The much-anticipated autumn budget from the Labour government brings several significant changes that are expected to affect fmcg retailers and manufacturers.
Key takeaways are the increase in employer National Insurance contributions, the 6.7% rise in the minimum wage for workers aged 21 and new reforms in working practices, projected to add £5bn annually to operational costs.
Adding to these pressures, the extended producer responsibility scheme is set to begin its first payment phase this year, with an estimated cost of £3bn.
Altogether, these changes mean fmcg manufacturers will face rising operational costs in 2025, which will be likely to affect their profit margins and financial planning.
The recent budget includes measures aimed at supporting low-income households across the UK. However, by freezing income tax thresholds, it offers limited relief to boost the spending power of financially strained shoppers. For older adults, the pressure on household budgets may become even tougher, due to the rise in the energy price cap and the removal of the winter fuel allowance.
As a result, we can expect the gradual easing of the cost of living pressures to continue at a similar, slow pace. This likely means a sustained period of modest demand and limited volume growth across the market.
While the government may have assured the public that austerity won’t return, fmcg manufacturers face a different reality. Costs will need to be managed carefully and efficiency will be the watchword for 2025 as businesses navigate rising expenses.
Efficiency isn’t about cutting costs or reducing investment. Instead, it’s about optimising the return on every investment made. In 2025, every expenditure will need careful analysis to ensure maximum impact.
Read more:
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The budget as it happened and what it means for fmcg
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Your reactions to the new government’s £40bn tax-raising budget
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Budget is playing a dangerous game with food price inflation
As market volume growth remains slow, manufacturers will need to strategically invest in both brand building and targeted promotions to increase volume share. A key focus will be maximising the sales uplift from in-store promotions, driving additional purchases beyond planned sales.
Manufacturers have two primary strategies to boost promotional sales: securing additional off-shelf secondary displays or increasing the discount depth on shelf promotions. Analysis by Circana shows core food brands that increased discount levels over the past year have underperformed compared with brands that reduced discounts. In contrast, brands with more off-shelf displays have seen significantly stronger performance than their counterparts, indicating that off-shelf displays are a more effective method for driving promotional uplift and supporting sales growth.
Furthermore, analysis reveals that off-shelf display delivers diminishing returns at higher deal depths, meaning manufacturers can potentially use off-shelf display to reduce deal depths and deliver significantly higher uplifts.
For many brands, off-shelf displays are not a viable option, meaning they must rely on on-shelf promotions to boost volume share. For these brands, choosing the right promotional mechanic is crucial. Our research highlights clear trends: ‘round pound’ price points tend to deliver strong results, while multibuy promotions yield much lower sales uplifts. This makes the selection of an effective promotional format key for driving success in on-shelf promotions.
Sales promotion is just one of many growth drivers fmcg manufacturers will need to use in 2025. However, identifying these types of efficiencies is essential for securing cost-effective growth and avoiding more drastic cost-cutting measures.
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