PROMOTIONS
SECTION ONE
SECTION TWO
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SECTION THREE
Promotions Fail to Ignite Sales for UK Retailers
Do multi-buys impact sales?
A new study by IRI, a leading provider of FMCG market intelligence and predictive actionable insight,
looked at the effectiveness of promotions and found that reality does not match expectation when it
comes to sales. On average, a category will grow by only 0.13% when on promotion. This is very low
compared to industry estimates that suggest a promotion can help retailers grow a category by much
more than this.
IRI conducted a study of over 85,000 promotions in the UK to help answer the question ‘Do promotions
really help retailers?’ and analyzed the results using statistical modelling. Of the promotions analyzed,
over half had a negative category impact.
According to the study, multi-buys are not working. While retailers are already moving away from deep discount multi-buys (a fall of 40 percent over last year) towards clearer price cuts and “round pound deals,” the study shows that multi-buys have had little or no impact on sales at a category level (0.02 percent). This compares to price cuts that are delivering benefit to retailers (0.20 percent).
The outlook for health and beauty retailers is even worse, with both price cuts and multi-buys shrinking category value on average, by 0.12 percent and -0.34 percent respectively. This is largely due to heavy discounting and low volume growth, which is being driven by large amounts of cross-product switching within a category to cheaper alternatives.
“It seems that promotions are not necessarily driving sales growth as much as the industry expects,” said Thomas Hall, Analytics Program Director, IRI and author of the study. “Unfortunately, the UK leads the world when it comes to promotional reliance, with over half of all goods sold on promotion (54.6 percent by volume) according to our Price & Promotion in Western Europe report published last year.”
We do know that promotions play a much bigger role in terms of driving footfall and increased basket size,” he continued. “There are also sizeable listing fees paid by manufacturers for promotions, display space and preferential listings, which help to offset some of the sales revenue losses. This always needs to be taken into account when looking at how promotions help retailers grow.”
The IRI study also shows that private label promotions perform significantly worse than brands, driving down overall category sales value by -0.35 percent. Without manufacturers funding these promotions, they are draining category value at an alarming rate.
Where Promotions Drive Growth
However, the outlook is not all bad when it comes to promotions. Convenience stores are seeing the biggest benefits, with growth of over 2.5 percent in category turnover when promotions are used. Even within the major multiples, IRI is seeing large differences in promotional performance. For example, multi-buys can deliver +/- 0.3 percent category impact across different chains, and are more successful in premium chains, while price cuts are more successful in mass-market retailers.
At the category level, tissues, cheese, meal kits and frozen food promotions are the leading areas that deliver revenue growth for their respective categories within grocery retailers.
Within the health and beauty category, facial wipes and soaps drive good category growth when promoted. “Nappies” also have positive category value impact when promoted; much of this has been as a result of store switching. Along with alcohol and infant formula, nappies are a category that can drive shoppers to switch their shopping location to get a better deal.
“It’s not all doom and gloom when it comes to promotions,” said Hall. “Manufacturers do very well out of them, growing their sales by around 10 percent, on average, due to steal from their competitors. Many promotions and categories actually have a positive impact on revenue when they are executed in the right place at the right time, helping to grow a retailer’s business, and exciting the shopper. The key is identifying promotions that genuinely drive sales and provide a win-win situation for retailer, manufacturer and shopper.”
IRI conducted its study over the last three years. It analyzed the results using statistical modelling. Promotions analyzed included those undertaken in UK supermarkets, selected convenience stores and health and beauty outlets, a total of more than 30 chains (around 30,000 stores) and included the following categories: Household, Food, Alcohol, Healthcare, Soft Drinks and Personal Care.