Can innovation reverse the decline in sales?

With promotions no longer exciting consumers and driving increased volume sales the way they used to, a need for innovation has come to the fore. As consumers reacted to continued pressure on their budgets by deal-hunting to save money, brands and retailers in Europe increased promotions in the hope of combating the drop in unit sales caused by people cutting back on spending. Personal care saw the largest average year-on-year increase in volume on promotion of all categories, up 7% in the last year (IRI’s Price and Promotion Special Report, July 2013). Yet these offers had little effect, as volume sales fell by 1.1% and value sales by 0.4% compared with the previous year – while volume sales across all FMCG categories dipped 0.1%. The personal care category also achieved the lowest average price increase, at just 0.7%. Where it exists, growth is fragile. Although products that clearly and directly serve a consumer need are faring well across Europe – including mouthwash, toothpaste, hair care, shower gels, liquid soaps and sun care – this tends to be due to extensive promotions. And in countries where turnover is more dynamic, including the UK, Germany and France, lines such as hair care are only growing in value terms because prices are rising; volumes are actually decreasing. While promotions have played an invaluable role in helping shoppers meet the rising cost of their grocery shopping baskets, people have become used to them. After a while their loyalty towards brands and stores erodes as they chase the best bargain, making it difficult for manufacturers to raise prices in the future.

Consumers have realised they can ‘do without’

Squeezed by austerity measures, customers are trading down – although not yet to private label in any large numbers – but they are also doing something rather more ruthless. Shoppers are prioritising food over what they see as non-essentials, cutting back the purchases they make in personal care and household for instance. This is particularly true in Spain, Netherlands and Italy, where unemployment is still high or on the increase. Within the category, some segments are suffering more than most, including facial care and fragrances, which lost e193 million in value sales over the last year (Source: IRI Pulse Report Q2 2013). Others, particularly hygiene products, are more immune to shoppers’ recessionary behaviour as they are deemed more essential. The cosmetics segment, however, is growing in Europe, with value sales up just over 8% (e24 million) compared to last year as shoppers look to treat themselves with ‘small indulgences’ such as a new lipstick or mascara.