The role of promotions are proving to be the biggest disruptor in the Australian FMCG retail market, according to research by Nielsen, with promotional effectiveness diminishing as promotional fatigue amongst consumers increases.
The FMCG market is being disrupted on several fronts; by retailer brand and category strategies around private label, increasing consumer preferences for fresh, and structural changes in food retailing with growing popularity of online grocery shopping, said Greg Dring, head of demand strategy at Nielsen.
Recent research has shown that Australia, along with New Zealand, has become a retail promotion capital of the world, and consumers are growing weary.
In the quarter ending August 2014, 40.2% of total grocery sales were sold on promotion. An even higher percentage number was recorded in New Zealand where 56.9% of total grocery sales were sold on promotion over the last 12 months. This compares with peer markets such as the United States (36.7%) and the United Kingdom (33.4%).
This huge reliance on promotions has come about due in part to a lag in Australian FMCG wholesale sales volume and value growth since 2010, while wholesale sales value has actually declined for three of the last four years as have wholesale volumes.
“The two biggest influences on FMCG wholesale volume performance has been consumers’ preference for fresh with resultant weakness in dry grocery, non-food grocery, frozen foods and health and beauty and growing preference for private label (+180 basis points in market share since 2012) and in particular premium private label as a substitute for core ranged national brands,” Nielsen said.
However, across continental Europe the percentage of FMCG sales sold on promotion is inversely proportional to the market development of hard discounters. European markets where ALDI Nord or Sud and Lidl operate and dominate tend to have a lower percentage of sales on promotion.
Conversely markets where there is no hard discounter sub channel such as New Zealand have very high percentages of sales sold on promotion.
Based on responses to Nielsen’s 2014 Retail Landscape Survey, manufacturers and retailers see the need for changes in promotional programs and have plans to reduce activity although manufacturers seem to be more aggressive in their intentions.
For more information, look up Nielsen Insights: http://www.nielsen.com/au/en/insights/news/2014/promotions-not-so-special-anymore.html