The pressure on UK retailers to be more transparent in their pricing has seen the number of trade promotions fall to their lowest levels for 10 years, and in 2017, shoppers will receive £3.7 billion less in promotional savings. This is according to a new report launched today by IRI, the provider of big data and predictive analytics for FMCG manufacturers and retailers.
IRI’s Price and Promotion study analyses over 300 categories within UK major multiples (to 27 May 2017) to see what impact the reduction in promotions is having on category performance. The study shows that there has been a 25% reduction in the number of items on offer in stores since November 2012, when the Office for Fair Trading (OFT) first released its guidelines on promotions.
The average number of grocery lines on promotion this year has declined by 13%, resulting in an 18% fall in consumer savings via promotions compared to 2016. Volume on deal (VOD) has also dropped by 6.4 share points, the fastest since it started declining in 2014, and is now at its lowest level for almost a decade.
According to IRI, the amount saved by shoppers, had they bought a product at full price – known as ‘promotional giveaway’ – fell to just 11.1% by April this year from its previous high of 13.9%, representing a potential loss of £3.7 billion in deal savings (based on an annualised total for 2017).
Tim Eales, Strategic Insight Director for IRI and co-author of the study, says: “Retailers and suppliers have been under pressure to change the way they do promotions, notably from the OFT, now CMA, who set out guidelines around pricing transparency a few years ago. We’ve also seen market share gains from discounters with their simplified approach to pricing, along with changing shopper habits and, more recently, increased cost pressures, such as the impact of sterling devaluation on manufacturer and retailer margins.
“While our study shows little change in the level of promotions until 2015, retailers are now moving away from the short-term benefits of tactics like multi-buys and price cuts to get customers through the doors, and replacing them by fewer promotions, driven by a need for more promotional efficiency and effectiveness. Our advice is to look for categories where the sales uplift from individual products on promotion delivers benefits for the category as a whole, meaning a win-win for both supplier and retailer.”
Key trends – Promotional responsiveness
In the Price and Promotion study, IRI has identified the most promotionally responsive categories – driving both brand and category growth – by analysing the relationship between incremental sales and category sales growth, and segmenting them into four Category Promotional Uplift (CPU) groups – high, medium, low or very low.
According to the findings, the high rates of promotional uplift by categories in the highest CPU, including sports drinks, chocolate and shampoo, make these promotions the most effective at creating incremental sales. In fact, promotions in these categories are twice as effective as those in the lowest CPU group, which include categories like salt, light bulbs and sun care.
In general, levels of promotional effectiveness have risen as promotion levels have fallen. This suggests that the least effective promotions are those that are being removed, or because fewer promotions are available, shoppers are more likely to participate in the deals that are available.
Manufacturers and retailers have been investing some of these promotional savings in keeping base (everyday) prices as low as possible. The study indicates how this varies: base prices are falling for the most promotionally responsive categories, in spite of increased costs due to currency exchange rates and commodity priced inflation – down 2.3% for brands and down 2.0% for own label. However, base prices have been rising for products in the categories least responsive to trade promotions since last October, up 3.5% for brands and 1.7% for own label, according to IRI.
Promotional discount or ‘deal depth’ has gone down in 2017, by as much as 4.0% for the most promotionally responsive categories. By increasing promotional prices, retailers have been able to keep base prices as low as possible.
Levels of multibuy sales have fallen across the board, but more among categories in the highest CPU group. IRI figures show that the volume sold through multibuys fell within the major multiples from 14.0% in the y/e May 2016 to 9.0% in y/e May 2017. By 4 w/e 20 May, it was just 6.2%.
The study also indicates a correlation between the scale of multibuy reduction and the volume decline in these categories. The categories that have dropped the most percentage points of volume sold on multibuy have also lost the most volume.
In conclusion, Tim Eales at IRI, believes there are still opportunities to optimise levels of promotion across categories: “Promotional support is and continues to be, concentrated on the categories which are most promotionally responsive and therefore short term category growth and share gains have the greatest potential. In most cases, high response categories receive the most support, but there are some that don’t. Equally, there are categories that receive plenty of support, which they may not warrant, given the lack of growth they deliver. Retailers and suppliers should focus on analysing the impact of their promotional activity across all categories to help deliver real value and drive potential growth.”
All data for the IRI Price and Promotion – The Big Question study is based on IRI InfoScan. Major multiples, data to 27 May 2017.