With growing inflationary pressures across Europe, we will almost certainly see a shake up in the market over the coming months. Euan Jarvie, President of Europe, Middle East and Africa (EMEA) at IRI, looks at the challenges for FMCG brands.
Already dealing with the fallout of the pandemic, consumers and consumer-facing businesses are now dealing with a cost-of-living crisis that I don’t think any of us were prepared for. The impact on how we shop and consume FMCG brands has accelerated many of the changes that were already coming, such as online and growth in e-commerce and fast-food delivery services.
The current crisis is one of more material impact to many manufacturers, and once again they will have to be agile and quick to adapt, looking to stimulate and service the demand created.
There may be an opportunity to use the learnings and adaptability from the pandemic as manufacturers try and maintain a cost base as efficiently as possible without passing on higher costs through the supply chain.
It will be critical to navigate through the immediate challenges, including rising commodity prices, transport and packaging costs, and shortages in raw materials, as well as the cost-of-living challenges in Europe. Value and consistency today from manufacturers will be rewarded in loyalty and repetition from consumers in the future.
Determine A Point Of Difference
Many brands will need to find a key point of difference to stand out from the crowd as shoppers change the way they shop and what they buy. Mid-size manufacturers are in danger of being squeezed out, both from the bottom by new and niche players, and from the top by the big (often global) brands. Private label may become an even greater threat for brands as shoppers look for bargains as the crisis worsens.
In IRI’s Inflation analysis, Beyond the Headlines: A different mindset for a different inflation, we call this the ‘squeezed middle’, where large manufacturers have relatively greater resilience and the ability to successfully mitigate the effects of inflation, while mid-sized companies face margin erosion and sales declines, and the added threat of price wars.
In categories where there are strong local players already, like snacks, ready meals, confectionery and dairy, brands can really drive home their point of difference. The provenance of brands, as well as brand values like sustainability, eco credentials, and so on, need to count in the current climate, as well as the value equation.
Quality And Dependability
There are examples of price pressure and trading down in some categories right now, such as a trading down in baby food (but interestingly not dog food) in the UK. But there are also examples of specific brands that are able to hold their position and price through a combination of quality and dependability.
While consumers tighten their purse strings, brands like Heinz Ketchup, Irn-Bru and Nescafe Gold Blend have a genuine position and perception in the mind of the shopper. They have a personality and consistency to their offer, which has created a level of loyalty that allows the consumer to make their choice based on other things than just price.
Food manufacturers can also learn important lessons from non-food companies, which proved to be resilient during the pandemic and continue to adapt during the current inflationary period by optimising their portfolio and range, carrying lower stock levels and being more disciplined about promotions.
The year ahead will create challenges and opportunities for FMCG brands. Right now, they need to be asking some big questions about what makes them stand out in their market – and their category – and how they can stay relevant to consumers.
IRI’s analysis examining inflation and the impact for FMCG organisations was published in March 2022. For more information, click here.