IRI Topline Report. Is economic uncertainty affecting FMCG sales? Q2 2016

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1 IRI Topline Report Is economic uncertainty affecting FMCG sales? Q Data trends show 1 st half 2013/14/15/16 with the respective Q3, Q4 of each year in between. H1 has been used in favour of Q1/Q2 in order to even out the movement of Easter in each year. Tim Eales Director of Strategic Insight

2 Key findings Despite a favourable economic context in most European countries, fast moving consumer goods (FMCG) performance in H has been slow compared to 2015, with value sales at +0.3% for the first six months of 2016 and volume at -0.3%. The Brexit outcome hasn t impacted the consumer goods market yet but a price increase is expected in the UK due to this major change. In the fast moving consumer goods sector (FMCG), the performance of Greece and the United Kingdom (UK) has decreased and these two countries are in a worse position than last year, struggling with the aggressive development of the hard discounters. As a result, a price war is undermining the FMCG and retailers performance in these countries. Germany, Spain and Italy are the only countries where FMCG sales remain positive, in value and volume, but at a lower level versus In Italy, sales are driven by food where price has remained flat during this period. Price war remains a hot topic in France but for a different reason. Retailers continue to expand their catchment area, up to the point of saturation in some places, generating tough competition between retail players who are using price and promotion as their main weapons. As a result the profitability of each square metre is falling. Margins for retailers and manufacturers are shrinking. In the UK retailers are reducing their assortment as a strategy to compete against hard discounters. In Greece the bankruptcy of one of the biggest retailers, Carrefour Marinopoulos, reflects the challenging economic context and the recent transformation of the retail landscape in this country. The new increase on VAT in June, rising prices, impacted volume sales. International manufacturers have developed every day low price product (EDLP) ranges to adapt to the local need for affordable consumer goods. FMCG remains fragile despite a positive economic context. Price war is still impacting France, the UK and Greece. Despite the economic recovery in Spain, shoppers claim that they are not reassured, but FMCG non food and food are performing well with a volume sales better than in 2015, sustained by a price decrease in food and stability in non food with a strong promotion pressure. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 2

3 Key findings In Germany, growth is lead by household, sweets and chilled ready to eat categories. Volumes sales continue to increase since prices have remained stable in food for the past two years. Hard discounters are undergoing a change in order to position themselves as supermarkets, thereby increasing the range of national brands. In the Netherlands, volumes are impacted by high prices in food, with a good performance for the fresh food categories. There is a change in the retail landscape here with hard discounters losing market shares to supermarkets. Price in food categories is stable in most countries; the Netherlands and Greece are the only ones with inflation impacting volumes. In France and the UK volumes are also affected despite a price decrease due to the price war context. Fresh food is a key driver for bringing shoppers in store. Non-food sector price has declined in every country except Greece, sustaining volume sales only in the Netherlands, Spain and Germany. Personal care is still losing ground with the fierce competition of specialist retail chains such as Kiko. Private labels are back to growth in Germany, the UK, Spain and Italy - thanks to premium tiers (+15.2% in Italy) - while they remain in decline in France (0.6 points of market share). They are stable in the Netherlands due to a slower assortment increase. Private labels have to compete against high promotion activity that shrinks the price gap with national brands. There has been a slow down in the intensity of promotion in most countries, especially for the two leaders, the UK and Italy. The UK is now below 50% and Italy which is below 30%. In the UK, it is led by Sainsbury where multibuy promotions no longer appear on their shelves. Spain is again an exception, with 3 points increase in June 2016 versus June last year. Private label suffers from the promotional activity on national brands. Less promotion activity but deeper. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 3

4 GDP Q % change versus Q EURO AREA (18 COUNTRIES) GDP +2.2% ACROSS SECOND QUARTER OF 2016 Growth rates of real GDP volume 5 Germany France Netherlands Italy Spain UK Greece ,1 1,9 2,3 1,0 3,4 0,6 0-1 PROVISIONAL PROVISIONAL -0,4-2 PROVISIONAL -3 The euro area (EA18) includes Belgium, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland. Source: Eurostat Q Updated 19 th October 2016 Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 4

