Research by retail analysts IRI also revealed there has been a sharp drop in the contribution new products have made to sales in the UK bakery and snacks categories as supermarkets reduce the size of the ranges they carry.
On average, the overall number of food SKUs (stock-keeping units) carried in UK supermarkets dropped 6.8% - or by 1,000 products - in the period from January 2013 to December 2015.
UK retailers have been paring back ranges to reduce duplication and bolster margins as they seek to maintain market share in the face of the growth of discounters such as Aldi and Lidl.
Price competition has been intense, and only this week UK supermarket chain Morrisons announced it was cutting the price of 1,045 every day products including hundreds of core grocery such as bread by an average of 18%.
“Companies are having to have high trade promotions budgets, at a time when prices are going down,” Tim Eales, director of strategic insight at IRI UK, told BakeryandSnacks.
Development budgets cut
This is likely to have fed through to margins, and will have probably resulted in businesses cutting product development budgets, he added.
Some manufacturers will also have found it harder to gain distribution for new products, suggests the IRI study.
In the bread and bakery category, the average maximum distribution in multiple retailers for a new product was 39.6% in 2010/11 – this fell to 32.5% in 2013/15.
What can manufacturers do for themselves?
In its report ‘Range Rationalisation Restricts New Product Contribution’, IRI gives advice on how manufacturers might improve the outlook for products they bring to market. These include.
- Have a good idea of what level of sales and distribution will create success – this helps mitigate failure and improve product management
- Premium pricing should be order of the day but with sound reasons for the price and clear messaging of product benefits
- Keep introductory offers below average to decrease the price shock when they are removed and encourage buyers to continue purchasing
- Although expensive, sampling might help to get NPD over the initial success hurdle
- Use arguments based on factual data to grow distribution and retain listings
And delistings were likely to be happening more often and more rapidly under the scenario of more frequent range management by retailers, added IRI.
Contribution to category sales fall
With reduced distribution and fewer products being launched, NPD is contributing less to the value of categories.
NPD accounted for 3.1% of bread and bakery category sales in 2011, but this fell to 1.7% in 2014/15. The decline was even more marked in the snacks category, with contribution falling from 5.5% to 2.4% over the two periods.
Snacks did, however, buck the downward trend in the amount of NPD – with the number of new products launched rising 20% between 2014 and 2015 versus a 9.5% decline in the number of bread and bakery launches.
Selling at a premium
IRI said new products, if successful, can bring a manufacturer’s average price up as new products were typically launched and bought at prices 53% above the category average in 2013/14.
However, the study found promotional support for new products - measured by the percentage of volume sold on deal, had fallen from 59% across their first half year in 2010/11, to 49% in 2013/15.
While the study looked in detail at the period to December 2015, IRI found the range reduction trend is continuing, with the number of SKUs falling a further 4% into June this year.
But Eales said it wouldn’t be hard for the trend to be reversed.
“It is quite easy to change this – when the requirements of the market change,” he added.
For the full IRI report, 'Range Rationalisation Restricts New Product Contribution’, see here.