In 2018, the grocery sector saved over $1.1 billion by reducing the unnecessary price promotion of products in Australia’s grocery aisles.
Over the past few years, the percentage of products sold on promotion in Australia has been on an upward trajectory, which leveled off at 40% (among the highest globally). In 2017, this resulted in $11.2 billion being wasted on reducing prices unnecessarily.
2018, however, marked one of the biggest turnarounds in the Australian grocery industry in 10 years with the percentage of sales on promotion dropping to 38% and the amount wasted on price promotion down to $10.1 billion.
Undoubtedly, one of the major barometers of long-term health for the grocery sector is the percentage of sales on promotion. Broadly speaking, a lower percentage of sales on promotion increases the long-term growth potential of the sector, while an over-reliance on price promotion limits growth potential.
WHERE THE SAVINGS CAME FROM
While it may be hard to believe, not all Australians want everyday low prices. Shoppers want the ability to choose value and premium products depending on the category, the occasion, and the experience. Two of the major ways that both manufacturers and retailers can work together to beat back promotional wastage in 2019 is through effective pricing and new product development.
Products aren’t equally sensitive to changes in shelf price and/or promotional price. In 2018, 38% of products increased their average price per unit and 14% increased their price per unit while also being able to deliver unit growth. Average price increases have been realised either through holding back price promotions on SKUs that can retain their value, as well through changing the promo strategy of certain SKUs (e.g: having shallower but more frequent price promotions).
NEW PRODUCT DEVELOPMENT
Aside from more effective price management, new product development remains a key driver of growth for the industry, through the introduction of premium products sold at a higher price point. In 2018, the average price of new products was approximately $3.91 per unit, while the average price of delisted products was on average $3.08 per unit. Shoppers have demonstrated that they are willing to pay a price premium for products that are ‘good for me’ and ‘good for we’ – being healthy for the consumer and healthy for the environment. Suppliers that are developing products in one or both of these areas are seeing three-year compounded annual growth rates of +3% in vegan and cruelty-free personal care products, +8% in eco household cleaners, +14% in plant-based meats, and +479% in hemp foods. And, these segments are seeing even higher growth rates in markets such as the U.K. and the U.S., suggesting further opportunities for development for these segments in Australia.
FUNNELING $1.1 BILLION IN THE RIGHT DIRECTION
What could the industry do with an additional $1.1 billion? This $1.1 billion is equivalent to opening more than 30 new supermarkets across Australia. For some companies, this money can be reinvested in research, development and marketing efforts to address local shopper needs, instead of pushing new products from offshore pipelines, which may not resonate with locals. For retailers, that money can be reinvested into visioning, scoping, launching, and improving brick & mortar and e-commerce store formats that better serve the Australian shopper.