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UK grocery brands face sales collapse

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UK grocery brandsA new study by Engage Management Consultants suggests many UK grocery brands will face a major shortfall in growth. Already hit by reduced consumer confidence, sluggish economic growth and rising input costs, UK grocery brands are also facing strong headwinds as the UK retail sector goes through major upheaval.

UK Grocery brands under pressure as supermarkets decline

For decades, a buoyant supermarket sector has underpinned the growth of grocery brands. But since the financial crisis, the UK retail sector has experienced historic low rates of growth. Today the supermarket sector is not only threatened by macroeconomic trends, but also by changes in shopper behavior. Large grocery stores are currently experiencing significant declines in footfall as shoppers look to emerging retail formats and platforms for their groceries.

Figures from the IGD suggest that, in the coming years, discounters, convenience retailers and online grocers will surge ahead of supermarkets in terms of growth. Significantly, these figures do not even consider the potential threats posed by or the rapid expansion of recipe box purveyors like Gousto and Hello Fresh. Nor do they recognise the impact of home delivery services like Deliveroo or Uber Eats. Lastly, the probable expansion of Amazon’s fresh and grocery offer nationwide is also yet to be accounted for.

UK grocery brands will be disadvantaged by shopper and channel changes

All this is bad news for many UK grocery brands. Most UK grocery brands rely on supermarkets and larger hypermarkets for over 70% of their sales today. The wide ranges displayed on supermarket shelves help brands to encourage shoppers to try new variants, tempt shoppers to sample new products and give marketers the opportunity to entice shoppers to switch brands. Indeed, most large brand owners invest up to 15% of their UK sales value in marketing to shoppers in these environments.

Manufacturer brands tend to perform less well in discount stores which, for the most part, shun major brands. These brands can also struggle to break through in convenience stores where limited ranges lead to a focus on only the biggest of brand names. Online, many brands are battling to secure cut through; whilst an infinite range might appear to be a panacea, few shoppers venture beyond a single page of products and many rely on predefined shopping lists to drive their weekly shop. This means that, all in all, growth in these emerging retail environments is not necessarily reflected in growth for these UK grocery brands.

UK brands could face a sales collapse within the next three years

Engage’s study examines the possibility that for many brands this could lead to a major collapse in growth this year, in 2019 and beyond. The study also suggests that, on average, a brand in the UK could see market share decline by 5 percentage points in the coming years with smaller brands coming off much worse in the future.

Numerous brands have already cut growth forecasts for the UK over the next 5 years, with even some of the largest brand names planning on a decline. This has led to a reduction in brand budgets with many brand managers and insights teams finding their investment plans curtailed or even cut altogether.

Leading UK grocery brands are beginning to respond

The leading lights in the industry are not taking this lying down. Many are rapidly taking proactive steps to mitigate risk and even prosper from the opportunities that this new environment presents. Many of the largest players are currently taking steps to better understand the fast-evolving UK retail landscape, to reassess retail channel priorities as well as to redefine and crystallise future sources of brand growth.

This is leading to a concerted multi-functional effort across consumer marketing, customer marketing and sales, as these combined teams collectively reconsider customer priorities, build more integrated brand and customer plans and determine a vision for the ‘store of the future’. Many of these leaders are taking the opportunity to assemble real and virtual customer-focused teams across all relevant commercial, financial, operational as well human capital development functions, with the aim of blending the best resource to deliver against cross functional initiatives which will underpin future sustainable growth.

These businesses are better placed to weather the storm. However, they represent only a small minority of the UK’s branded manufacturers. Many of the others are struggling to identify where to start and how to engage cross-functionally to formulate a response.

There are accessible solutions to the UK Brand problem

To support leaders and managers in the industry during these tempestuous times, Engage has partnered with a team of UK and Global industry experts in order to build a roadmap that describes the key actions that companies should be planning for the future as well as helping them to identify immediate opportunities to begin working together ever more closely as a team.

Both the roadmap and Engage’s findings are freely available to managers in the consumer goods sector. If you would like our experts to share these with you as well as taking the opportunity to discuss some of the specific issues that you face, then please don’t hesitate to book an appointment to meet us by contacting me today.

