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Pricing and Promotions in Food and Drink - UK - May 2012

INTRODUCTION
Definition
Abbreviations
EXECUTIVE SUMMARY
Market factors
Consumer budgeting rises in line with rising food prices
Economic woes add pressure to consumer budgets
Inflation shows no sign of slowing in the immediate future
Companies, brands and innovation
Brands face a growing threat from the private labels
Figure 1: Branded and private label NPD in food categories, 2007-12
Figure 2: Trends in premium vs economy claims in branded and private-label UK food NPD, 2008-12
The consumer
More than two in five shoppers stick mainly to the essentials
Figure 3: Shopper characteristics, by type, March 2012
Rising prices impact on consumer shopping habits
Figure 4: Changing consumer shopping habits, March 2012
Consumer scepticism and concern over prices continues to rise…
Figure 5: Shoppers' attitudes towards the price of food, March 2012
…a problem which extends to attitudes towards promotions
Figure 6: Shoppers' attitudes towards promotions, March 2012
What we think
ISSUES IN THE MARKET
How can brands and retailers convince consumers that they are on their side?
How can the grocery retailers rebuild loyalty?
Can shoppers be encouraged to not only buy the essentials?
Should consumers be concerned about further price rises?
Who stands to gain most in 2012?
FUTURE OPPORTUNITIES
Let’s Make a Deal
Life Coaching
INTERNAL MARKET ENVIRONMENT
Key points
Consumers become more price-aware and careful with their shopping
Figure 7: Agreement with selected statements on household shopping and prices, 2007-11
Growing importance of budgeting
Emotional reactions to getting the best price
Figure 8: Emotional responses to shopping, February 2011
Special offers become an increasingly attractive proposition
Figure 9: Agreement with selected statements on promotions, 2007-11
Interest in ethical considerations on the slide
Figure 10: Agreement with selected statements on purchasing ethical products, 2007-11
Food price rises continue to stretch consumers
BROADER MARKET ENVIRONMENT
Key points
Fragile consumer confidence as the economy falls back into recession
Figure 11: Monthly Consumer Confidence Index, January 2007-April 2012
Figure 12: UK GDP growth, Q1 2008-Q1 2012
Figure 13: How respondents would describe their financial situation, March 2012
Figure 14: Current financial situation compared to a year ago, February 2012
Living costs on the rise…
Figure 15: RPI vs earnings, January 2008-December 2011
Figure 16: 12-month percentage changes in consumer prices index (CPI) to January 2011 and January 2012
…while the employment market continues to struggle
Figure 17: Number of unemployed people in the UK, January 2008-December 2011
UK’s ageing population provides opportunities for growth
Figure 18: Trends in the age structure of the UK population, 2011-16
Figure 19: Forecast adult population trends, by lifestage, 2006-16
Growth opportunities
Figure 20: Household expenditure on food and non-alcoholic drink, by value, and percentage of total weekly spend, by age, 2010
Potential threats
Socio-economic changes set to benefit different tiers of the market
Figure 21: Changes in the adult socio-economic structure of the UK population, 2011-16
FOOD PRICING AND INFLATION IN CONTEXT
Key points
Material and commodity prices continue to rise
Figure 22: Monthly global prices of selected grains and sugar, $ per tonne, January 2007-January 2012
Figure 23: UK wholesale price series for cereals, 2007-11
Figure 24: UK Retail Prices Index of red meat and competing food items, 2005-11
Figure 25: UK monthly farmgate milk prices, January 2008-January 2012
Figure 26: Monthly averages of global daily cocoa prices, $ per tonne, January 2009-January 2012
Food inflation regains momentum
Figure 27: Annual percentage change in the Consumer Price Index for selected product groups, March 2011- March 2012
Figure 28: Selected UK food price rises, February 2011-February 2012
BRANDS: CONTEXT, STRATEGIES AND INNOVATION
Key points
Rising raw material costs impact upon branded products
Private labels boost NPD levels to compete with brands
Figure 29: Branded and private-label NPD in food categories, 2007-12
Figure 30: Branded and private-label NPD which carries a premium or economy claim as a percentage of total NPD, 2011
Brands respond by looking to boost their value credentials
Figure 31: Trends in premium vs economy claims in branded UK food product launches, 2008-12*
Value credentials clearly marked on packs
Giving consumers extra free
Growth of topical on-pack prizes
Brands look to tap into the emotion of purchase decisions
Other strategies of lasting popularity
RETAILERS: CONTEXT, STRATEGIES AND INNOVATION
Key points
Tesco facing increasing competition
Figure 32: Estimated leading food retailers’ market shares, Q1 2012
Figure 33: Sales of leading food retailers in the UK, 2010/11
