As major FMCG brands pass on inflationary price increases to consumers, retailers have the opportunity to increase sales of private labels by holding prices in categories where they wish to increase penetration and grow value sales, according to IRI.
The latest biannual FMCG Demand Signals report has revealed that demand for major supermarkets’ private labels has dragged, preventing them from capitalising on potential growth in value sales, despite promotions and prominent positioning on grocery apps and websites.
Ananda Roy, international senior vice president, strategic growth insights, IRI, said, “As inflationary measures hit parts of Europe and national brands raise their prices, retailers must decide exactly where they will allow price increases to flow directly through to consumers.
“Undoubtedly, we will see price hikes for many staple national brands. In categories where major supermarkets and discounters wish to see greater private label penetration, they may decide to hold back and offer more affordable prices.”
Private-label categories most likely to see these trends are impulse categories such as chocolate, especially in seasonal gift packs; ambient foods and pre-packed meals, alternative breakfast or light meal ‘better for you’ cereals, grain bars and protein-rich functional foods and drinks, and at-home cooking sauces, condiments and kits, IRI added.
Consumer Trends
During the pandemic, European consumers sought reassurance from buying recognised and trusted brands in almost every FMCG category, despite retailer-owned private labels widening the price gap by offering discounts and promotions, the report noted.
National brands throughout Western Europe saw FMCG value sales grow by €35 billion, up 0.6% year-on-year, to 67.3%, despite private labels widening the price gap by almost 100 basis points (bps), particularly on food and drink prices and by increasing on and offline promotional activities.
These offers were withdrawn during the last five weeks of the analysis period, on the back of supply-side disruptions and underlying input price increases, the report added.
Roy explained, "As the indexed price gap widened between national brands and private labels, you would have expected to see shoppers opting for the substitutes that offered better value. Surprisingly, this didn’t happen. Throughout the major European markets analysed in the Demand Signals study, consumers chose trusted, nationally-distributed brands.
"In response, several retailers offered significant promotions and discounts, especially in the period covering Q4 of 2020 and Q1 of 2021, to no avail. In addition, private labels, who often rely on smaller contract manufacturers, were also unable to meet spikes in demand due to lower inventory levels and their own supply-side disruptions."
Other Highlights
The report also revealed that overall FMCG value sales grew 3.1% year-on-year across key European markets to €579 billion, with chilled and fresh and ambient food accounting for more than half of all sales (51.3%).
The share of food-vs-non-food categories did not change significantly in this period, with food making up on average 80% to 85% of category value.
However, the retail channel split did reflect how consumers bought more food at supermarkets, hypermarkets and discounters, the study noted.
IRI also added that the future of grocery apps and delivery services remains uncertain as promotions are withdrawn, and consumers have the option to shop in-store for deals in the second half of this year.
© 2021 European Supermarket Magazine – your source for the latest Private Label news. Article by Dayeeta Das. Click subscribe to sign up to ESM: The European Supermarket Magazine.
