Understanding ‘imperfect inflation’ is key to rivalling the discounters

Throughout my time working in the fast-paced fmcg industry, insight has been at the heart of everything I have advised and acted on. But this current landscape means insight is more valuable than ever before.

As the discounters enjoy a record market share, it’s even more vital for branded manufacturers and supermarkets to work together closely, striving to achieve a truly holistic and up-to-date view of what’s happening in stores.

It is well documented that the discounters are benefiting from the cost of living crisis. Aldi’s share growth and increasing shopper numbers have been widely discussed, with headlines publicising an additional 1.5 million new customers in the last 12 weeks and its ascension to the fourth-largest UK supermarket.

While this may be alarming, we cannot lose sight of the fact supermarkets still retain the vast majority of grocery share – 84% of the market, with brands accounting for 57% of sales – so here is where I’m spending my time and energy.

At IRI we’ve talked to our clients about the ‘imperfect inflation’ we’re experiencing, with the impact being felt unevenly across society. Recent ONS figures show the largest gap between inflation levels felt by the richest and poorest households in over a decade. We’re living in tough times, and that requires creative thinking – a broad-brush approach won’t work. The answers are there, but we need to get forensic.

Our latest IRI Inflation Monitor shows direct price increases are rising faster on cheaper items.

At the same time, price increases on own label are increasing ahead of branded products, and that increase is accelerating. At a total store level, the prices of private label lines increased by 13.5%, while branded increased by 8.6%. It’s against this backdrop that we see shoppers looking elsewhere for perceived better value.

We all agree we need plans to protect the baskets of those in society who need it. Unfortunately, those are the ones who struggle to take advantage of traditional coping strategies such as trading down to cheaper products, discounts for bulk purchasing and paying lower prices for larger packs. We can see impacted shoppers are already buying fewer items, with a quarter removing an item from their basket in the last month. This isn’t good news for anyone.

Understanding and analysing shopper behaviour is key to planning our next steps as an industry. It’s what is needed to help those struggling, and for brands and retailers to prevail.

In this area, we have been working on our recently developed price sensitivity segments. We have identified five different shopper segments based on supermarket shopping behaviour: very price-conscious, price-conscious, mainstream, upmarket and least price-conscious.

Against this backdrop, brands play an essential role. Supermarkets need brands to offer differentiation and choice. While manufacturer price rises have been inevitable, some have been more obvious to consumers than others, and this can have a negative impact all round. In those cases, we all need to understand the consequences and take stock.

We are seeing ‘exclusive’ shoppers of certain brands switching to own label – they are shopping around and are no longer loyal to a product that may have been a non-negotiable once upon a time. And our data shows we’re not talking just one or two instances.

This is having a major impact on big-name brands that bring value to their categories. In one instance, we know a whopping 75% of those who have stopped buying a particular brand are leaving the category, potentially switching to discounters.

Understanding the elasticities of your brands, the price pack architecture of your category and its role within the store, as well as the composition of the basket and the behaviour of the shoppers at shelf, are essential insights. 

We can already see retailers thinking differently, with total store-driven decisions increasing, retailer strategies being prioritised ahead of categories, and shopper needs being put at the forefront.

This all goes back to the creative thinking we need to see. There’s no ‘one size fits all’ approach, but if any industry is up to the task of adapting, it’s this one.