- Deflation is giving the FMCG sector a chance to breathe: After a difficult period of heightened inflation and other headwinds, input cost deflation is now a real phenomenon for many brands. Their new challenge is how to balance the opportunity for margin recovery with demands from retailers and consumers to pass savings on.
- This also comes against a backdrop of transformed consumer spending and supplier relationships: The pressure of inflation in the last 18 months has driven consumers to rapidly shift behaviours. Private labels now claim 38% of total FMCG sales across six European markets, compared with 36.5% in July 2022. Pressures on disposable incomes have also magnified pre-existing category dynamics, such as dining in versus eating out and price trumping health for purchases like meat. Additionally, there is a new challenge to contend with as retailers increasingly focus on giving value to consumers, demanding price back from the brands which supply them.
- To manage this, consumer goods suppliers first need to audit this new environment: As pricing has shifted rapidly over the past 12 to 18 months, old assumptions about goods categories may have become out of shape. There is now a need to build a refreshed view of consumer habits, how elasticities have changed and the role specific brands and products play today.
- Understanding this new context will enable them to see new opportunities and deploy the best strategies to get there: Up until now, brands have been mostly increasing core prices to conserve margins – to mixed success. They now need to re-assess their strategies and look to six pricing levers to drive value:
- Promotional Reset
- Premiumisation
- Clarity in brand roles
- Classic Price Pack Architecture
- Stock Keeping Unit (SKU) Rationalisation
- Discounter/ Channel Strategy
- Finally, brands must not forget to communicate their compelling sell-in story to retailers: The narrative for retailers needs to demonstrate not only the positive implications for the consumer, but also the overall category growth potential and cash prize on offer for the retailer.
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