Online Grocery Shopping – Why it’s not working

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Online grocery shopping

China arguably leads the world in online grocery shopping with some categories seeing more than 40% of sales online. When asked why this might be, a small group of Chinese online grocery shoppers offered a number of opinions: “It’s convenient,” said one, “I don’t have to drive to the store, I shop before I leave work and groceries are delivered soon after”. “It’s easier to get what I want,” said another, “in regular shops I often can’t find the right product”. A third said. “I hate going to regular stores, they’re dirty and uncomfortable, my mum used to shop in a market for us when we were kids, but that’s not for me”. For these shoppers, online grocery shopping offers a significantly better experience than they get in the real world.

Elsewhere though shoppers clearly don’t seem to agree. Rumor has it for instance that when Tesco launched online shopping in Malaysia, they only managed to secure 35 transactions a week. Even in the UK, arguably the world’s most developed e-commerce market, only 5% of grocery sales are online. Why is this? Not having completed an in-depth survey, I can only offer hypotheses, but I can suggest three reasons why I think many shoppers still prefer to buy groceries in the real world.

Online Grocery Shopping is not intuitive

Online sales have taken off in the entertainment industry because the product is so simple; if you like a song or a movie, you search for it, and there it is. There may be a few versions knocking around but it only takes a few seconds to find the one you’re looking for. Grocery products aren’t like that, categories might include hundreds of individual products, categorized into different segments, differentiated by brands and then further broken down into variants, pack types and pack sizes.

In the physical world, grocery shoppers have developed intuitive coping strategies to deal with this, filtering out the extraneous and focusing in on just the product they’re looking for. When the precise product isn’t there, they switch to a substitute. Equally shoppers in the real world are rarely as specific about what they want as they need to be in the online world: How often have you found yourself putting ‘beef’ or ‘veggies’ on your list knowing that you’ll choose what looks good when you get there?

Online grocery shopping is different, you’re required to know what you want and all but a few search systems are intuitive enough to help a lost shopper. As a result many shoppers may prefer to stay with the store they habitually visit rather than change.

Online grocery shopping is not trustworthy

I suspect that online grocery shoppers hold web-stores to a far higher standard than they do regular ones. In the real world, it’s not uncommon to find lines out-of-stock; one audit of Asda we did in the UK found 12% of lines off-sale. Real-world shoppers have learnt in many cases to cope with this reality and to substitute or go elsewhere.

However, I believe that online grocery shoppers have an automatic assumption of availability. I’m guessing this is born largely out of their experience of shopping for other products online: When you buy a track in ITunes, it’s delivered immediately; if you buy a book at Amazon, it’s dispatched in days. I’m guessing that since many online grocery shoppers’ first experience online was like this, they feel let down when the product they want isn’t available in the online grocery store.

Further, when grocery products that have been ordered online don’t turn up, shoppers get even more frustrated. I’m pretty sure that for many this sort of experience leads them back to doing things the old way.

Online grocery shopping isn’t ‘social’

My third hypothesis is that that many offline grocery shoppers who don’t make the switch online, choose to continue shopping in stores because ‘it gets them out of the house’. For many, going out to shop is a social occasion which can’t be easily replaced online.

In research we’ve done, shoppers often rate the availability of help and information third only to convenience and range when it comes to selecting a grocery store. For many shoppers, the absence of a personal contact, may frustrate those seeking a hard-to-find product let alone those seeking input or advice.

Making online grocery shopping work better

If any of these hypotheses were proven true, this would give some valuable insights to the grocery trade on how to elevate the performance of their online stores. Such insight might lead to more personalized and better curated online environments which satisfy the needs of shoppers better. Equally this might enable web-stores to improve their product availability in more targeted ways (and enhance their forecasting capability). Lastly, learning what turns shoppers off online grocery environments would help create more engaging customer service experiences.

It occurs to me, however that very little of this insight exists today, and if it does exist, it’s not being published. So perhaps it’s time we addressed this. If you have information that might shed light on why so few shoppers go online, or would like to share other hypotheses, please get in touch.

Image from Wikipedia.

