The FINANCIAL — Times are changing for Europe’s retail food market, and operators are consequently finding it increasingly difficult to boost their sales.
The FINANCIAL — Times are changing for Europe’s retail food market, and operators are consequently finding it increasingly difficult to boost their sales. Three agents of change have affected food retailing in Europe over the last 20 years. Europe’s markets initially swelled with rapid store expansion and the discount channel boomed. But the wind fell from the growth sails when consumer demand weakened following the economic crises of 2008. Recently, the effects of these factors have culminated to stifle growth, according to The Nielsen Company.
As a result, the only underlying increases in sales Europe has experienced since 2006 has come from price inflation. Headline consumer packaged goods (CPG) value sales growth across Europe slowed again in 2013, dropping to 2.5 percent with volumes once again flat (-0.1%). As a result, how well the CPG industry, particularly in Western Europe, handles the next 12 months or more will hinge on how well companies learn to live with flat—or negative—sales volumes.
So how are retailers adjusting to a market with structural limitations to sales growth and an oversupply of stores at a time of falling demand? For some, the challenges have inspired bold and new initiatives.
While the rise of the modern convenience store and steps into e-commerce are long-term opportunities, retailer disruption around private label is having a more immediate impact on the current trading environment, according to The Nielsen Company.
In fact, Nielsen has observed that the weak economic recovery, resulting low consumer confidence and falling real incomes since 2009 have had a positive effect on consumers’ acceptance of private-label goods.
Private label growth in some countries has been due to retailer “pull,” whereby companies are pulling shoppers into buying private label using methods like advertising and touting value for money. Germany is a good example of a market where discounters have led private label growth. In other countries, such as Spain and Italy, the growth of private label has been fostered by an economic “push,” where conditions are pushing consumers to shop differently, according to The Nielsen Company.
There are, however, some consistent themes across Western Europe, such as:
The number of private-label items available to the consumer has increased 4 percent;
The share of sales that private label accounts for has grown, increasing to 36 percent (and growing faster in Italy and Spain); and
In cases where brands have driven promotional spending, as has been the case in the U.K., the efforts have effectively acted as a ceiling capping private label growth.
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