Is economic uncertainty affecting FMCG sales? · Is economic uncertainty affecting FMCG sales? ... stocking, less impulse purchasing). ... basics: buying what they

IRI Topline Report

Is economic uncertainty

affecting FMCG sales?

Quarter 4 2013

Tim Eales

Director of Strategic Insight

Copyright © 2014 Information Resources, Inc. (IRI). Confidential and Proprietary. 2

Key findings

• Overall Europe seems to recover but there are significant discrepancies. Southern

European countries and the Netherlands remain weak with a further decrease in the confidence

index in Italy and the Netherlands, whilst Germany has all its indicators in green. France despite

a high unemployment rate sees encouraging signs: GDP increase and a stabilisation of the

unemployment level. The United Kingdom (UK) economy is recovering with unemployment

decreasing and GDP going up.

• Inflation remains low in all countries except in the Netherlands, +3.1%, which is double

that of the rest of Europe.

• FMCG sales value has increased on average by 0.6% in 2013 versus previous year for the

countries that we analyse in this report. It has been driven by food price increases in all

countries except Greece. Value sales have grown in the majority of countries but not in the

Netherlands, Greece and Italy. The UK and Germany remain the champion of food price increase

respectively at 2.1% and at 3.0% in Q4 2013.

• Due to high prices, in all countries except France, shoppers are down trading their

weekly grocery basket, opting for private label solutions, which have had higher inflation versus

national brands, yet remain on average 30% lower*.

• Food consumption has also been impacted, although at a slower pace. All countries, except

France, have seen volume decreasing whilst the prices have gone up. Private label and trade

promotions have not been able to sustain volume sales.

High price: shoppers are trading down

Value sales driven by food price increase


Key findings

• Overall the consumption slowed, except in France, mainly on ‘non-essential’

products, strongly impacting non-food sales. Shopper behaviour has changed due to the

economic pressure and the effect of price increases: they buy less (less waste, less

stocking, less impulse purchasing). The Netherlands is the most impacted country with

volume sales at -3.1% and value sales at -3.4%.

• Promotional pressure is still growing in almost all countries. Over the long term

promotion levels in the UK have been steadily increasing but now they are falling, driven

mainly by the food sector. The UK remains the leading country for promotion pressure with

53.1% of sales on promotion. In Italy, levels have been rising gradually and more recently

the same is true in the Netherlands. France, Spain and Germany have been relatively

unchanged since 2009. In Greece and the UK, private label promotion has increased more

than for national brands and as a result the price gap has closed slightly.

• Private label sales are growing in all markets except France despite the closing

price gap with national brands. Private label is contributing to more than 50% of the

growth in Europe. Private label share (value and unit) is highest in the UK.

• The retail landscape is evolving with hard discounters experiencing a tough time in

France and Germany whereas they are flourishing in the UK, Spain and Greece. Overall

supermarkets are the retail format of choice for shoppers for convenience and better control

of their grocery shopping expenses. In France, e-commerce is developing at a fast pace,

with the success of the click & collect format.

Shoppers are back to

basics: buying what they

need at the right price

* See IRI’s Special Report on Private Label in Europe for more information, available at www.iriwoldwide.eu


GDP Q4 2013: % change versus previous year

EURO AREA (17 COUNTRIES) GDP GREW IN Q4 BY +0.5%

Source : Eurostat Q4 2013 – Checked 17th February 2014

Growth rates of GDP, in volume (based on seasonally adjusted data)

The euro area (EA17) includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.


Growth rates of GDP, in volume (based on seasonally adjusted data)

EURO AREA (17 COUNTRIES) GDP GREW BY 0.3% IN Q4 vs. Q3

The euro area (EA17) includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.

NA

GDP Q4 2013: % change versus previous quarter

Source : Eurostat Q4 2013 – Checked 17th February 2014


Unemployment evolution in Europe

Euro area (17 countries) unemployment stable at 12.0% compared with January 2012.

Source : Eurostat February 2014

Oct

(Jan ’13)

Nov

UNEMPLOYMENT RATE IN DECEMBER 2013 COMPARED WITH JANUARY 2013

(5.4) (10.8) (6.0) (11.9) (26.5) (7.9) (26.5)


FMCG full year 2012: % change versus previous year

VALUE TREND

VOLUME TREND

Only France and Spain increased volume sales in 2012 overall.

