Promotion levels are increasing in South African grocery retail, with 30% of total volume sold at a discounted rate last year, a new study by Nielsen has found.
The frequency of promotion in the grocery industry has increased by 3% since 2017, the research firm said.
Consumer confidence is stagnating in the South African market, with the initial bounce seen following the election victory of Cyril Ramaphosa in May giving way to a degree of disillusionment, particularly among business owners, over the sluggish pace of development.
The Price of Promoting
Nielsen's The Price of Promoting report found that 22% of South African shoppers say that they change stores based on the best discounts on offer, while 34% actively seek out the best deals in store. Some 16% of shoppers only buy products at a discount if they already like the brand.
But is this increased level of promotional activity having an positive effect? According to Nielsen Connect South Africa MD Kerith Botha, "a promotion is said to breakeven if its ‘efficiency’ is 50% or greater. Out of the 200+ items analysed in South Africa for this report, only 33% surpassed the 50% efficiency threshold, which means that a massive 67% of promotions don’t break-even".
Living Costs
The hunger for promotions in the South African market stems from the spiralling cost of petrol, taxes and utilities, which have placed a 'massive' strain on living costs, Nielsen said, however inflation rates remain relatively low (4.4% in Q1 2019).
“This has led to consumers seeking financial relief and the first casualty of their desire to ease their financial strain is discretionary spending, which has taken a toll on their grocery baskets," says Botha. "Unfortunately, this ‘money’s too tight to mention’ scenario has also seen South African shoppers prone to severe cases of Promo FOMO. The danger with this, is that for manufacturers and retailers alike, promotions can be a double edged sword.
“They bring consumers to the store and result in temporary pick up in brand sales/ volumes but the long term impact of promotions is more severe and can lead to loss of brand and store equity," he added.
The Right Strategy
Nielsen have also cautioned that not all items see a high uplift when promoted, and strategies should be tailored to ensure the right categories are positioned at the right price.
“Products need to be treated individually, as consumers display different sensitivities to everyday price increases and promotions on different items," said Botha.
“This has created a complex environment for manufacturers and retailers and underlines the need for key insights to understand South Africans’ preoccupation with promotions, to help create efficient promotion plans using effective pricing strategies’."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
