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

“Consumers are becoming increasingly savvy about promotions and are aware of what represents value and what does not, something which means that retailers may have to give greater consideration to the specific mechanics and objectives of their promotional strategies.”

– Chris Wisson, Senior Food Analyst

  • 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?

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Table of contents

  1. 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

                                                                                                                  Companies Covered

                                                                                                                  • Aldi Stores Ltd (UK & Ireland)
                                                                                                                  • Asda Group Ltd
                                                                                                                  • Cadbury Trebor Bassett
                                                                                                                  • Co-operative Group
                                                                                                                  • Coca-Cola GB
                                                                                                                  • Duchy Originals
                                                                                                                  • Florette UK
                                                                                                                  • Heston Blumenthal
                                                                                                                  • J. Sainsbury
                                                                                                                  • Kallo Foods Ltd
                                                                                                                  • Lidl (UK)
                                                                                                                  • Marks & Spencer
                                                                                                                  • Mars Incorporated
                                                                                                                  • Nestlé UK Ltd
                                                                                                                  • Noble foods Ltd
                                                                                                                  • Pepsi-Cola UK
                                                                                                                  • Somerfield
                                                                                                                  • Spar UK Ltd
                                                                                                                  • Tesco Plc
                                                                                                                  • Waitrose
                                                                                                                  • Wm Morrison Supermarkets

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

                                                                                                                  £1,995.00 (Excl.Tax)