It is frustrating for European grocery retailers and manufacturers that sales margins remain flat despite the improving economic climate across the continent, writes IRI’s European marketing director Anne Lefranc for ESM Magazine.
Every country, with the exception of Greece, is experiencing positive growth in their GDP, wage inflation and falls in unemployment. Europeans feel more confident because they have more money in their pockets.
Yet the FMCG retailing sector is not seeing the benefit with stores and food producers still experiencing the after-effects of the global financial crisis. Tensions are growing inside the industry because shoppers remain incredibly price sensitive.
Although the downturn began in 2008 it had such a devastating impact on Europeans’ household incomes that the scars have yet to heal completely.
Consumers have got used to buying what they need when they need it as they try and reduce waste. They are showing no signs of returning to the days of buying their large weekly shop from one favourite supermarket.
In addition, the digital revolution has changed the way consumers shop and the retail landscape.
The result is that in the first six months of 2016 was mixed – the value sales trend across main European countries was up slightly +0.3 per cent year on year and volume sales were down -0.3 per cent for FMCG, according to IRI.
With loyalty so hard to come by it is understandable why tensions between rival retailers - and between stores and food producers - are building.
There is such a hunger to raise prices after years of falling or stagnating margins and continued pressure of profits that client and supplier relationships are becoming strained.
We saw this in October in the UK with the high-profile dispute between Tesco and brand owner Unilever which wanted to push through a wholesale price rise of about 10 per cent. The country’s number one supermarket was having none of it and the situation was quickly resolved.
Price wars continue to rage in countries such as the UK and France despite an acceptance by most in the industry that no one benefits long-term from such a battle.
There has been a lot of debate this year about the importance of collaboration and retailers and manufacturers are implementing solutions that help them to share information and work more closely together.
Positive conversations are taking place every day on the importance of range assortment, for example, to achieve maximum value from specific categories.
There is much more the grocery sector can do to adapt to
changes in consumer behaviour and ease its own anxieties. For example, retailers need to focus their promotions on the categories that provide the biggest opportunities for growth. This includes premium and local products that are selling well across Europe.
In many countries national brands need to be more innovative around new product development (NPD). They could learn a lot from the smaller brand owners that have had to work incredibly hard since the financial crisis to not only win sales but to secure space on European retailers’ shelves.
Ultimately retailers and food producers need to examine their own marketing and ponder how they are perceived by shoppers. They must be clear about what makes them different and ask themselves some tough questions so they understand why someone would shop in their store or buy their product rather than a competitor’s.
Innovative thinking must fuel the entire price and promotion strategy in 2017 to meet the needs and demands of shoppers who took such a battering from the financial crisis, and with the digital evolution has become smarter for its grocery shopping.
If not, the struggle to raise margins and boost profitability will continue and tensions within the industry will worsen.
By Anne Lefranc, European marketing director at IRI
© 2016 European Supermarket Magazine – your source for the latest retail news. To subscribe to ESM: The European Supermarket Magazine, click here.
