British consumers are now fully used to shopping on promotion.
Research from Nielsen shows we buy about one third of our grocery products 'on deal' and that figure is set to increase in coming years.
And total promotions across all grocery are 25% higher than last year, according to figures from Dunnhumby, the company behind Tesco's Clubcard.
Indeed, when the cost of a grocery shopping basket stopped rising in March for the first time in six months, as revealed by The Grocer, promotions were the chief factor behind it.
It seems the high-street price war is keeping a lid on our food prices even as global conditions suggest prices should be rising by more than the 4.4% they have, according to our latest weekly survey, in the past year.
Tesco and Asda, in particular, are attempting to match the low-price offer of the discounters as valuable high-end consumers see that they can save money by spreading their weekly shops across several different stores in order to catch various price promotions.
Tesco, Asda and Sainsbury's are also hoping to keep pace with the promotional strategy that has served Morrisons so phenomenally well since before Christmas.
But as retailers thrive on the added footfall provided by a sparkling range of promotions, suppliers, as ever, admit to feeling overwhelmed by the retailers' constant drive for more price cuts on their products.
Our fourth annual trade promotions survey, in association with Billetts, shows manufacturers being driven harder, shifting more volume through promotional activity and having to spend ever-greater sums to achieve this.
Last year's survey revealed that 43% of suppliers sell more than two fifths of their product on promotion. This year's research, which is based on the responses of hundreds of manufacturers accounting for well over £2bn worth of trade spend per year, show that figure has risen to 46%.
What is disturbing from the manufacturers' point of view is how many feel the return on investment does not justify their increasing promotional spend.
"We drive significant volume. However the level of incremental profit is low," says one supplier bitterly, adding: "We have the requirement to promote as a result of retailers chasing like for likes."
Where in 2005 only 2% of respondents felt they spent "far too much" on promotions, this year some 21% say the same thing.
There is, however, a chink of light for the suppliers. The survey reveals a small but perhaps significant step change in the way retailers engage with their manufacturing partners.
First, there's execution. As the boxout on page 32 shows, retailers' levels of compliance were almost universally up, with Morrisons surging ahead and Iceland posting the sharpest rise in compliance, up 10%. Even Sainsbury's, despite slipping back somewhat, is far ahead of its 2005 performance.
And while most respondents (71%) believe that retailers benefit the most from promotions, this represents a slight decline in the number of suppliers with that view.
This correlates with a steady increase in the average score given by manufacturers for the view that "most retailers are driving promotional strategies that make sense for our categories".
Is this an indication that retailers are getting better at targeting promotional activity on expandable categories where promotions can drive benefit for both manufacturer and retailer?
Many of the respondents' quotes would suggest not. "Retailers' margins are maintained, their point of sale is paid for, their space is paid for, there's only one winner," says one supplier, and most agree. But the figures don't lie.
As the table on page 34 shows, more manufacturers believe promotional sales are being targeted in expandable categories and away from the types of product, such as toothpaste, that will not be used any faster by consumers just because they bought three items for the price of two.
It is in the more profitable expandable categories where the growth of promotional activity has been most pronounced in the past year and where growth is expected to be greatest in the coming 12 months.
This adds weight to the idea that retailers are becoming more focused in their use of promotions, targeting the categories more likely to deliver incremental sales.
Manufacturers were also asked to rate whether retailer strategy is becoming more equitable when working together on promotions.
They were told to indicate how strongly they feel retailers benefit from promotions by giving a score between 0% and 100%, where 100% represents the belief that retailers benefit the most and 0% equates to a feeling that the opposite is true.
The average score given was 73.3%. This has dipped from 76.6% last year and 80% the year before - the implication being that manufacturers are beginning to feel more ownership of their promotions with retailers.
And asked how many of them feel positive about promotional strategies, the score has sneaked up from 43.3% two years ago to 50% this year, the second successive rise.
"Admittedly," says Billets director Ian Fermor, "the key story from responses is still the frustration at the level of forced promotions.
"But there is a slight change in results. We're in the privileged position of having monitored this year-on-year-on-year and there is evidence that retailers are working hard on sharing the benefits."
Dave Charlton, supply chain availability manager at Kimberly-Clark, agrees. "Though there is still a lot of one party hitting the other with a stick when promotions go wrong, Tesco and Asda in particular are taking more responsibility for working with suppliers on activity."
But despite the good news, problems remain. "There is lots of short termism in the market when it comes to promotions," says Charlton.
