Tim Eales of IRI looks at the implications of the massive fall in the number of price promotions in retailers

Increasing pressure on UK retailers to be more transparent in their pricing has seen pure price-based promotional activity drop to its lowest level for around a decade. For the retailers and suppliers involved in managing the fallout of these reduced levels of price promotions, the challenges are great.

For consumers who have become used to taking advantage of the numerous multibuys, BOGOFs and other special offers in store during their regular shop, the fact that there’s been a significant reduction in the number of items on discount in store might come as a bit of shock.

When it comes to price promotions, the most recent change we have seen in the industry is the direction encouraged by the Office of Fair Trading (OFT) back in 2012 when it set out its guidelines around the idea of pricing transparency. Since the demise of the OFT, many of its responsibilities have been taken over by the Competition and Markets Authority (CMA), including issues of pricing and how prices are communicated to consumers.

Back in 2012, the OFT raised concerns about prices being artificially inflated to make later discounts look more attractive, and stated that products should not be on promotion for longer than they are off promotion. This actually led to concerns by some retailers at the time that it would increase incidents of ‘yo-yo pricing’ rather than make it more transparent.

We’ve also seen pressures coming from other quarters, including increased competition from the main discounters, Aldi and Lidl, who have made it their mission to create a much more simplified approach to pricing than the major multiples, offering a limited range but at attractive low prices.

As a result, they have rapidly grown market share in the UK, forcing the supermarkets to rethink their strategy on ‘everyday low prices’, rather than simply relying on discounts and special offers to get shoppers through the doors.

According to a recent study by IRI on Price and Promotion (launched in August 2017), there was a 25% reduction in the number of items on discount since November 2012 (when the OFT guidelines were announced), with the proportion of items on price promotion as a percentage of all items stocked falling from 37% to 29%. The effect, it seems, is more pronounced in food categories.

During 2017, trade promotion levels were lower than they have for almost 10 years, while deal depth has been falling since early 2016. Shoppers effectively lost £3.7bn worth of offers.

This represents an 18% reduction in the overall benefit that price-based promotional offers have previously provided, although it has been offset to some extent by everyday (off-promotion) prices having been held lower than they would have been, or even going down in some cases.

For retailers and manufacturers, we are already seeing them pulling back from trade promotions, preferring to put emphasis on communicating the brand benefits rather than on consumer price promotions.

There is now increased competition for promotional slots and for off-shelf displays in stores, so in this climate of greater price transparency, it’s clear that brand owners need to know which categories are performing well and which aren’t, which deserve the highest levels of promotional support, and, most important, what effect different promotional strategies are having on different products.

The challenge of price promotions is not an easy one. It’s generally accepted that promoting products on price alone can drive short-term sales, but also eat into profit margins. Once the cost of discounts, displays and in-store marketing materials are taken into consideration, the positive effects reduce or even cease altogether.

However, there are other benefits, over and above driving short-term sales, including driving trial and penetration for both the retailer and brand, generating footfall for retailers, maintaining premium value positioning, and also augmenting the benefits of advertising, where this can be proven.

So, when prioritising promotional choices, retailers must look for categories where the effects from price promotions on the products promoted also result in a volume benefit for the category as a whole, delivering a win-win for both retailer and supplier.

Tim Eales is Strategic Insight Director of IRI, is a leading provider of big data, predictive analytics and forward-looking insights for FMCG, OTC health care, retailers and media companies.

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Shoppers are as deal hungry as ever this Christmas, with 42% stating they are on the lookout for promotional offers for the festive supermarket shop, according to a survey by coupon experts Valassis Limited.

This percentage has increased in recent years from 38% in 2015 and 2014. Nearly half (46%) of all shoppers agree that they spend more time at Christmas seeking out promotions to ensure they keep within their budget, up from 42% in 2016.

The survey by Valassis Limited, the UK’s largest coupon and voucher services provider, shows that 2-for- 1 offers are the most popular promotion with 48% of consumers stating these would entice them to shop away from their main supermarket over the festive season, an increase from 43% last year.

Additionally, 16-24 year olds are the most motivated, with over half (57%) citing 2-for-1 offers as a reason to shop away. These offers are closely followed by Everyday Low Prices (EDLPs) tempting 43% of shoppers and coupons and vouchers favoured by 42%.

Promotions influence not only the supermarket that shoppers frequent, but also the products they buy. Nearly half of shoppers (48%) agree that relevant product coupons sway their decision on the brand they buy and 44% describe themselves as someone who actively seeks out coupons and vouchers before a supermarket shop.

Coupons and vouchers are not just attracting those who have to budget carefully. In fact, more affluent consumers are even more attracted to them: the survey shows 29% of ABC1s agreeing with the statement “I would describe myself as someone who actively seeks out coupons and vouchers,” compared to just 26% of C2DEs.

The Valassis survey results also underline a year-on-year decrease in supermarket loyalty. Consumer loyalty to one supermarket seems long gone, with only 16% of consumers stating they will not shop away from their main supermarket this festive season, down from 21% last year. This lack of loyalty is not just for Christmas, with only 11% of shoppers claiming to visit just one store each month.

The “deep discounters” are, interestingly, the pick of the bunch for shoppers this Christmas with 28% planning to do their main festive shop at Aldi, up from 25% last year, and 27% at Lidl. These shopping intentions are higher than for more mainstream grocery supermarkets.

Looking at the uptake of new technologies within grocery, online grocery shopping/home delivery has increased year-on-year with 25% of consumers stating they use this option either “often” or “always,” compared to 21% in 2016. Self-checkouts continue to increase in popularity, as a result of the rise of top-up shopping trips, with 40% of shoppers saying they often or always use them, up from 26% in 2016. Perhaps not surprisingly and tying in with their confidence in technology, younger age groups (over half of 16-24 and 25-34 year olds) are more likely to use self-checkouts. Beyond grocery, younger shoppers are also more likely to regularly use their phone for digital offers in High Street shops and restaurants – 24% of 16-24 and 30% of 25-34 year olds.

Charles D’Oyly, Valassis’ Managing Director, comments: “With the array of supermarkets being within easy reach of most shoppers, it has never been easier to cherry-pick the best deals. Perhaps the financial crisis of 2007 created a permanently more promotionally savvy shopper. Our research suggests, more than ever before, that deep discounters, 2-for-1s, vouchers and coupons have the strongest influence over the festive food shopping contest this year.”

The survey findings are based on an online survey of 2,002 nationally representative adults, conducted by GfK NOP from 20 to 24 October 2017 on behalf of Valassis Limited.

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