Unit trend for Greece

Full Year Average +1.9%

Full Year Average -0.1%

Price rises of 2-3% are pushing up value sales everywhere, except in Greece.


FMCG full year 2013: % change versus previous year

VALUE TREND

VOLUME TREND


PRICE INFLATION IS PUSHING UP VALUE SALES EVERYWHERE, EXCEPT IN GREECE.

Full Year Average +0.6%

Full Year Average -0.9%


FMCG Q4 2013: % change versus previous year

VALUE TREND

VOLUME TREND

The final quarter of the year was a poor one for most countries. Only in Italy and Greece was Q4 showing a better trend than Q3 but this was one of slower volume decline, rather than growth.


PRICE INCREASE IS INFLATING VALUE SALES EVERYWHERE, EXCEPT IN GREECE.

Q4 2013 Average +0.3%

Q4 2013 Average -1.1%


Q4 food volume sales grew slightly again, with prices increasing by +1.2%. The trend for non-food volume, however, turned to decline.

Source: IRI, hypermarkets and supermarkets

Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 H1 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 H1 2013 Q3 2013 Q4 2013


FOOD SALES IN FRANCE, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN FRANCE, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)


Overview – France VAT on food: 5.5% and 19.6%

• According to the INSEE, the French economy started to show some encouraging signs of recovery at the end of 2013:

− French GDP is excepted to be at +0.2% for 2013 with Q4 at +0.4%.

− Purchasing power has increased by +0.5% when it was -0.9% last year, but decreased slightly in Q4, -0.1%,

probably due to tax pressure.

− The unemployment rate stabilised at the end of the year at 10.5% versus 10.1% last year. The government’s plan to

stop the unemployment increase failed.

− Household spending has slightly increased in 2013, +0.4% after a decline the previous year (-0.4%).

− Prices have slightly increased, +0.9%, but less than in 2012 (+2%), and FMCG prices remained stable due to a fierce

price war, with even a deflation for national brands.

• 2013 key findings:

− FMCG sales in hypermarkets and supermarkets have slightly increased, +0.3 % in 2013, when hard discounters’

performance has declined. For all outlets, volume sales have decreased for the first time since 2008.

− Click and Collect sales has increased due to the number of openings, but its growth rate has slowed down in Q4.

− The shoppers’ trend is to consume well even if it means less. Shoppers are taking advantage of price deflation to buy

more expensive products (‘valorisation’) and move to smaller pack sizes.

− It’s the first time that private labels are losing in terms of market share (-0.4 point), when national brands are

gaining shelf space.

− Shoppers bought less festive products in December versus previous years.


Q4 food volume fell again. The decline in non-food volume also continued, with price deflation continuing.

FOOD SALES IN ITALY, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, inc. alcohol)

Source: IRI, all outlets



NON-FOOD SALES IN ITALY, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)


Trading down continues, inflation is still quite low at the end of 2013

Source: IRI. Hypermarkets, supermarkets and superettes

COMMENTS

December 2013

• Inflation: +0.6%

• Inflation in the basket: +0.8%

INFLATION – FMCG


Overview – Italy

• The macro economic scenario in Italy has created a difficult situation for both consumption and GDP trends during 2013, however

a small recovery is hopefully forecast during 2014. During the third quarter, Italian GDP decreased by -1.8% versus the previous

year (source: Istat). The Italian GDP forecast for 2013 indicates a -1.9% (source: OCSE). The Italian inflation rate was at 0.7% in

December 2013 (source: Istat).

• Unemployment climbed to 12.7% in November 2013 (source: Eurostat). Young people in the southern region are most heavily

impacted by unemployment. The consumer confidence index decreased from 98.2 in November to 96.2 in December (source:

Istat).

• Household purchase power is under pressure at -0.8% versus Q3 2012. The disposable income rate increased by 0.8% in Q3

2013 compared to the previous quarter (source: Istat). Families’ consumptions decreased by -1.9% in the third quarter.

• During 2013 FMCG volume declined due to difficult economic conditions. In December volume slid -1.4%. Sales value was also

really weak, down -0.6%, despite a light prices increase of 0.8%. Taking these negative trends into consideration we register

signs of flat trends in the food category. Petcare, vegetables and grocery have positive value trends.

• For the entire year, trading down is evident in the FMCG shopping basket. Shoppers are saving money.