"It comes from stores trying to fight a price war. Promotions will often be agreed within the trading environment between the retail buyer and his or her main contact at the manufacturer with no thought for stock supply or logistics."
Charlton's last point is one shared in the majority of responses to the survey. If there is increasing goodwill among retailers and manufacturers over the shared handling of promotional activity, it is still yet to significantly shift the general sense of gloom that hangs over the landscape.
Most suppliers still feel that too many promotions are there to drive volume at the expense of profit.
While the score for 'driving profit' has remained relatively constant over the past four years, there has been an increase in the score for "driving volume" and "driving retailer relationships". The focus on the latter pair is visible in many of the comments returned by participants.
"We break even at best," says one manufacturer, while another says "profit is reducing over time". Others complain of the retailers lacking "sufficient strategic vision".
Return on investment emerges as a key theme in this year's survey. Volumes, it seems, are only increasing slightly while spend is increasing substantially and the net result for suppliers is lower ROI.
"Trade promo spend is increasing at double-digit rates whilst volume is only growing at low single digits," says one unhappy manufacturer.
The current level of promotional activity is a natural consequence of highly competitive markets, both between competing manufacturer brands and between competing retailer brands.
The sheer number of promotions running in a single store at any one time can be a problem as far as suppliers are concerned.
One supplier told The Grocer that there is often not the room or flexibility on the retailers' promotional calendars to negotiate the exact promotion they want to pay for and that the 'second best' option doesn't return them good value for their money.
"Shelf promotions are just a massive headache," says the source, "because the shelf barker and price tickets all need to be changed, which store staff don't often have the manpower or time to do, so consumers don't always see the offer."
Gondola ends generate far more sales because of their visibility, the source adds. This means every big supplier wants a gondola end of which there are only so many in a store. It follows then that retailers can charge much more for gondola ends. "Tesco," claims the source, "can charge a £250,000 fee for a three-week gondola end promotion. That's really expensive and often renders the promotion worthless to the supplier.
"We have several brands in our portfolio that we can't afford to promote at the end of an aisle because the activity wouldn't justify the fee, so we have to promote them from the shelf."
Such complaints are likely to increase in volume as market economics contrive to meet consumers' desire for valued brands at low prices. With the current inflationary pressures on the economy it is difficult to envisage a scenario where the pressure to promote is eased - a point well noted by most manufacturers.
In spite of the evidence of a slight increase in satisfaction with retailers' promotional strategy, when asked what their biggest single concern for the next 12 months is, the majority of manufacturers talked of their fears of the retailers' power and their appetite for deep discount activity.
Suppliers fear the next year will see retailers demand more promotions and only accept necessary price increases if this demand is met. Others worry about the "obscene levels of discount that do not deliver consumer uplift, value or profitability".
There can be no doubt that such concerns are genuine for very many manufacturers. But despite such worries, the report concludes with some cause for optimism.
Retailers have an imperative to drive footfall and share of spend and that will continue to place them in conflict with brand owners. There is further implicit conflict, adds Fermor, in how any promotional profits are shared between manufacturer and retailer.
But while promotions are unlikely to decrease in frequency, he says, "it is possible that we could see greater harmony in the promotional strategies of manufacturers and retailers".
In addition, there is also evidence that retailer strategy is being targeted more on expandable categories, where genuine profits can be made, and away from non-expandable categories where manufacturers are feeling most pressurised by the weight of promotional activity.
The 2009 survey will determine whether these apparent chinks of light are real or imaginary.
n To receive a copy of The Grocer/Billetts Trade Investment Survey, please send an email to
ianf@billetts.comSuppliers can make a case for change
Why don't manufacturers have more power when establishing the rules for their promotional activity with retailers? Actually, says Aiden Bocci, chief executive at consultancy firm Commercial Advantage, they do.
"There are two sides to every equation," says Bocci. "It's true that retailers can be awkward about their promotions. They can only allow a certain number of promotions, per category, per time period and it all has to fit into a fixed promotional calendar." This strict time frame, Bocci says, helps retailers ensure there aren't too many confusing messages for the consumer and that maximum profit can be made from brands at any one time. It therefore dictates whether manufacturers' submitted plans for promotions will be accepted or not.
"But it is essential for suppliers to ensure the promotions finally agreed help them deliver their brand objectives through the retailer," he adds. "Don't assume that because the retailer wants a 20%-off or x-for-y offer that you can't convince them of the value of a different promotional mechanic. If your brand objective is to trial a new product you are going to prefer a price-cut or sample-type activity as opposed to a multibuy."
