Germany’s leading economic institutes expect the recession to bottom out by the middle of next year and the economy to start growing again. Consumption is also expected to pick up again by then. Market researchers at Circana, on the other hand, are more pessimistic: according to the new “FMCG Demand Signals” report, consumer demand is unlikely to recover before the second half of 2024, the Lebensmittelzeitung discloses.
The report examines consumer demand in the food retail sector from January to August 2023 for FMCG brands and retailers in the six largest European markets (France, Germany, Italy, the Netherlands, Spain and the United Kingdom). The analysis focuses on the impact of coronavirus measures, inflation, and the cost-of-living crisis on purchasing decisions in over 230 FMCG categories.
One key finding: consumers are continuing to buy less. According to the study, sales in food retail fell by 1.3 percent year-on-year across all markets. Although sales increased by a further 10.1 percent to 636 billion euros, this was almost exclusively due to inflation. “Even two years after the pandemic, the consumer goods sector is still far from normal. Demand has not yet fully recovered,” says Ananda Roy, Global SVP, Strategic Growth Insights at Circana. By the end of June, prices had risen by an average of 11.6 percent. Over the past six months, average prices for FMCG items have climbed to 12.9 percent. Despite rising incomes, shoppers remained extremely price-sensitive.
Private Labels Have Become More Valuable
Meanwhile, brands are continuing to lose market share, while those of private labels are growing. With a 39 percent share of food sales, private labels were able to increase their turnover to 246 billion euros. Two years ago, this figure was 35 percent. “High inflation was a catalyst for growth, but the success is not solely due to lower prices. Private labels have become even more high-quality in recent months,” says Roy.
As a result, the price difference in the food categories has shrunk to 15 to 20 percent. Two years ago, it was still 28 to 40 percent. At the same time, manufacturers are producing significantly fewer new products. Entire categories could therefore become “innovation deserts”, the study authors warn. According to the analysis, the number of new product launches has fallen by 22 percent in the past twelve months.
“Brands are understandably cautious about risky product launches in the current situation, but not doing so would be very short-sighted,” says Roy. Dynamic brands in particular are taking advantage of the opportunities presented by the changes and finding new ways to increase demand. Brand manufacturers in particular are confronted with painful truths when it comes to sustainability. Since mid-2022, it has been difficult to maintain demand for products that are advertised as sustainable. Various EU regulations have had the effect of increasing scrutiny of sustainability. When it comes to packaging, for example, sustainability is important but has not become the standard.
In France, 51 percent of people surveyed for the report said they had switched brands or products due to concerns about packaging, and in Germany, 43 percent bought more products in environmentally friendly packaging. Overall, almost half of European consumers have bought fewer products packaged in plastic in the past year according to the report.
“Brands that want to continue to be listed, especially with prominent listings, need to show that they consistently act sustainably. Those that want to combine sustainability with growth will have to focus less on isolated green initiatives and more on how sustainability can be integrated into the corporate strategy,” says Roy. However, a return to sales growth is possible, according to the market researchers. Growth and opportunities exist above all in the areas of innovation, sustainability, and pricing.