy strategy that focuses on ‘2 for £x’. Money-off single-pack purchases have also been increasing in popularity.
IRI’s Price & Promotion in Western Europe: Encouraging Signs of Recovery can be downloaded from any European IRI website at iriworldwide.com or here.