Promotions – a hard habit to break

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I work in an industry that is addicted to promotions.  An average consumer goods company will spend 10% of gross sales on promotions. Applied to the world’s 250 leading consumer goods companies this equates to an annual promotions spend of close to US$310 Billion. That’s roughly US$44 spent for every person on the planet and nearly twice as much as is spent on cancer research every year in the EU. And yet research suggests that less than one third of promotions break even (see page 18 of “The Shopper Marketing Revolution“). Promotions have become a habit that many will find difficult to quit, even if ultimately it may kill their business.

How did we get hooked on promotions?

Let’s be honest, promotions were not always a bad idea. Every now and again a great offer enticed new buyers to the brand and get loyalists to stock up or prevent them from trying something else. In those days promotions could be planned well in advance, production could gear up for them and they’d even become an event. Retailers, then, unlike now, were unconsolidated and the extra sales were a welcome bonus from an appreciated supplier.

Then the world of marketing changed, consumers stopped attending to adverts and retail became dominated by massive brands and so promotions became a more important part of the effort to persuade consumers to buy the brand in-store. As retailers grew, promotions then became an essential cornerstone of both their corporate profitability and their brand positioning. When the balance of power shifted towards the retailers, promotions became an essential part of the contracts manufacturers signed to get their goods into stores.

The pernicious promotions addiction

Today promotions are a habit. As shoppers we are used to stores and websites dripping with messages about the latest offers. Manufacturers dedicate not only huge financial resources to promoting but also huge human resources. Over the last couple of weeks, I’ve been working with two very different companies in very diverse markets and yet in both, managers estimate nearly 80% of the time is spent planning, executing and evaluating promotions. Retailers too are preoccupied by promotions; Morrison’s is just the latest UK retailer to announce further price cuts in response to declining sales.

This is a pernicious addiction: some brands claim that 80% of their sales are made on promotion and others report they are on promotion more often than not. Demand for most brands is simply insufficiently elastic to pay for this: Even a reasonably profitable brand (making say 25% EBIT) would have to sell 66% more in order to break-even on a 10% price discount (see page 219 of “The Shopper Marketing Revolution“). According to Deloitte’s, the average composite net margin of a global consumer goods business is 9.6%, so for most securing a break-even is probably economically impossible.

Promotions are a hard habit to quit

So why not just quit? The blunt answer is either fear or ignorance. Fear is a powerful reason for not changing behavior in any context. The risks of stopping promotions are clear: shoppers might go elsewhere; retailers might withhold support, or; competitors might fill the gap. All of these would be reasonable reasons to continue if they were proved true but so often they are not, which leads to the other reason why we continue to promote which is ignorance.

In truth most managers don’t know if shoppers would leave the brand or not, but even if they did, many managers have no idea which shoppers would leave. In most categories the market can be split into deal buyers and loyalists. The consequence of losing deal buyers would certainly be lower volumes but concurrently could also drive better profits. For many, today, it’s tough to access this equation so the risk of quitting remains unquantified.

Likewise discussions with retailers almost always revolve around price and margin despite nearly 30 years of effort to change this. In the absence of tried and tested alternatives, maintaining the status quo is far easier. Lastly, since most manufacturers are unprepared to change, it’s almost impossible to gauge what the competition will do and so the habit persists.

Breaking the promotions habit

Knowledge is the only cure for fear and ignorance. If brands want to learn what will happen if they stop promoting, they could just stop and find out, but that’s fraught with risk. The logical alternative is to test and learn in the same way tech start-ups do: Try a limited, targeted pilot and see what happens, take the learning forward into the next pilot and keep learning until you have so much knowledge about what works and what doesn’t that fear and ignorance become things of the past.

The technology now exists to micro-target shoppers and retail has always been a phenomenal laboratory, so defining a discrete shopper group and a small group of stores makes this sort of testing easier. If the risk is still too great then virtual stores can be a solution. And whilst its potentially costly to conduct research in this field, the payback is enormous – breaking even on every promotion would double the profits of the almost everyone of the top 250 consumer goods firms.

Let us help

We’d be delighted to help you quit your promotions habit, if you’d like to know more about how we can help, contact me.