5 Unemployment levels in Europe % UNEMPLOYMENT RATE IN JUNE 2016 COMPARED WITH JUNE 2015 Germany France Netherlands Italy Spain UK Greece 19,9 23,2 10,1 11,6 JUNE ,3 6,1 4,8 4.6% 10.5% 6.9% 12.2% 22.3% 5.5% 24.9% Euro area (18 countries) unemployment down from 11.0% in June 2015 to 10.1% in June Source : Eurostat June 2016 : Table name - Harmonised unemployment rate monthly data Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 5

6 FMCG full year 2013, % change versus previous year VALUE TREND Germany France Netherlands Italy Spain UK Greece 1, Full Year Average +0.5% VOLUME TREND -3.6 Full Year Average -1.5% Unit trend for Greece Price inflation is pushing up value sales in most countries. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 6

7 FMCG full year 2014, % change versus previous year VALUE TREND Germany France Netherlands Italy Spain UK Greece 1,6 0, Average 0.0% -0,8-0,6-0,2-1,4-1,7 VOLUME TREND 0,2 0,4 0, Average -0.6% -0,7 Unit trend for Greece -1,3-2,6-2,6 The year of 2014 was a poor one for FMCG in most countries. Most countries have had lower rates of inflation versus Value sales were not boosted by price increase as much as they were in Germany recorded the fastest value growth whereas in 2013 it was the UK. Volume growth has become hard to achieve. The Netherlands has had the highest level of inflation in Both the Netherlands and the UK were well down in volume. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 7

8 FMCG full year 2015, % change versus previous year VALUE TREND Germany France Netherlands Italy Spain UK Greece 1,6 1,2 3,0 1,8 0, Average 1.0% -1,8-1,8 VOLUME TREND 1,5 0,6 2,2 0, Average 0.7% -0,5-0,7 Unit trend for Greece -4,4 The year of 2015 was a better one for FMCG in most countries as national recessionary trends abated. Value sales were boosted by price increases in France, Italy, Netherlands and Spain. Italy recorded the fastest value growth whereas in 2014 it was Germany. Volume growth is still hard to achieve but only the Netherlands, the UK and Greece reduced in volume, with the decline in the UK being due to rapid growth of the discounter sector, not included in this measure. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 8

9 FMCG H1 2016, % change versus previous year VALUE TREND Germany France Netherlands Italy Spain UK Greece 1,1 1,1 1,4 0,1 0,5 H Average +0.3% -1,9 VOLUME TREND 1,3 0,5 1,0-8,7 H Average -0.3% -0,8-0,5-1,4 Unit trend for Greece -12,5 After an overall good 2015 for FMCG, the beginning of 2016 seems more gloomy for Greece, the UK and France. Germany, Spain and Italy are the only countries where FMCG sales remain positive. In Italy, it s driven by food, with volume growth due to stable prices. In Germany, the growth is lead by household, sweets and chilled ready to eat categories. Volumes sales continue to increase since prices remain stable in food for the past two years. France, Greece and the UK remain impacted by price wars. In the Netherlands, volumes are impacted by high price in food. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 9

10 Food volume declined again in 2016 but with price increasing value grew by 0.4%. Non-food prices declined again, with volume down too. FOOD SALES IN FRANCE, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) VALUE VOLUME PRICE 4,5 4,4 2,9 1,2 0,8 0,0 3,2 0,4 2,6 1,3 1,2 1,2 0,6 2,8 0,5 1,5 1,5 0,6 0,4 0,2 2,0 1,1 0,8 1,0 1,1 0,4-0,8-0,4-0,6-0,6-0,2-0,8 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN FRANCE, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 4,6 1,6 0,0 2,1 0,9 2,2 1,9 1,0 0,0 0,5 0,1 0,1 1,7 0,7 0,0 1,6 1,4 0,5 0,9 0,1 1,2 1,1 1,1 0,4 0,1-0,6-1,0-0,3-0,2-0,3-1,1-0,7 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, hypermarkets, supermarkets, hard discounters and drive Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 10

