UK shoppers spent a total of £50.2bn on FMCG in Q1 2024, this is an uplift of 6.2% compared with the same period last year.
The NIQ Retail Spend Barometer provides a complete overview of spending in the FMCG sector (ambient and fresh food and drink, healthcare, toiletries, homecare and general merchandise) in the UK.
This cross-category and cross-channel overview is based on real sales data and is set to be published on a quarterly basis to provide a new lens into household spending priorities.
Ben Morrison, Retail Services Director UK & IRE at NIQ, comments on what is driving the growth and how he foresees the FMCG category performing for the rest of this year.
How much is the overall FMCG category worth, according to FMCG?
The category was worth around £50bn in Q1 of 2024 and we are seeing growth of around 6% year on year. That’s still got the support of inflationary impact. So, we’re still seeing that value growth ahead of units, but units are now in slight growth versus last year.
What is driving the growth?
In terms of categories, we’re seeing the fresh categories performing strongest: meat, fish, poultry, dairy. Those are categories that had very high inflation this time last year, while they’re still in inflationary prices, they’re more stable. Their level of inflation has fallen a bit faster, fresh being a product that turns around in terms of prices a bit faster than something like ambient. A shopper or on a day-to-day basis isn’t going to see that instantly but the stabilisation of prices gives a bit more impetus behind those. Fresh is the key battleground for retailers so when they’re looking at their promotions, then they’ll be focusing on fresh.
Which FMCG categories are in growth and why?
Dairy is also doing well. Outside of the fresh, BWS is a bit up and down. That is still benefiting from the fact that people aren’t going out quite as much as they did and obviously prices in the on-trade are high. So that means a bit more entertaining at home. But BWS also has some fairly good comparative stuff it is up against, so it sees some reasonable performance.
Are any FMCG categories in decline and if so, why?
Categories that are more challenged include the likes of general merchandise, the non-food side in the supermarkets, that’s seeing some challenging figures. That’s partly to do with discretionary spend, with cautious shoppers, that’s where they’re pulling back. Household in terms of value is relatively flat. That’s one of the areas where we see a shift towards own label.
How are FMCG sales split by channel, i.e., how much goes through the multiples and how much through independent retailers?
Multiples, in the broad definition of the term, is about 90% of the market, while symbols and independents have about 10%. The long-term trend is a shift towards a more structured multiple landscape. Within symbols, you still see some positive performance, particularly the tighter managed symbol groups, but independents as a long-term trend is still in decline. You still have some extremely strong independents by their nature but overall, the ongoing march of the multiples continues.
What do you mean by a more structured multiple landscape?
There have been movements in the impulse channel. So, you see Asda stepping in via EG, in forecourts you see Morrison’s picking up McColl’s. That’s two of the key big retailers that over the last few years haven’t necessarily had that convenience channel option, and as they pick that up, it brings more structure. But also, you’ve got wholesale elements in there with the likes of Booker still providing a large amount of supply through symbols. So those brands and channels are becoming more recognised. So, I would say it’s becoming more structured.
Private label FMCG growth continues to outpace branded growth. What is driving this trend, and is it likely to continue?
It’s not a new trend, it has just accelerated with the cost-of-living crisis. We’ve seen this gradual slide towards private label that’s to do with range improvements, it’s to do with investment from retailers. It is them trying to ensure they have a point of difference and have a uniqueness. But, more recently, due to the cost-of-living crisis, it has been a financial decision by shoppers to try to get the same quality for less. How can they economise? That’s what shifted the dial more recently. That’s not to say that brands aren’t bouncing back, where we see the increase in promotions, brands have that lever that is more attractive. As we see promotions increase, we expect brands to come back a bit. But we still see messages coming out of retailers that they have a strong focus on private label and they’re constantly looking to improve their ranges.
23.4% of all spend in Q1 2024 was sold on promotion. Does this mean the market is driven by value rather than premiumisation and will this trend continue?