Big Data in Shopper Marketing

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Streams Collide

It’s high time we started thinking about the implications of Big Data on Shopper Marketing. For the last five years, the promise of Big Data has begun to influence marketers’ thinking on how they might improve targeting, investment planning and the evaluation of execution. Concurrently marketers have also embraced the fundamental idea that just marketing to consumers just isn’t enough to secure a purchase.

These two streams of thought are about to collide in interesting and important ways that many marketers have yet to consider.

Shopper Marketing depends on Big Data

Shopper Marketing remains a misunderstood practice, many still labor in the mistaken belief that Shopper Marketing is all about executing activities in shops. This is wrong. Shopper Marketing is the Marketing process of determining a marketing mix which will change the purchasing behavior of a targeted group of shoppers in order to deliver specific consumption opportunities.

By its very nature, Shopper Marketing is complex: there may be numerous opportunities to drive consumption of a brand, all with different target shoppers who’s behavior might be influenced in a wide range of retail environments (both online and offline). Getting this right requires a great deal of insight.

Developing such insight requires a lot of data, from a number of sources. This data must be effectively combined and analyzed. Let me give you an example, we worked with Sony to determine the optimum mix of in-store investment required to drive TV sales in China (see The Shopper Marketing Revolution for more information). Based on behavioral research we identified over two million combinations of in-store activity might have an impact on shoppers’ behavior. Defining which combinations might be optimal, in which outlets, is a big data challenge.

Big Data means big changes in Shopper Marketing

Today’s Shopper Marketing teams are often too fixated on the execution of activity, much of which differs very little from sales promotion and merchandising tactics that have been used for decades (though perhaps now they have a few more bells and whistles). These activities are often procured from creative agencies who are briefed on the basis of scant information. The agencies themselves almost always lack the ability to develop insights for clients independently, so their process is driven by creative ideation which takes place in a data vacuum. The result is nice ideas that win awards but not shoppers.

The convergence of Big Data and Shopper Marketing is likely to make the entire process much more scientific. This doesn’t negate the role of creative thinking at all, what it means is that creative ideation will take place in the context of truth rather than assumption. Further it will shift the current power base away from the agency and toward the marketers themselves as they create better briefs and seek out better quality agency partners.

Big Data in Shopper Marketing demands big changes

This is all a tall order. According to our surveys (we’ll shortly be publishing our findings in South Africa and Ireland), Shopper Marketing teams believe they lack the capability to deliver even against today’s shopper marketing challenges. The introduction of massive data sets is likely to make things worse not better.

I’m concerned about the extent to which organizations have started to consider the implications of this. For instance we’re working today on a relatively simple brand and channel prioritization project which requires managers to combine easy to access data sets and many managers are finding this challenging. As channels proliferate and micro targeting becomes essential, the data science requirements will far outstrip the abilities of these managers.

Greater volumes of better quality data and greater complexity will demand the use of the sort of data science that is currently in play in the financial sector. The practical implication of this is that a great deal of tasks will become automated leading to widespread changes in working practices internally and in the interactions between manufacturers and retail partners.

What is to be done?

It seems to me that change is inevitable (it always has been) so I’d urge leading marketers to actively plan ahead. If you’re in this space, here’s four things I believe you should be doing now:

  1. Learn more about the implications of big data and shopper marketing – understanding the potential opportunities that are at hand and the potential pitfalls ahead will help you plan for the impending change.
  2. Act as if the change has already happened – lead the organization towards embracing big data and shopper marketing as an imperative rather than waiting to be led by your competition.
  3. Recruit better people than you – if, like me, you are in your 40’s the chances are you will never master the skills needed in the future, so it’s time to bring people into your team who already have those skills, or could develop them quickly.
  4. Demand better service – Seek out those agencies who can demonstrate their ability to drive insight from data and can show how their creative responses to this have delivered actual behavioral change.

At the very least, marketing leaders should be provoking a debate within their organisation, if you want help with that, contact me.

Image accessed from http://jalle-astro.fr/wp/tag/universite-de-bordeaux/

Shopper Marketing 101 – Product Availability

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Which would you buy?
Which would you buy?

With all the talk surrounding advances in shopper marketing, many marketers might be tempted to forget that the biggest single influencer of shopper behavior is product availability. Put it this way, if a shopper can’t find the product, she won’t buy the product and chances are, she’ll buy a substitute instead.

