FDBusiness.com

Ongoing price wars in countries like the UK, France, Greece and Spain are keeping prices low, but are failing to ignite significant sales growth across the food sector in Europe. This is according to a new report – ‘Price & Promotion in Western Europe: Encouraging signs of Recovery’ – examining price and promotion in FMCG across Europe from global insight leader, IRI.

While European economies start to recover, the report shows that prices for food products across Europe only saw a 0.3% rise last year, while non-food products hardly saw any change at all – up just 0.1% on volume price.

The value of food sales across Europe again increased slightly, by 0.5% to €276.3 billion. However, the report reveals that for half of the countries measured food sales by value are down. The UK, Spain and Greece experienced the biggest falls, while France, Germany and Italy saw value sales go up. Sales by volume for food rose slightly by 0.2%.

Tim Eales, Director of Strategic Insight IRI, and co-author of the report, comments: “Despite strong evidence that European markets are starting to recover after several years of economic decline or stagnation, it seems that neither prices nor sales are recovering in line with these trends. To some extent, we are witnessing the ongoing impact of the price wars in the region, particularly markets like the UK and France. While lower prices suggest a better deal for shoppers, this is not necessarily translating into sales growth, with both value and volume sales across Europe showing only marginal increases.”

Despite this general trend, the Price & Promotion report highlights that some categories have seen significant price rises, including alcoholic drinks, which showed a 2.6% price increase. However this also led to a 1.2% fall in volume sales over the year as a result.

Are Promotions Paying Off?

The IRI report also indicates that promotional activity is fairly static, with the proportion of product sales on promotion only increasing by 0.5 points to 28.7% for food and remaining static (at 0.1 points) at 28.1% for non-food items across Europe. While across the region promotions vary, the UK continues to lead Europe when it comes to promotional reliance with more than half of all goods sold on promotion (54.6% by volume).

According to IRI’s analysis, while Germany had only 13.2% of the volume of goods on promotion, it still saw a 3.4% rise in value sales and a 2.3% rise in volume sales. However, in the UK, more than half of all goods are sold on promotion, but both the volume and value of sales fell – down 1.5% and 1.6% respectively – as a consequence of the price war driven by the growth of the hard discounters.

IRI’s Tim Eales, adds: “When it comes to predicting consumer behaviour around price and promotions, it seems the challenge to understand how shoppers are going to react to change is getting more difficult. During recessionary times, it is generally easy to forecast how consumers might respond to price changes or promotions, but it seems that across Europe as markets recover, behaviour – from both manufacturers, retailers and consumers alike – is getting more unpredictable than ever.”

He elaborates: “The concern now is if countries like the UK continue to rely on this kind of promotional activity. We could see a very worrying pattern emerging, which brands will find it hard to recover from, with the danger of such high levels of promotion becoming further ingrained into the psyche of shoppers. It’s clear though that for other markets, like Germany, promotions can be an effective growth driver when used selectively – i.e. as an incentive to persuade the customer to make an unusual purchase.”