Rioting students. An uneasy coalition government. Strikes. Cutbacks. The return of inflation. Rises in VAT, NI, duty. And the woeful winter weather. It's not the ideal backdrop for the fmcg sector, is it?
And yet. If you've got the right product, in the right place, at the right price, at the right time, it's still possible to be a winner. If you're Red Bull, for example, you'll have a great big smile on your face, and not just thanks to the victory in the Formula 1 championship last month: sales returned to growth this year, up £13m. Market leader Lucozade did even better with a £29m gain across Energy and Sport Drinks. And Monster sales rose a whopping 303%, with a value gain of £21.6m.
But these weren't isolated cases: sports and energy drinks were up 14.6% by volume and 15.6% by value, and own-label SKUs also muscled in on the act, up 17%.
Other categories enjoying double-digit volume growth were pet food and cheese, up 13.3% and 10.1% respectively.
The gains were a tribute to innovation in the case of petfood, where, incredibly, sales of Whiskas pouches rose £19m; and branding, with sales of Dairy Crest's Cathedral City up by £15.5m.
Yet it's a tobacco brand showing the biggest overall value sales growth this year John Player Special Blue, up an eyewatering £132.7m, or 173.1%. With consumers switching to budget brands, JPSB ticks the box as a more affordable cigarette. And though stick volumes fell by 1.7%, consumption remains relatively stable, with still others moving to RYO, up 19.5% to £1.14bn.
Indeed, health lobbyists could be forgiven for thinking that the British public has opted to comfort eat, drink and smoke its way out of the recession: sales of spirits are up £183.3m to £3.3bn, a 5.9% increase driven by branded spirits promotions, with market leader Smirnoff recording an extra £33.3m in sales. Coca-Cola's stonking £74m sales gains also contributed strongly to a £151.7 increase in carbonated soft drink sales. And chocolate confectionery, meanwhile, was up £170.7m as a category to £3.2bn, led by a particularly strong performance from Cadbury Dairy Milk. Irene will be pleased.
Even in these categories, success has often come at a price, however, as the near-constant promotions have reduced margins.
"The consumer is addicted to promotions," says Jake Shepherd, marketing director at Nielsen, "and the retailers show no signs of weaning them off." The latest figures reveal 47% of branded goods are now being sold on promotion [Nielsen Homescan Grocery Multiple 4 w/e 30 October 2010]. As Anne Murphy, general manager for Birds Eye UK and Ireland, says: "It's possible in this market to grow share at the expense of the bottom line; it's a lot harder to do both."
But the pain of promotions is all relative.
If you're a milk producer, in particular, you'll be a lot less sanguine about 2010. Sales have dropped off the cliff this year, falling £115.9m, and the supermarket milk price wars have much to answer for value sales have dropped 3.5%, but what will concern producers even more is that volumes are down 1.1% despite all that promotion.
Yet even the poor-performing categories have room for heroes. Take plant bread, for instance. Despite the overall category showing a £66.7m drop in sales, Kingsmill can boast growth of £24.3m and was the only bread brand not in decline. And while frozen fish has lost £4.1m in value, 189% growth from Birds Eye's Bake to Perfection has the brand showing sales of £27.1m.
More than half (56) the categories in the survey are in value growth, 23 in decline and two are static. We have five new category leaders, most notably in yoghurts & pot desserts, where Danone Activia has posted a 10.3% rise in sales, fuelled by the launch of its popular single pots.
The weather always has some bearing on performance, but this year more than most. The wintry conditions at the start of the year affected several categories, some more positively than others. Overall food and drink sales were down, but sales of sausages, bacon and eggs were clear winners as we stayed indoors and comforted ourselves with cooked breakfasts.
Porridge has also benefited enormously: sales of oat-based cereals have grown rapidly in recent years thanks to its healthy credentials and low-GI energy release, but the prospect of a warm glow in cold weather proved a tipping point for Quaker's Oatso Simple, in particular, with a 23.6% jump in sales translating into year-on-year growth of £10.1m. PepsiCo has invested in extra capacity this year to cope with demand.