With the vast majority of purchases being made on the home shelf in stores and off the regular page online, ensuring your product is present and visible is the first responsibility of the shopper marketing team. This might sound like a glib statement but ensuring product availability is surprisingly tough to get right and astoundingly easy to get wrong.

Here’s a few simple rules every shopper marketer should bear in mind.

Make sure it’s ‘there’

Ok, I know this is really basic but a shopper can’t buy your product if it’s not for sale where they are shopping. This doesn’t mean that your product has to be everywhere – I’m not suggesting that anything less than 100% distribution is a failure. What I am urging, though, is that brands understand who their target shopper is, what he wants to buy and where he wants to buy it.

This means that range and distribution targets should be set with the target shopper in mind and not just based on the efficiency of any given route-to-market. In today’s grocery markets the tectonic plates of retail are shifting; big-box, one-stop shops are giving ground to online outlets, discounters and convenience stores. Waiting for these channels to become significant for your brand may make your brand insignificant as the shoppers who are flocking to these environments choose your competitors and not you.

Shopper marketers are stewards of a brand’s future and their challenge is to always ensure that there’s a product available to the brand’s shoppers, wherever they choose to shop.

Just because it’s ‘there’ doesn’t mean it’s ‘there’

Be super careful of relying on inventory reporting for peace of mind. The fact that a product might be showing up as being in distribution doesn’t necessarily mean that it’s available for purchase. As a sales guy years ago a lot of the time I wasted in stores was spent hunting through stock rooms trying to find that box of Twix that had been delivered but hadn’t made it to the shelf.

In online stores, shoppers expect to be able to receive everything they want at the same time, so if your product isn’t in-stock, even when it’s on the page, there’ll be a bunch of folks who choose the other brand that is there.

As a shopper marketer, the only time you can relax is when you know your product is available to buy, in the right place and in sufficient quantity to meet your shoppers’ demand. (I know that means, like, never!)

Just because it’s ‘there’ doesn’t mean that it’s fit for purchase

Have a look at the pic I posted above, now have a look again – which bottle would you buy? The one full to the brim or the one that only looks part full? I’m guessing you and I would come to the same conclusion – the one that’s full!

As shoppers we always want the best, so apparent product quality is a must. Damaged and dirty goods turn us off and whilst a committed shopper might look for a perfect pack, others may just as quickly switch to something else. The same holds true online, perhaps more so, if the product imagery doesn’t look outstanding, some shoppers will go elsewhere.

As a shopper marketer, doing your level best to nail the quality of your presentation in store is a great way to win shoppers for your brand.

Just because its ‘there’ doesn’t mean I can see it

Shops are busy places and shoppers are busy people, in the average superstore, shoppers will browse a category for 30 seconds – that’s 30 seconds to find your product amongst the other 200 or so products on sale. In surveys we’ve done, shoppers often cite not being able to find a product on shelf as the key reason why they switch brands. Scarily, in many of the cases, the product was on shelf, just not in a place where it was easy to find.

On a website, particularly one that sells grocery products, getting visibility is going to get harder: Here algorithms determine what shoppers see. As these algorithms get smarter, so the pressure on shopper marketers will increase. But for shopper marketers, obsessing about how visibility can be constantly improved is far more likely to pay greater dividends than the next big thematic activity.

So what does all this mean?

An awful lot of ‘shopper marketing’ initiatives seem to focus on the short-term delivery of great communications gimmicks or super, shiny, new promotions. Indeed one team I work with currently spends over 80% of their time working on promotions alone.  Interestingly though, as we’ve worked through a re-organization process, the team has learnt the true RoI their efforts and it’s not pretty.

Uncovering the true value of product availability by contrast has had a profound effect on way this team thinks and on the way they will organize themselves. Their new plan is to focus over half of their resources on continuous improvement of product availability. I think this is the mark of a true shopper marketing team; one that knows that marketing to shoppers requires the use of the full range arrows in their quiver – availability, communication and offer.

In our book, “The Shopper Marketing Revolution”, Mike Anthony and I explore what it takes to make a great shopper marketing team and we talk extensively about getting product availability right. Incidentally, the book is available to shoppers globally, just click here!