11 Grocery inflation continues to be negative in France but shoppers upgrade their grocery basket. FMCG INFLATION, BASKET PRICE AND MIX EFFECT Source: IRI, hypermarkets and supermarkets Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 11

12 Overview France VAT on food: 5.5% and 19.6% According to the French statistical institute (INSEE) the economic trends in 2016 should be quite similar as in 2015: a GDP rise close to 1.2% and a growth of purchasing power that is slightly higher. But Q2 Gross Domestic Product (GDP) is not very encouraging. Yet consumer confidence index remains at a high level; the best since Since the beginning of the year, FMCG performance has not been very good, especially in Q2. The bad weather in April and June led to a decrease of consumer goods shopping (-0.5% in volume sales in H1 2016) and of course categories like beverages and ice creams were the most impacted. The price war is still ongoing. The level of deflation for FMCG remains the same as in the past two years (-1.1%) and has reached 1.7% for national brands. For this first six months of 2016 the promotion war is apparent in addition to this price war. Leaflet promotion pressure has increased by 8.5% (after +5.7% in 2015). The sales on promotion increased by only 1.5% for the same period and as a result it has lost its efficiency. Looking at the retail landscape, two channels can be considered as winners: convenience stores and click and collect. But their growths are both linked to the expansion of their networks. For instance, the stores of the hard discount banner Dia, are being replaced by Carrefour convenience stores (Carrefour City, Carrefour Contact, Carrefour Express). The click and collect channel is still growing but at a slower pace, declining month after month, to be lower than +10% now. Lidl is still winning market share, due to significant media campaigns and the refreshing of its stores. Private labels are still declining and concede 0.6 points of market share. They lose in all the channels except in hard discounters. Organic products has increased by almost 18.7% and its market share had reached 3.0% on food. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 12

13 H1 food sales increased again with price change virtually flat. Non-food prices continued to fall as did both volume and value sales. FOOD SALES IN ITALY, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, inc. alcohol) VALUE VOLUME PRICE 5,6 4,1 4,5 3,6 3,9 2,4 2,7 2,9 3,0 2,0 1,9 0,5 2,2 0,8 1,6 1,0 0,2 0,4 0,1 0,3 0,9 0,1 0, ,1-0,1-1,0-0,9-0,9-1,2-1,2-1,3-0,3 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN ITALY, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 0,6 0,0 0,2 2,3 1,2-0,8-0,9-0,5-1,1-2,0-4,7-2,7-3,8-3,8-3,9-3,9-4,5-5,3-4,6-3,1-2,8-3,6-4,2-3,5-4,6-2,0-3,3-0,9-0,6-1,3-1,5-2,5 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, all outlets Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 13