• FMCG inflation is at +0.6%. During the last months the inflation rate started decreasing a little despite the VAT increases.

Beverage registered a higher inflation rate (1.9%). Drug categories’ prices are decreasing (personal care -1.7% and home care -

1.5%).

• There has been an increase in the number of private label sales, resulting in share improvement. Private label’s market share

reached 18.1% in December 2013. In the home care category, the private label market share is up to 20.6% and in food and

beverage the share is at 19.0%. Private label sales value has increased by +2.4% while volumes are at 0% in December.

• Trade promotions are high with promotional pressure at approximately 29% in December with a growth of 2.2% versus the

previous year. Share of branded product value sales on promotion is at 30.5% (+2.2%). Private label is generally selling less on

promotion than branded products (21.5%).

VAT on food: 4% and 10%


Food prices are climbing, supporting value sales growth. Food volume declined again in Q4. Non-food sales continue to decline.

FOOD SALES IN SPAIN, % CHANGE, YEAR-ON-YEAR

(Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN SPAIN, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)





Prices in Spain rose throughout 2012. The VAT increase in September2013, drove demand down, but supported price increases.

3.8

1.2

3.2

1.9 2.7

1.4

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3.0 3.9

3.3 3.3

2.1 2.4

1.5 1.8

0.7

3.6

1.5 1.0

1.4 1.4

0.2

2.1 1.2 1.4

4.6

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1.3 0.4

2.2 3.1

2.4

4.4

5.8

0.1

2.1

3.9

1.4

2.4 2.0

1.2

2.3

0.0

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-0.1 -0.2 -0.2

-1.3

-2.4 -1.8

-0.2

-2.6

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-0.4 -1.1

0.5

2.2

4.5

-3.6

-1.9

0.7

0.9

1.3

-4.3 -4.5 -4.0

-3.2 -2.6

-2.2 -2.3 -2.1 -2.0 -2.1 -2.3 -2.1 -1.8 -1.3

-0.7 -0.7

0.0 0.2

1.0

1.3

1.1

1.2

1.3

1.2

0.8

0.7

0.8

1.7

1.2

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0.8 0.8

0.7

0.9

1.1 1.2 0.9 0.5

1.1 0.8 1.0 0.8 0.9 1.1

1.4

1.1 1.1 0.9

2007

2008

2009

2010

2011

2012

2013

P10-0

9

P11-0

9

P12-0

9

P01-1

0

P02-1

0

P03-1

0

P04-1

0

P05-1

0

P06-1

0

P07-1

0

P08-1

0

P09-1

0

P10-1

0

P11-1

0

P12-1

0

P01-1

1

P02-1

1

P03-1

1

P04-1

1

P05-1

1

P06-1

1

P07-1

1

P08-1

1

P09-1

1

P10-1

1

P11-1

1

P12-1

1

P01-1

2

P02-1

2

P03-1

2

P04-1

2

P05-1

2

P06-1

2

P07-1

2

P08-1

2

P09-1

2

P10-1

2

P11-1

2

P12-1

2

P01-1

3

P02-1

3

P03-1

3

P04-1

3

P05-1

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3

Demand Price

SALES EVOLUTION FMCG MARKET VERSUS PREVIOUS YEAR: DEMAND AND PRICE EVOLUTION

March demand was negatively impacted by Easter in 2013 (28th-29th March), versus Easter in 2012 (April).


Overview – Spain

• VAT increased in September 2012, from 18% to 21%. Price increases do not reflect the impact of the VAT increase (+1%).

• Since January 2013 value sales have been flat (0.3%) and consumption has been negative (-0.8%) as a result of the VAT

increase. Shoppers are trading down from dine-out to home-based eating and prefer proximity channels such as

supermarkets. As a result, large and small supermarkets are growing, while hypermarkets’ value sales are declining (-3.3%).

The discount channel is becoming more attractive for shoppers.

• Unemployment remained stable from Q2 until the end of the year (2013) at 26% (27% in Q1 2013). Annual inflation (CPI) for

2013 increased slightly (+0.3%) and GDP decreased (-1.2%) at the end of 2013.

• Private label manufacturers captured 42.6% of value sales at the end of the year, with a gain of 1.2%. However in December

private label value sales fell (by -1.3%) and branded products decreased as well (by -0.2%).



Food volume declined despite falling prices, in Q4 food prices have become the same as the previous year.