Though the value gains in tea were mainly the result of commodity-based price adjustments, the instant coffee market is in rude health, with a particularly strong performance from Gold Blend, whose sales were up by more than £7m.
The prolonged heatwave in the spring and early summer also had a big impact on sales of cold drinks, ice cream and barbecue ingredients in particular. Sales of handheld ice creams leapt by 20% when the sun came out, before falling away to 4% when the start of the school holidays coincided with the skies clouding over.
The World Cup, however, was a damp squib in more ways than one. England's woeful performance resulted in a slump in beer sales between July and September, and cost the grocery industry an estimated £300m.
With branded promotions at an all-time high, own-label products have been left reeling. The big loser was, not surprisingly, own-label milk, down £120.2m (though it was interesting that, by contrast, branded milk sales were relatively resilient). Sales of own-label spirits and cheese, down £83.8m and £67.8m respectively, were other casualties.
But while 'basic' own-label products are showing signs of neglect, cash-starved shoppers are comforting themselves in their shopping habits by opting for the middle ground 'posh' own label.
In the past year, helped by the relaunch of Sainsbury's Taste the Difference, premium own label is now performing on a par with brands, having increased its share of the market by 5.4% versus 5.5% for brands [Nielsen 52w/e 16 October 2010]. Brands still boast 47.5% market share. But premium own label is now being seen as key to retailer differentiation, according to Nielsen, and the significant investment by retailers in improving own-label quality over the past year means brands are now increasingly being used as commodities a point ably demonstrated by a Waitrose pledge to price-match Tesco on brands.
In the meantime, there is a further threat to brands: range rationalisation. According to Nielsen, "assortment reduction is the new reality across Europe".
Experiments in the UK have been inconclusive. In 2007 Asda famously delisted I Can't Believe It's Not Butter! in favour of Utterly Butterly, only to bow to customer and Unilever pressure, bringing it back two years later and delisting Utterly Butterly. And it was arguably the significant upheaval in Asda's ranging, as much as overall quality concerns, that was responsible for its poor performance at the end of 2009 and the first half of 2010.
Customer satisfaction is lower in chains that have reduced their range, according to Nielsen research. As Andy Rushforth, director of shopping research at In Vivo BVA, says. "If the cuts become too deep and choice is weakened, shoppers will walk away."
But while there are risks in range rationalisation, there are clear benefits, including the potential to cut costs within the supply chain, to create space for high-growth non-food areas and (in some cases), to extend own-label offerings, says Nielsen. And this autumn, new Morrisons CEO Dalton Philips cited the 16 balsamic vinegars stocked in his supermarket to draw attention to the possibilities that may come with range rationalisation; the elimination of product overlap through a 10% reduction in range can free up space for 10% more goods elsewhere.
Rushforth goes further, recommending a 20% cut in assortment, claiming this will create a win:win situation for both category and tier-one brands, allowing the latter more space on the shelves. Smaller brands, he warns, will need to up the ante.
And what of the shoppers have they retained their thrifty new ways? With petrol prices rising by 19p per litre year-on-year, it would not have been unreasonable to assume that many would adopt a little-and-often approach. In fact, thanks to promotions, says Shepherd, "shoppers are buying more packs, but less frequently" a trend exacerbated, Nielsen research shows, when fuel prices are increasing. Coupled with the fall in frequency of shopping trips, they are not buying any more items overall. And the net remit is that smaller shopping trips in particular are suffering.
But that doesn't mean convenience is necessarily losing out, says Shepherd. "Top-up shoppers are also visiting stores less often, but they too are being tempted by all the promotions we are seeing in the convenience sector as well, although the increase is not at the same rate."
As the pressure of price promotions grows, grocery's pulse is quickening. Prescription? It's difficult to see anyone coming off the drugs just yet.
Top Products Survey 2010