The market is still being driven by being able to deliver value to shoppers and being seen to. One of those levers, promotions, is definitely coming back into focus. We’ve had a period of effectively everyday low pricing strategies with less promotion. As they’re trying to recover volume, and kickstart the momentum and volume which is key for the industry, promotion is a lever that comes back into play. We’ve got good reason for promotions coming up with a pretty strong events summer, so we see promotions continuing to grow as we head into summer. However, there’s also awareness that mass promotions are a temporary lever. Trying to sustain that volume is what the retailers and brands are also trying to consider. That moves more into innovation and to the broader levers, but the promotion is clearly a tactic right now, that is a kickstarter and a headline grabber, particularly where you’re going to get spikes in demand. Retailers will use it to ensure they can get their fair share of the event uplifts.
How has the cost-of-living crisis impacted the FMCG category?
A lot. It has put the pressure on consumers. Shoppers have felt the challenge of trying to find value and that has meant a few different behaviours have evolved over the last 15 months or so. That’s to do with shopping around for value, it is to do with more frequent shops, often smaller shops, and that’s how they cope with trying to spread the budget. They also cut back in terms of volume last year, but we’re seeing that beginning to creep back again. The discounters have done well, particularly last year, but they’re up against some tough comparatives this year, having grown so strongly last year. Shoppers have shifted where they’ve shopped, they’ve shifted what they have bought because they’ve gone for a higher portion of own label products in a bid to balance the budget. And they’ve also been more cautious, so you see spend being saved outside of FMCG. But FMCG is fairly well insulated for situations like this because the small treats come through the weekly shop, so people have still kept their spend at a reasonable level despite inflation. We haven’t seen the crash of volume because people want to still dine at home, entertain at home because it pulled back out of home. It’s been very challenging for the industry, but they’ve sustained a good level of demand. Now it’s about how we stabilise and move out of that and keep volumes.
We often hear the argument that in tough times people aren’t going to spend money on expensive holidays or buy a new car, but they will treat themselves with a luxury pack of biscuits because it’s an affordable treat. Do you agree with that argument?
Yes, I think it’s a well-trodden argument and we’ve seen it come through the numbers. You mentioned value versus premiumisation. There’s a lot of stories under the headline numbers. There was a race to value and people balancing their budget, but the small treats mean actually in some categories we see premiumisation. It could be meal solutions, it could be beers, wines and spirits, where people are thinking, if I’m saving here, I need to have a bit of joy over there. So, there’s pockets and particularly own label, it’s not just the most economy own label doing well. That’s a really good example where if you’re moving down from a brand, you might go for a fairly premium own label option, because you already feel like you’ve saved some money, so you may as well buy high quality. So, it is a mixed story. We see people’s confidence in their personal finances beginning to become more positive. They’re still very nervous about the macro situation, but in their own finances they are become more confident. They are slowly reconsidering their spend, and that’s where the FMCG world needs to hold on to that in-home consumption.
Will the slowing of inflation benefit the FMCG category?
I think it will have a stabilising impact. We don’t expect it to go the other way. We think it will stabilise around 3 or 4%. In the March numbers, it settled around 2 or 3%. We are still seeing inflation; we have got to remember this is inflation year on year on top of a high inflationary period last year, so consumers are still spending more than they did on their food and regular purchases in the last couple of years. It will be stabilising for the industry, but it does put a lot of pressure on volume. If brands and retailers want to grow, they’re going to have to revisit their volume strategy and make sure they’re driving that to see the strong growth. Inflation across the broader industry will help support consumer confidence which overall will help. Stabilising in FMCG is needed and is going to be helpful. In terms of some of the stories we’ve just talked about, as the consumer feels more confident that shift of spend also moves around out of home as well, so that’s where the challenge comes. So, it’s good and bad for FMCG. But I think if you asked any brand or retailer, they’d be much more confident at a 3% level than they would have been last year at the low teens.
How do you foresee the FMCG category performing for the rest of this year?
We are cautiously optimistic, there are some key levers the industry has control of which are things like promotions, innovation and range and the mood in the industry is very much focused on how to innovate and make sure products coming through are still driving demand. But there are also key levers that are on paper looking quite positive for the industry but are out of their control. Consumer confidence is creeping back, we’ve got sporting events, it’s a busy summer versus last year when there weren’t big volume driving events. Potentially this year there could be, but it all depends on what the UK teams do in those events and how it affects our mood. And then weather: the age-old reality is we spend more money in good weather. If we have a good summer, then that combined with events means we will have a strong momentum going into Q3 and Q4. It will be an interesting summer and will set us up well, if those things we can’t actually control go the FMCG way.
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