What consumers are saying and want you need to do about it
The fall is always a busy time with events, trade shows and conferences in our industry. Certainly, I always appreciate the chance to speak at some of these events, but I also learn a lot. It is so informative to have the chance to hear speakers from FCC like J.P. Gervais and Francis Parisien from Nielsen IQ. They share relevant data, but also put it in a format I can understand.
We should all be listening to what consumers are saying but more importantly figure out what you can do about it.
The focus on price
It is no secret that price is the #1 issue on the minds of consumers. We have been through a period of very high food inflation. The compound increases have driven the price of food up close to 20% in come categories. Inflation has also impacted many other sectors. Because people buy food every week and it takes such a large proportion of their disposable income, they are more focused on it. A piece of furniture might have increased 18%. They are not as aware of the prices, they might complain but they pay the price because it should last for a long period of time. They are reminded of food prices every time they visit a grocery store.
Here is a chart from Nielsen IQ outlining the top issues on the minds of Canadian consumers. Although they do say fewer consumers are concerned about increasing food prices, we have to examine the entire chart to understand the impact on our industry. When people are concerned about rising housing costs, ability to provide basics for family and rising fuel transportation costs these factors will impact how they shop for food.
Inflation has subsided in food, which consumers are recognizing. A positive, however they will still look for opportunities to reduce their grocery bill to offset rising expenses in their household. Food is something people buy every week, so they believe if rent or gas for their car has increased, they need to save something on their grocery bill to keep their household expenses in line.
We have to accept, for the foreseeable future consumers will be looking for what they perceive as a savings. This does not always mean you need to be the lowest, but it does mean people are looking for something.
To reinforce the premise people are responding to temporary price reductions (TPR), Francis shared this chart. It illustrates the percentage of items purchased with TPR being 53.1% across Canada and even higher in Atlantic Canada at 55.5%. If you stand at a cash register in any grocery store in Canada, on average, over half of the items are on some form of TPR. That can send shock waves through a room full of SME food and beverage companies. It should get your attention, but it should not shock you. Just walk a store and look at the signage.
We do believe the big consumer packaged goods (CPG) companies have the deep pockets to play this game. True, but we need to figure out how to price products that include room to offer some discounts. Remember, people are looking for a savings, not a return to the prices of 2019. It does not always lead to a front page ad item at cost. Many of these items are in store specials with a modest discount. The point is, they have a discount. Many are also loyalty programs with points.
What you need to do about it
1. Calculate the amount you have to invest in promotion
The first thing you need to understand is what do you have to work with in your pricing? How much money do you have for sales and marketing and are you investing it in the right places?
Easy for Peter to say, but it is essential you understand what you have to work with. If your sales projection for the year is $500,000 and you have 15% for sales and marketing, then reality is you have $75,000. You need to allocate that as effectively as possible.
In the past, perhaps you were focused on generating exposure and building your brand. You might have been doing social media posts, working with influencers, sponsoring events etc. All good initiatives, but we are in a different place right now.
2. Try some temporary price reductions
If you consider our fictious business with $500,000 in sales, that is +/- $42,000 per month. If our average item price is $4.50 we are selling 9,333 items per month or +/- 2,150 per week. If you were to select 4 weeks and offer a .50 in store special, you might see a lift of 50%. Your in store special weeks increase to 3,225 units.
4 weeks x 3,225 units x .50 = $6,450
Perhaps you should consider reallocating some of your spend here as opposed to one more influencer campaign.
When you do make this investment:
- Plan for increased volume
- Talk to your customer to agree on a volume number for the weeks on promo
- Get inventory to stores to support the increase
- Track results to see if you really do get the increase
- Measure your average weekly sales after to see if you brought new people to your brand.
3. Focus on tonnage
One point made by both J.P. Gervais and Francis Parisien was that tonnage is not growing and it is definitely not keeping up with population growth. I would expect retailers are very focused on this. Sales $ are important, but when they are influenced by inflation they are not as positive. Retailers watch tonnage carefully as it is impacts many metrics on their business. Loblaw recently reported their same store sales increase (adjusted for timing of Thanksgiving) to be 1.5%. When you consider inflation this is a disappointing number.
Measure your tonnage by customer and report on it when you meet with them. Any positive tonnage is a win.
4. Look at your price in the category
You need to stay relevant in the category. Be objective and compare the attributes of your product, with an equivalent size calculation, to see how you perform. You do not have to be the cheapest, but consumers must see value in the combination of price and quality.
Do not exclude private label when you look at products you compete against. We know private label sales are up as consumers look for less expensive options.
If you find you do not offer enough value to deliver the sales you and your customer require then you need to do some work. Retailers will not lower the margins they need to make. We do see some that are too high and that can be a real challenge. Only a very strong relationship and a lot of work will get this in line.
If you believe the margin on your product is equivalent to your competition, then you will have to focus on your costs to find something that can change. In an environment where consumers are focused more on price and tonnage is flat (at best) retailers will be looking for items that sell. Explore logistics, ingredients and any other costs to see if there are opportunities.
5. Make the most of opportunities
It is a challenge right now, especially for small to medium sized brands. Any time you get the chance for a second display, to participate in a theme ad, to get in front of your customer, to report on your 98% service level take the chance!
You do need to prove your product will sell in this environment if you want to stay on the shelf.
If you are investing in TPR, you need a plan and focus on execution. Inventory needs to be ready, product needs to be in stores and you need to ensure it sells through.
Consumers are in a different place right now and retailers believe they will stay there for a while. Make sure you know what their expectation is for your product and find a way to exceed that! If you see me at an industry event, I am usually taking notes when people are speaking. The information people like J.P. and Francis share is so valuable to help figure out where we go next.
Peter
SKUFood Recipes for Success Podcast
The response to our SKUFood Recipe for Success podcast has been great. We want to thank everyone who has been with us as a guest. So many interesting conversations about our industry.
With thirty-three years on the retail side, Eric has honed his skills in distribution center operations, health and safety, process improvement, and more. His diverse expertise spans from quality assurance to procurement, bringing a wealth of knowledge to the table.
But Eric's journey doesn't stop there. For seven years, he's lent his talents to the supplier side, excelling in sales and marketing roles. His contributions extend beyond individual companies, as he's actively involved in industry organizations like the CPMA and CFIA advisory board, where he's made a lasting impact.
Currently the Director of Sales and Business Development at Algoma Orchards, Canada's largest independent apple grower, Eric continues to shape the future of the produce industry.
Join us as Eric shares his insights, lessons learned, and the secrets to cultivating success in this ever-evolving field. Whether you're a seasoned professional or just starting out, this episode is sure to leave you with a recipe for success.
Butter recalled in U.S. because of wrong label
This is a tough one…Costco has been forced by FDA in U.S. to recall 79,200 lbs of butter because the label did not state it contains milk. Certainly you could make the claim that is obvious but it could also cause serious illness if people are depending on the label for the declaration.
In an industry where we strive to reduce costs and food waste it seems a challenge to see this end up in the compost. On the flip side labelling needs to be 100% correct and there is no room for error.
Interested in what you think?
A reminder to be diligent with all labelling projects. Even the big players can make a mistake.
I do have travel coming up to Toronto, Calgary, Lethbridge and Niagara Falls so if you want to connect or have an event in any of these locations give me a call or send me an email.
If you’re a food or beverage entrepreneur in processing or manufacturing, consider applying to join an FCC peer group. Connect, share and learn with people who get it.
Apply by December 15.
Looking forward to the second Agri Food Innovation Expo. Last year there was a lot of great information shared with producers and processors in Red Deer. This year in Lethbridge the even promises to be even bigger.