14 Overview Italy VAT on food: 4.0% and 10.0% In the second quarter of 2016 Italian GDP remained unchanged versus the first quarter and increased by 0.7% versus Q2 2015*. In a context characterised by declining European and American growth, Italian manufacturing firms reported a decrease in activity levels while employment continued to expand and deflationary trends eased. In June 2016 the Italian consumer price index increased by 0.1 on a monthly basis (versus previous month) and declined by 0.4% in relation to June 2015, down from 0.3% in May 2016 (versus May 2015)*. The confidence climate index decreased in June 2016 from to Employment in Italy in Q2 showed a great acceleration compared to Q1 (+0.6% overall, compared to +0.1%). In June the unemployment rate was 11.6%, remaining at the level observed at the beginning of the year (11.7% in January)*. The FMCG market was impacted by the general flat economic performance of the first six months of Both volume and value sales were +0.5% in the first semester. Food categories were the only ones registering a positive trend (+0.9% sales in value and +1.0% sales in volume), sustained by the performance of fresh products. The beverage category has registered negative trends because of a season of unfavourable weather compared to that of 2015: sales in value were -0.1% and sales in volume were -1.5%. Personal care and home care have also struggled. Personal care volume sales were -1.0%, despite the negative price trend and home care volume sales were +0.3% despite, again a deflation trend. Promotional pressure registered a light decrease during the fist six months of 2016 (-0.2 points versus the same period of 2015) and it s now at 27.7%. National brands are leveraging more on promotions than private labels. National brands promotional pressure was 30.0% in June 2016 while private labels was 16.7%. Private labels started to gain market share during this period (+0.2 points) and are now at 17.9%. They have benefitted from an assortment increase aligned with national brands. Private labels tiers that registered the highest growth were organic categories (+11.2% value sales) and premium lines (+15.2% value sales)**. *Source: Istat ** Source: InfoScan Census - hypermarkets, supermarkets, small shops, drugstores and discounters, total Italy Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 14

15 Prices are flat during the first semester in Italy, accordingly to the general country price trend PRICE TRENDS FMCG 3,0 2,5 2,0 1,5 1,0 0,5 0,0-0,5-1,0-1,5 June 16 Apr 16 Feb 16 Dec 15 Oct 15 Aug 15 June 15 Apr 15 Feb 15 Dec 14 Oct 14 Aug 14 June 14 April 14 Feb 14 Dec 13 Oct 13 Mix Effect Basket Inflation FMCG Inflation Source IRI: hypermarkets, supermarkets, small shops; total Italy Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 15

16 Food prices continued to rise in H1 although more slowly. Volume sales improved for food and for non-food. Non-food prices were unchanged. FOOD SALES IN SPAIN, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) 2,3 1,9 2,0 2,6 6,0 5,2 3,9 2,8 2,8 2,2 1,2 0,9 0,3 1,8 0,6 0,9 0,2 0,0 VALUE VOLUME PRICE 2,0 2,6 1,4 1,2 1,8 0,7 1,2-0,3-0,4-0,3-0,4-1,4-1,1-1,3 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN SPAIN, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 3,2 2,2 4,0 3,9 4,3 2,5 1,6 1,9 0,4 0,7 0,0 1,6 1,3 1,6 1,9 1,9 0,9 1,9 2,5 1,2 1,1 0,9 1,0 2,1 2,1-1,0-0,8-2,7-2,7-1,1-0,9-0,2 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, hypermarkets and supermarkets Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 16

17 Overview Spain VAT on food: 10.0% and 21.0% In Spain value sales for FMCG products increased by 1.4% in H1 2016, with one third coming from consumption (+1.0%) and the rest from prices (+0.4%). Private label value market share increased 1.2 points versus H It s an even smoother increase compared to the previous year s private label growth (+1.9 point in H1 2015). The price gap between private labels and national brands slightly increased, but shoppers choose manufacturer brands for little more euros. The shoppers rely again on brands and 40.9% consider buying a brand more than any other option. Large supermarkets have experienced growth (at +2.5% in value versus H1 2015) and small supermarkets - at a rate of 6.0% - are the successful channel at the expense of hypermarkets and medium supermarkets. Promotions have been strongly pushed in the last month of H The promotional pressure of June 2016 was 21.3%, 3 points higher than June Overall H promotions have increased both in hypermarkets (by 0.8 points) and supermarkets (by 1.4 points). Price reduction (>10%) and special packs (>2%) are the most affected promotional types. As per IRI s forecast the estimates of the CPG market growth during H and first months of 2017 will be 1.8% in value. The economic recovery is not strong enough to reassure shoppers, as over 90% of them consider the economic situation as bad or moderate, and expect little improvement in Shoppers main objective are to be opportunistic: finding the best offers, using more complex searching processes and broader sources of information. In addition she/he has a preferred store and the need to decide upon the best option between this selection of stores for a smart grocery shopping outcome. Important criteria include familiarity with the store, offers, price and the shopping experience. 41.1% of shopping decisions are made at home. As a result shoppers need less time to select a product, just 47 seconds since they enter in the section and put a product in their shopping basket (it was one minute in 2013). One out of three selections is done instantly. Shopping frequency has increased (68.6% of shoppers buy at least once a week or more), most of them for routine purchases or small baskets. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 17