FOOD SALES IN GREECE, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN GREECE, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)


Price per unit




Overview – Greece

• Yearly average inflation in Greece for 2013 was -0.9%.

• Unemployment for Q3 2013 reached 27.0%.

• GDP for Q3 2013 was -3.0%.

• Manufacturers are using more customised activities to promote their goods.

• Retailers continue to focus their efforts on promoting private label programmes.

• The troubled economic situation is negatively impacting food category sales.

• The hard discounter Lidl is gaining market share.

VAT on food: 13%


Food volume declined faster in Q4 2013 than ever seen before despite price rises reducing. Non-food volume continued to fall sharply.

FOOD SALES IN THE NETHERLANDS, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN THE NETHERLANDS, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)

Source: IRI, all outlets




Overview – The Netherlands

• The Netherlands is still in recession. The economy shrank 1.8% during the past year. Household consumption is down 2.4%

and investments fell by 9.4%.

• Inflation in the Netherlands in 2013 was 3.1%, almost double that of the Eurozone average.

• Unemployment continues to grow. The increase is more substantial than in the preceding three months. The unemployment

rate in July was 8.7%. Youth unemployment was 17.0% and the unemployment rate among 25 to 44-year-olds and over-

45s were 7.9% and 7.5%, respectively.

• For almost two years the mood among consumers has been very pessimistic. The consumer confidence index fell two points,

to -38. Consumers were more negative about the economic climate and willingness-to-buy remained invariably low.

• Total supermarket growth is approximately 2.5%. Price inflation was the main driver, while volume sales are declining.

During the past few months inflation has escalated.

• Trade promotion volume has been rising steadily for most of 2013, peaking at 23.5% in Q3. There was a slight fall in Q4.

VAT on food: 6%


Food volume sales fell in 2013, after recovering marginally at the end of 2012. Non-food volume grew as prices fell.

FOOD SALES IN GERMANY, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN GERMANY, % CHANGE, YEAR-ON-YEAR

(Pet food, health, toiletry, household)

Source: IRI,; all outlets




Overview – Germany

• According to CES (the Centre for Business Cycle Analysis and Surveys) information, labour demand in Germany was high in 2013

and will remain stable in 2014. While inflation remains moderate, lower energy prices will be a curbing factor this year. As

private consumption is on a path of continuous growth, the economic forecast for 2014 is positive: the German economy made a

promising start to the new year and it is expected that it will pick up further steam throughout 2014. Expectations regarding

future business developments reached their most optimistic level in almost three years.

• FMCG value sales in 2013 are up 0.8% compared to the prior year and add up to the total amount of €127 billion. We see that

growth is driven exclusively by food categories, all non-food categories are in decline compared to 2013. With 5.7% value

growth, dairy products are the strongest growing category, followed by frozen food with an increase of 2.8%.

• While value growth continues to speed up, volume is in decline across nearly all categories. A clear indication for rising prices,

that result in more money being spent, but less products actually being sold. The average price for the entire FMCG basket

increased by 2.6% compared to the prior year, dairy (+8.2%) and frozen food (+3.4%) being the categories with the strongest

price development.

• Across all sales channels in Germany, hypermarkets of all size classes remain the clear winner in growth rates. While Germany

used to be known as a discount-friendly country, we have monitored a slight trend away from hard discounters towards soft

discounters that offer a higher range of branded products and towards hypermarkets, where strong private label brands succeed

in reaching and convincing more and more consumers with their combination of lower prices for the same quality.

• Private labels display a similar development to that of the total market. In growing segments such food categories, private labels

are also able to profit from the total growth – whereas declining categories (like household products or pet food) show a decline

for private labels as well.



Food price inflation remains just above +2%. Food volume declined faster in Q4 than it has done before. Non-food continued its decline.


Source: IRI, all outlets, excludes Northern Ireland

FOOD SALES IN THE UK, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol)

NON-FOOD SALES IN THE UK, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household)



FMCG Shopping Basket – United Kingdom – All items

The standard rate of VAT was temporarily reduced to 15% on 1st December 2008. It returned to 17.5% on 1st January 2012 and then went up again to 20% on 4th January 2012.

% CHANGE VERSUS LAST YEAR

The basket price remained just above +1% in December. The CPI fell slightly in December to 2.0%.


