Insight: IRI – Supermarket range cuts drive decline in sales of new product launches

Revenue from NPD down by £99.6mn in the last year according to a new study by IRI

FMCG manufacturers finding it harder to get the distribution they need to make new product launches a success

As supermarkets across the UK continue to cut the number of products they stock, sales from branded new products were down by -6.5%, which equated to losses in revenue from new product development of £99.6mn.

According to a new study by IRI, a provider of big data and predictive analytics for retailers and suppliers, the number of items stocked by supermarkets across the UK declined by -5.7% in the last year (to end February 2017). An average of 930 fewer products were available to shoppers in their local supermarket.

Key highlights from IRI’s Big Question study on the impact of range rationalisation were:

• 8.4% fewer new branded items were launched in the last year. The number of new private label items launched also fell but at a much slower rate of 2%.
• Sales from new products were down by -6.5%, which equated to losses in revenue from new product development of £99.6mn. The contribution that NPD makes to overall grocery sales also declined.
• New products are finding it harder to achieve sufficient distribution in multiple retailers. Only 1 in every 7 new products launched achieved more than 75% distribution across the major UK supermarkets in the last year. Only half of all new products achieve more than 33% distribution. The average maximum distribution achieved by new products was just 39%. This is significantly lower than the last two studies that IRI has conducted on the state of new product development (NPD).
• Range cuts were deepest in Asda (by -9.8%). Tesco and Co-op reduced their product range by -8.3%. Sainsbury’s reduced its range by -1.7% and Waitrose by -2.7%.
• Iceland increased its range by 6.1% as the retailer opened more new stores as well as launched a new luxury range to take on Aldi and Lidl that includes Pizza Express frozen pizzas.
• Price premium declines – The initial price premium traditionally associated with launching new products is lower. Suppliers can expect a 45% price premium compared with the average price of a similar product in the same category in the first four weeks. In the last study (measuring the three-year period between 2013 and 2015) it was 60%.

“Because it’s becoming harder for manufacturers to stay on shelves as well as get new products into stores, they are finding it more difficult to get the high level of distribution they need to make a success of NPD and cover the expense of innovating.“ said Tim Eales, Strategic Insight Director at IRI.

“Manufacturers are caught in a downward spiral that is becoming harder to climb out of. The challenge of achieving a sales rate for new product launches, that is greater than most of their direct competitors, makes most of them vulnerable to delisting in some stores. Manufacturers may also be considering the higher cost of communications to support NPD across multiple media as another barrier to innovation. Ultimately securing distribution is the most important changing variable in the NPD landscape.” concluded Eales. Manufacturers and retailers working together with the data, optimising their range with the best NPD, is surely the way forward to ensure that consumers get the right choice of what’s new.”