Figure 34: Consumer views of selected retailers as cheap, February 2011
Private labels up their NPD activity
Figure 35: Private label NPD in the food and non-alcoholic beverages industry, by company, 2011
Figure 36: Private label food NPD, by category, percentage of total, 2011
Figure 37: Trends in premium vs economy claims in own-label UK food product launches, 2008-12*
Figure 38: Examples of selected major retailers’ competitive strategies during January 2011-April 2012
Examples of NPD among the main retailers
RETAILER COMMUNICATION
Key points
Retailers ramp up advertising levels
Figure 40: Supermarket adspend in the UK food and drink market, 2007-11
Tesco leads the way in advertising in 2011
Figure 41: Supermarket advertising expenditure in the UK food and drink market, by leading advertisers, 2007-11
Press continues to dominate but there are signs of change
Figure 42: Supermarkets’ advertising expenditure in the UK food and drink market, by media type, 2007-11
CONSUMER – TYPES OF SHOPPERS
Key points
More than two in five consumers stick mainly to the essentials
Figure 43: Shopper characteristics, by type, March 2012
CONSUMER – SHOPPING HABITS
Key points
Half of consumers do not expect to change their purchase levels in 2012
Figure 44: Expected changes in purchase patterns of branded and own-label food and drink in the next 12 months, December 2011
Consumer discernibility is well pronounced
Figure 45: Changing consumer shopping habits, March 2012
Stocking up grows in popularity as many consumers cut back on non-essentials
Convenience meals also growing in popularity
Growing numbers change where and how they shop
CONSUMER – ATTITUDES TOWARDS FOOD PRICING
Key points
Scepticism and worry are the prevailing emotions among consumers
Figure 46: Shoppers' attitudes towards the price of food, March 2012
Four in five consumers worried that price rises will continue
Figure 47: Shoppers' attitudes towards the rising price of food, March 2012
Seven in ten consumers are sceptical about the pricing of food
Figure 48: Shoppers' negative attitudes towards operators’ activities regarding food prices, March 2012
Understanding of pressure on retailers in short supply
Figure 49: Shoppers' positive attitudes towards operators’ activities regarding food prices, March 2012
Only a third of consumers prepared to pay for added value
Focus on the over-55s market
Figure 50: Selected attitudes towards shopping among over-55s, February 2012
CONSUMER – ATTITUDES TOWARDS PROMOTIONS
Key points
Four in five doubt the value of promotions, half want more transparency
Figure 51: Shoppers' attitudes towards promotions, March 2012
Four in five consumers sceptical about value offered by promotions
Figure 52: Shoppers' sceptical attitudes towards promotions, March 2012
Two thirds of shoppers find some promotions unclear/confusing
Figure 53: Shoppers' attitudes towards transparency of promotions, March 2012
Loyalty hit as consumers look for the best price
Figure 54: Shoppers' loyalty-related attitudes towards promotions, March 2012
Promotions are an effective means for consumers to trial new products
Figure 55: Trialling new products on promotion, CHAID analysis tree output, April 2012
Figure 56: Trialling new products on promotion, CHAID analysis table output, April 2012
Strong interest in cross-category and inclusive promotions
Figure 57: Shoppers' attitudes towards different types of promotions, March 2012
CONSUMER – ATTITUDES TOWARDS TYPES OF PROMOTIONS
Key points
Buy one get one free remains the most popular type of promotion
Figure 58: Shoppers' attitudes towards different promotional mechanics, March 2012
Everyday low prices and money off are also a popular means of saving money
Limited interest in other types of promotion
CONSUMER – TARGET GROUPS
Key points
 FOUR TARGET GROUPS
Figure 59: Target groups for pricing and promotions, March 2012
Relaxers (33%)
Price-conscious (31%)
Sceptics (19%)
Empathisers (17%)
APPENDIX – INTERNAL MARKET ENVIRONMENT
Figure 60: Agreement with selected lifestyle statements, 2007-11
Figure 61: Agreement with selected lifestyle statements, by demographics, 2011
Figure 62: Agreement with selected lifestyle statements, by demographics, 2011
Figure 63: Agreement with selected lifestyle statements, by demographics, 2011
APPENDIX – BROADER MARKET ENVIRONMENT
Figure 64: Comparison of spending on food and other selected major categories, 2006-10
Figure 65: Annual percentage change in the CPI for selected product groups, March 2011-March 2012
APPENDIX – RETAILERS: CONTEXT, STRATEGIES AND INNOVATION
Figure 66: NPD among the top ten retailers, by type of launch, January 2011-March 2012 (sorted by most products launched)
Figure 67: Usage of outlets for main and secondary grocery shops, August 2011
Figure 68: Profile of primary shoppers of main supermarkets, August 2011
Figure 69: Profile of secondary shoppers, August 2011
APPENDIX – CONSUMER – TYPES OF SHOPPERS
