Mid-priced food processors face increasing pressure
Product differentiation in food and drink is set to divide the winners from losers, as pressure on consumer finances affects their spending and they increasingly “trade down”, it emerged last week.
Those operating at bottom and top ends of the price market would mainly benefit - provided they added something extra, according to marketing and consumer experts. However, those in the middle were being increasingly squeezed out. The predictions were made at a conference called NPD in an uncertain economy organised by the Food & Drink Innovation Network. Chris Grantham, consulting partner with consultancy Your Future, said: “Value is beyond just price and availability. We are moving beyond the industrial model of food production.” Describing the demand curve as changing from a ‘U’ to a ‘V’ shape, he added: “The middle market is becoming increasing difficult.”
Several speakers expected consumers to trade down, opting for more up-market meals for consumption at home rather than eating out. And they forecast that those on tighter budgets would go for cheaper meal options rather than those in the mid range. Grantham said: “We are seeing some down-trading and I’m sure this will happen in food to some extent. But the right hand side of the [‘V’-curve] will come into play.”
Steve Rice, md of market analyst RTS reported that as food prices rose “many food products will now become vulnerable”, especially those without significant differentiation. RTS has produced a map to assess the vulnerability of different product sectors, based upon the complex interaction of various market pressures. “Understanding where consumers choose to compromise is absolutely critical,” added Grantham.
Changes in consumer purchasing behaviour were supported by results reported by Sainsbury last week. Reporting sales growth of 3.4% for the first quarter, it attributed some of this to better sales of its value and premium ranges.
Sainsbury boss Justin King was reported as dismissing the idea that people were trading down to hard discounters. But Jonathan Banks, business insight director for The Nielsen Company, claimed that market shares for Aldi and Lidl were growing by around 5% a year in the UK. Rice also reported that some households were switching to the hard discounters.
“Discounters across Europe just keep growing and growing,” said Banks. While the market share for UK discounters appeared to have declined, this result was distorted solely by the demise of Kwik Save, he said. He added: “What we can see is private label might become more attractive to people.” Weak brands could be particularly vulnerable, said Banks.