Overview – The United Kingdom

• Inflation (CPI) was close to +2.7% for the first 8 months of 2013 but then fell to around 2.0% in the final 4 months. Grocery

price rises decelerated during the summer but are back up to just under +2% now.

• Unemployment was falling very slowly for most of the year but showed a dramatic reduction towards the end of the year. In

October 2013 the unemployment rate was 7.2%. Temporary and part-time employment increased.

• GDP was up (+0.7%) in Q4 2013 versus Q3 2013. This is a good sign and continues the trend of GDP growth seen now for the

past four quarters.

• VAT was reduced in December 2008, returned in January 2010 and went up again in January 2011. This affected prices

through 2011. The anniversary in January 2012 showed a corresponding slight reduction in inflation.

• Consumer credit has started to increase again, which could be a sign that more people are running out of money. It grew by

5.0% in the last quarter of 2013 versus 2012 which was lower than the mid-year rate of change.

• Private label value share continues to slide slowly, as the reduction in deal levels has developed more slowly for brands than

private labels, meaning that the price gap between PL and brands has closed slightly.

• Grocery prices remained fairly stable from January to August 2013 and then started to rise, reaching the highest point ever

over Christmas but the rate of increase is currently quite low at around 1.5%.

• Food sales saw a period of volume decline in Q3, following a weather-induced peak in June/July. Q4 showed a further decline.

Value sales at the peak of Christmas were up in multiple grocers ahead of inflation, although unit sales were slightly down.

• The non-food sector has faired worse than food for most of 2013, although in Q4 the rate of volume decline is very similar.


27

IRI Topline Report

Trade Promotion – Q4 2013


Deal levels vary enormously at the European country level across food categories.

% FOOD SALES WITH TRADE PROMOTION (VOLUME – SP, NL, UK - VALUE IT, GE, FR)

Levels of trade promotion in Q4 on food grew in all countries except the Netherlands which is a seasonal effect caused by the Christmas peak.


Non-food categories also show variable deal levels across Europe.

% NON-FOOD SALES WITH TRADE PROMOTION (VOLUME – SP, NL, UK - VALUE IT, GE, FR)

Higher levels of trade promotion in France during Q2 reduced dramatically in Q3 and Q4. Whereas trade promotion levels in food grew over Christmas, this effect was not as consistent in non-food.


Deal levels vary enormously across Europe – All Products

% SALES ACROSS ALL PRODUCTS WITH TRADE PROMOTION (VOLUME – SP, NL, UK - VALUE IT, GE, FR)

Over the long term, promotion levels in the UK, which had been increasing steadily, have been falling, driven by the food sector. In Italy, levels have been rising gradually and more recently and the same is true in the Netherlands. France, Spain and Germany have been mostly unchanged since 2009.


Looking forward

ACTIONS

• Be very straightforward on promotion strategy goals and get appropriate analytics solutions to simulate price and promotion impact on margins, revenue, category performance and competition.

• Deep category analysis will enable manufacturers and retailers to build joint business planning to define the best mix of items, national brands and private label, and grow the business.

• Shoppers do not think in categories, they think about their relevant needs. Moving to a shopper-centric model via the shopping basket analysis, will optimise assortment and resource allocation.

• Retailers and manufacturers must work together and invest to define specific merchandising strategies with specific tactics to create impulse purchasing on non-essential items, creating occasions for ‘special treats’ at a reasonable price.

• Manufacturers need to assess the category competitive risk from private label growth and development and adjust their portfolio and retail approach accordingly.

INSIGHTS

• Promotional activity is high and it will be difficult to reverse the trend. Promotion is correlated to price level and private label’s growing presence.

• Volume is impacted by high prices.

• The non-food sector is experiencing declines due to shoppers’ efforts to reduce the purchase of non-essential items.

• Manufacturers are fighting hard to protect their share of sales and some are re-engineering lines or launching new variants.


Final notes

• Source: IRI InfoScan, syndicated retail tracking service.

• Methodology: Quarterly review, year-on-year data for fast moving consumer goods.

• Country coverage: France, Germany, Greece, Italy, the Netherlands, Spain and the United Kingdom.

To gain deeper insights, predictive analysis and recommendations on specific products, categories, segments, channels or

retailers contact your IRI Consultant or email: [email protected]

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Documents

Is economic uncertainty affecting FMCG sales? · Is economic uncertainty affecting FMCG sales? ... stocking, less impulse purchasing). ... basics: buying what they