Study reveals drop in proportion of FMCG products sold on promotion in Europe

IRI Price and Promotion in Western Economies report reveals a pause in promotion escalation as manufacturers re-assess their value.

Study reveals drop in proportion of FMCG products sold on promotion in Europe

The latest study released by IRI, the provider of big data and predictive analytics for FMCG manufacturers and retailers, into the use of promotions by FMCG manufacturers and retailers across Europe, highlights a drop in the proportion of FMCG products sold on promotion.

The IRI Price and Promotion in Western Economies report claims that the proportion of FMCG volume sold on promotion in supermarkets across Europe declined by -0.7 points, compared to the previous year which registered 28.1% of sales purchased where trade promotions were available. IRI believes that this indicates the first serious pause in promotional escalation seen by the region since 2012 and is a sign that manufacturers are evaluating whether the high cost of promotions gives them sufficient returns in the form of increased sales and profit.

More than a quarter of food product purchasing is now bought on promotion (27.7%) but this is a decline of 0.8 percentage points in the latest year. The proportion of non-food volume (personal care, household and petcare products) in Europe bought on promotion remained stagnant at 30.0%, a 0.1 point decrease. The steepest decline in the use of promotional tactics was by food products in the UK (by -3.4% points to 49.8%) and non-food products in Greece (by 1.1% points to 32%).

While manufacturers are using promotions less, when they do engage with shoppers in a battle over price they are often providing better (deeper) offers meaning the overall amount that has been saved by consumers from promotions is relatively unchanged. The IRI report highlighted noticeable increases to the depth of deal in Netherlands, Spain and the UK.

Off shelf display promotions, popular in the UK and France, have also increased in the last year. They now account for 14.5% of all volume sales in the UK and 11.3% in France. At the same time, use of multi-buys such as BOGOF (Buy One Get One Free) have declined in the last year in the UK, dropping from 15.2% to 11.9% of all products sold. This has been driven by retailers such as Sainsbury’s making the decision to cease all multi-buy promotions in their stores this year.

Tim Eales, Strategic Insight Director at IRI UK and author of the report, said: “Retailers rely on manufacturer promotions to increase store footfall but manufacturers cannot afford to play the promotion game any more. We expect that more brands will follow by redirecting their marketing spend from consumer promotion to activities that communicate brand benefits such as advertising, as well as new product development. Marketers are more alert to the detrimental impact that continuous promotions can have on their brand equity.

“Further, using advanced predictive analytics, IRI Analytics Advantage, has shown that promotions do not usually drive category value sales growth but merely switch volume between brands at reduced prices. Consumers are trained to look for deals in store and concentrate their purchasing on promotional events. They do not necessarily generate new sales. This year’s Price and Promotion in Western Economies report highlights a tipping point in the use of promotions by manufacturers.”

Other highlights include:

  • UK leads Europe in its high use of promotions with 49.8% of all food products (and 58.6% of all non-food products) sold on promotion. Spain has the lowest level of trade promotion (19.6% for food products and 18.6% for non-food products).
  • Alcoholic drinks is the most promoted category in Europe with 35.9% of volume sold being on promotion. It is closely followed by confectionery where 33.2% of all products’ volume is sold on promotion and non-alcoholic drinks (32.8%). All categories reduced their use of promotions in the last year apart from Pet food and petcare.
  • Pet food and petcare was the least promoted category with just 21.2% of all products sold on promotion.
  • Retailers own brands are promoted far less than national and international brands – in 2015 just 13% of all own brand products across Europe were sold on promotion which represented a fall in promotional levels of 1.7 points.

Eales concludes: “It’s not all doom and gloom when it comes to promotions. We may be at a tipping point but many promotions can have a positive impact on revenue when they are executed in the right place at the right time, helping to grow a retailer’s business, and excite the shopper. The key is identifying promotions that genuinely drive sales and provide a win-win situation for retailer, manufacturer and the shopper.”

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