- European shoppers continue to buy less: unit sales decline ?1.3% over past 12 months
- Caution that FMCG demand will struggle to recover before the second half of 2024.
- Brands losing more ground to private label
- Warning of possible ‘innovation deserts’ as new launches decline by -22%
Circana, the leading advisor on consumer complexity and formerly IRI and The NPD Group, today launches its latest biannual FMCG Demand Signals report covering the six largest markets in Europe and reveals that despite a drop in inflation, demand has yet to recover.
As the gap between prices and unit sales continues to widen, the report ‘FMCG’s Race for Resilience: Unlocking Growth’ highlights how European shoppers are continuing to buy less: unit sales are down ?1.3% over the past year. FMCG value sales have soared by a further 10.1% year on year to reach €636bn, but this continues to be driven almost entirely by inflation.
“Our latest report brings both good and bad news,” comments Ananda Roy, Global SVP, Strategic Growth Insights, Circana. “Two years post-pandemic and the FMCG sector remains far from normal. Demand has yet to fully recover and we see more everyday categories becoming discretionary. Private labels continue to gain share from brands, and inflation-fatigued consumers are coping by buying on deal and shopping at the discounters. As global turmoil and uncertainty continue, we expect that FMCG demand will not recover before the second half of 2024.
The good news is that a return to volume growth is possible and a clear playbook is emerging for how to achieve it. Growth and opportunity exists in the areas of innovation, sustainability and pricing, boosting resilience to future shocks.”
Other key findings from the report include:
- Shoppers remain extremely price sensitive – Wage growth has converged with falling inflation across the EU6, meaning disposable income has improved slightly and consumer spending is making a weak recovery. However, uncertainty continues to leave consumers extremely price sensitive. In the year to end of June 2023, prices grew by an average of 11.6%, causing units to decline by ?1.3%. Over the last six months, average prices across FMCG have inched up by one further percentage point, from 11.6% to 12.9%. This may appear to be a minor increase, but it has hit consumers hard, especially as so much of it is focused on everyday food items. As a result, unit decline has worsened significantly, from ?1.3% to ?2.4%.
- Entire categories could become ‘innovation deserts’– The report data reveals a 22% drop in new launches coming to market in the EU6 over the past year, a significant deterioration on the 16.5% decline highlighted in the May 2023 FMCG Demand Signals report. Less than 1% of NPD represents breakthrough, new-to-world or new-to-category innovation. The overwhelming majority is existing products that have been renovated, reformulated, repackaged or – increasingly – ‘shrinkflated’ and relaunched with new EAN codes. Despite this, there are a small number of innovation ‘superstars’ account for 56% of value and 40% of unit growth generated by NPD over the past year. The UK in particular over-indexes on such superstars, with 33% of all superstar launches originating in the UK.
Roy says: “Brands are understandably cautious about placing bets on risky, new-to-market NPD in the current climate, but retreating from NPD would be seriously short-sighted. The most enterprising brands are already zeroing in on the opportunity from the turmoil and finding new ways to drive demand.“
- Brands lose further ground to private labels – Six months on from warnings of a tipping point for private labels (FMCG Demand Signals, May 2023 report), the march continues at pace. Now accounting for 39% of grocery sales in the EU6, private label is worth €246bn to retailers, having grown its value share by a further 2.2 percentage points in the last year (to June 2023). Two years ago, that share stood at 35%.
Roy comments: “High inflation has acted as a catalyst for private label growth, but its success is not due to cheaper prices alone. Private label has become even more premium in recent months and as a result, the price gap between private label and national brands has shrunk – now averaging 15-20% in food categories, down from 28-40% two years ago.
- Brands face hard truths on sustainability – Sustainability marketed products have struggled to maintain demand since mid-2022. Although budget conscious consumers want to buy products that are better for the planet, they have had to make difficult choices about how and where to spend their money, which means demand has dropped off. In the short-term, demand for more sustainable products will be driven by retailers, primarily due to regulatory requirements such as the European Commission’s Ecodesign for Sustainable Products Regulation (ESPR), which will forces them to ask tougher questions about the sustainability credentials of the brands they stock.
In terms of packaging, sustainability is important, but it has become mainstream. In the past twelve months, when making a purchasing decision 55% of Spanish consumers chose a brand specifically for the packaging. In France, 51% of consumers claim to have switched brands or products because of concerns about the packaging and in Germany, 43% purchased more products in environmentally friendly packaging. In total, nearly half (48.3%) of European consumers have purchased less products packed in plastic in the past year.
Roy adds: “Brands that want to continue to get listings – especially prominent listings – will need to show they’re taking sustainability seriously. Those that want to make sustainability square up with volume growth will need to focus less on isolated ‘green’ initiatives and more on showing how sustainability runs through everything they do.”
Wrapping up Roy concludes: “At a time when consumers are challenging their own loyalty to existing brands, products and categories, brands and retailers are having to genuinely rethink their businesses and strategies.”
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