A promotion that doesn't align with a manufacturer's brand objective is going to destroy its brand value and that is no good for the manufacturer or the retailer, says Bocci.
Is Bocci's view feasible, though? How much do retailers care about the brand objectives of manufacturers? No smart retailer is ever likely to sit down to plan their promotional calendar and pledge to try and achieve every objective of every supplier they use.
The retailers' objectives are to use the brands as best they can to help build their own businesses by selling the best and most desirable products under their own umbrella.
"That's very true," says Bocci, "retailers see the top brands at the right prices only as the key to increasing footfall in their stores. But they also don't want to lose the relationships they have with the manufacturers to a rival retailer. Retailers are clever enough to recognise that it's the nuances of how decisions are made and how money is spent that can determine whether a promotion can work for both parties."
In other words, retailers will negotiate with suppliers over different types of promotions as long as the suppliers can make a good case for change. "Everybody thinks it's tough to negotiate because of the power grocers have. But if you only blame the marketplace around you, you'll never win. Be confident you're arguing for the correct reasons and the likelihood is that retailers will agree with you."table 5: meeting objectives
Driving sales
200570%
200673.3%
200780%
200876.6%
Driving profit
200548.3%
200643.3%
200750%
200846.6%
Driving retailer relationships
200565%
200663.3%
200771.6%
200876.6%table 6: opportunities
More sales on promotion in the past 12 months
Non-expandable40%
Expandable56%
More sales on promotion expected in the next 12 months
Non-expandable33%
Expandable44%
Too much spend on promotions
Non-expandable53%
Expandable44%Tesco falls in compliance Olympics
The frustration manufacturers feel about the lack of control they have over a promotion's execution in-store is a theme that stands out consistently in the survey. Complaints of retailers changing their minds over key details are common, whether that be the number of stores a promotion runs in or the number of weeks it runs for, the mechanic or price.
One supplier said that when checking a recent major promotion in one retailer's stores on the first day of the activity, compliance was as low as 50%, mainly because store teams lacked the resources to manage the promotion properly.
No surprise, then, that suppliers have strong opinions on which retailers provide the best and most effective executions, and appreciate retailers that are professional, flexible and easy to deal with.
Tesco has been the manufacturers' champion in the past two years but no longer tops the podium for executing in-store promotions. It has been leapfrogged by Morrisons this year, confirming its renaissance under Marc Bolland, while Iceland has come from fifth to snatch the runner-up's spot, indicating the successful emphasis on low-price offers by the value-end supermarkets. "We always recognised the excellence of Morrisons at promotional execution," says Fermor. "It consistently delivers much higher levels of off-shelf display than other multiples."
However, the relegation of Tesco to third, says the report, is not necessarily a measure of declining performance. "Rather, Tesco hasn't improved to the same extent as other retailers."
The comments of respondents underline this. Their high regard for Tesco's promotional execution is characterised by descriptions of Tesco's systems as "disciplined" and "sound". One supplier says of Tesco: "Communication to store is good and products often have more feature support than agreed."
Sainsbury's and Asda scored less well, taking fifth and sixth places respectively behind Waitrose at fourth. Last year the same report commented on sustained improvement of Sainsbury's from a very poor performance in the first survey in 2005. The 2008 report saw the Sainsbury's score regress slightly as Asda improved to further close the gap between them.
Execution in Sainsbury's was branded "hit and miss" by one supplier while Asda attracted more comment than any other retailer, but with no consistent message. Some suppliers regard Asda as "better than most retailers" while many others talked of "admin errors", "poor PoS compliance" and "stores ignoring head office".
Suppliers, meanwhile, feel Waitrose's limited activity ensures good execution.table 4: execution
2007 results
1st Tesco70%
2nd Morrisons68.3%
3rd Sainsbury's68.3%
4th Waitrose68.3%
5th Iceland61.6%
6th Asda51.6%
2008 results
1st Morrisons75%
2nd Iceland71.6%
3rd Tesco70%
4th Waitrose70%
5th Sainsbury's65%
6th Asda60%table 1: sales on promotion
over 40% on promotion
200516%
200636%
200743%
200846%table 2: supplier reaction
too many sales on promotion?
200546%
200829%
Far too many sales on promotion?
20052%
200821%table 3: working with retailers
Retailers benefit most
200680%
200776.6%
200873.3%
Promo strategies good
200643.3%
200746.6%
200850%
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