Figure 70: Shopper characteristics, by type, March 2012
Figure 71: Shopper characteristics, by type, by demographics, March 2012
APPENDIX – CONSUMER – SHOPPING HABITS
Figure 72: Changes in shopping habits within the last 12 months, by demographics, March 2012
Figure 73: Changes in shopping habits within the last 12 months, by demographics, March 2012 (continued)
Figure 74: Changes in shopping habits within the last 12 months, by demographics, March 2012 (continued)
APPENDIX – CONSUMER – ATTITUDES TOWARDS FOOD PRICING
Figure 75: Shoppers' attitudes towards the price of food, March 2012
Figure 76: Agreement with the statements ‘I am increasingly concerned that prices are going to continue rising’ and ‘I would stop buying some products altogether if they become too expensive’, by demographics, March 2012
Figure 77: Agreement with the statements ‘I would feel cheated if manufacturers kept the product the same price but reduced the pack size’ and ‘Retailers use inflation to explain away rising prices’, by demographics, March 2012
Figure 78: Agreement with the statements ‘I would like supermarkets to be more transparent in their pricing of products’ and ‘Food and drink prices have risen faster than other outgoing costs’, by demographics, March 2012
Figure 79: Agreement with the statements ‘I would change some/all of my shopping to other retailers due to rising prices’ and ‘I accept that it is difficult for suppliers and supermarkets to keep prices under control’, by demographics, March 2012
Figure 80: Agreement with the statements ‘I am prepared to pay more for certain products (eg free-range, organic)’ and ‘People should accept that price rises are inevitable’, by demographics, March 2012
Figure 81: Agreement with the statements ‘Supermarkets have compromised their profits to keep prices under control’ and ‘I am not prepared to change my habits to save a few pounds’, by demographics, March 2012
APPENDIX – CONSUMER – ATTITUDES TOWARDS PROMOTIONS
Figure 82: Shoppers' attitudes towards promotions, March 2012
Figure 83: Agreement with the statements ‘Promotions do not always offer me the best value’ and ‘I would be open to trying new products if they are on promotion’, by demographics, March 2012
Figure 84: Agreement with the statements ‘I think that retailers mark up the normal price of products so that the special offer price seems more attractive’ and ‘I would switch from my favourite brand if there are others on promotion’, by demographics, March 2012
Figure 85: Agreement with the statements ‘Sometimes promotions are unclear/confusing’ and ‘I would like supermarkets to be more transparent in their pricing of products’, by demographics, March 2012
Figure 86: Agreement with the statements ‘I would like to see more cross-category promotions (eg breakfast cereal and milk for £x)’and ‘I tend to wait before buying certain products as I know they are often on promotion’, by demographics, March 2012
Figure 87: Agreement with the statements ‘Supermarkets do not have enough promotions which are relevant to me’ and ‘Money-off coupons/vouchers are an attraction in determining where I shop’, by demographics, March 2012
Figure 88: Agreement with the statements ‘Loyalty schemes (eg Tesco Clubcard) are important in determining where I shop’ and ‘I would like to see more inclusive promotions such as Sainsbury's Feed your family for £50’, by demographics, March 2012
Figure 89: Selected statements regarding promotions, CHAID analysis table output, April 2012
Figure 90: Shoppers' attitudes towards promotions, by types of shoppers, March 2012
APPENDIX – CONSUMER – ATTITUDES TOWARDS TYPES OF PROMOTIONS
Figure 91: Shoppers' attitudes towards different promotional mechanics, March 2012
Figure 92: Shoppers' attitudes towards different promotional mechanics: Ranking of 1 (most important), by demographics, March 2012
Figure 93: Shoppers' attitudes towards different promotional mechanics: Ranking of 2, by demographics, March 2012
Figure 94: Shoppers' attitudes towards different promotional mechanics: Ranking of 3, by demographics, March 2012
Figure 95: Shoppers' attitudes towards different promotional mechanics: Ranking of 4, by demographics, March 2012
Figure 96: Shoppers' attitudes towards different promotional mechanics: Ranking of 5 (least important), by demographics, March 2012
APPENDIX – CONSUMER – TARGET GROUPS
Figure 97: Target groups, by demographics, March 2012
Figure 98: Target groups, by shopper characteristics, March 2012
Figure 99: Target groups, by changing shopping habits, March 2012
Figure 100: Target groups, by attitudes towards the price of food, March 2012
Figure 101: Target groups, by most important type of promotion, March 2012
Figure 102: Target groups, by attitudes towards promotions, March 2012
Figure 103: Target groups, by food habits, March 2012
Figure 104: Target groups, by healthy eating habits, March 2012

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