18 Prices are now going up in Greece, prompting a huge volume decline for both food and non-food which is bringing value sales well down. FOOD SALES IN GREECE, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) VALUE UNITS PRICE Price per unit 2,0 1,8 0,4 2,4 0,6 2,2 0,2 1,3 0,8-0,5-0,6-0,4-1,5-0,5-0,5-0,5-2,6-2,5-0,6-1,7-1,9-2,7-1,9-2,9-4,6-1,9-6,0-5,1-6,5-10,0-9,1-13,3 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN GREECE, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 2,1 1,4 1,9-1,7-1,3-0,6-0,3-4,8-7,2-7,1-10,0-8,4-4,0-1,4-3,8-2,8-4,4-6,6-1,6-3,1-0,8-1,1-0,1-0,9-1,6-4,6-5,0-4,3-7,2-8,3-7,7-9,3 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, hypermarkets and supermarkets Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 18

19 Overview Greece VAT on food: 13.0% until June 2016 From June 2016 onwards VAT varies according to the category (13% and 24%) The weak economic environment is still negatively impacting grocery performance. In H FMCG value sales declined by 8.8% versus H Prices in Greece were inflationary in H compared 2015 (0.7%). Unemployment has remained very high (23.5% in H1 2016) and GDP negative (-0.9% in Q1 2016). On the 1st June VAT increased from 23% to 24%. Retailer Carrefour Marinopoulos market share has fallen from 25% in 2014 to 10% in And since its bankruptcy in June 2016, Carrefour Marinopoulos performance has dropped even more. Discussions are ongoing for Marinopoulos joining Sklavenitis Group, the third largest retailer in Greece. As a result, private labels volumes sales have also fallen. Retailers keep promoting whole categories (e.g. 25% off for frozen food, 20% off for beverages) using heavy discounts. There is still room for more targeted and customised promo activities to be developed by retailers, based on loyalty card data and according to customer clusters. Lidl is currently the only large discounter in Greece and it has continued to gain market share, sustained by intense advertising campaigns and heavy promotions. Lidl is investing in a new communication strategy and is changing its positioning from a low price shop to a supermarket with quality products. Big international manufacturers, like P&G and Henkel, initiated the every day low price (EDLP) strategy. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 19

20 Food volume declined again in H1 2016, with prices still rising, whilst non food prices continued to fall and volume was up by 0.5%. FOOD SALES IN THE NETHERLANDS, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) 4,7 4,4 VALUE VOLUME PRICE 2,7 0,7 0,1 2,2 1,4 1,7 0,9 0,7 0,3 1,0 1,0 0,5 1,0 1,7-1,0-0,6-0,3-1,8-0,6-2,6-2,5-3,1-1,0-2,4-2,5-2,2-0,7-0,7-0,6-0,7 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN THE NETHERLANDS, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 0,2 1,2 0,1 0,6 0,5-1,0-0,6-0,6-0,6-0,1-0,7-1,6-1,6-1,0-2,1-1,9-0,7-1,5-2,6-2,6-3,3-3,5-4,5-4,1-5,1-4,9-4,9-4,6-6,0-6,0-5,4-7,5 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, supermarkets (exc. discounters) Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 20

21 Overview The Netherlands VAT on food: 6.0% The positive trend in terms of growth of the economy in the Netherlands continued in H Consumer trust is rising and consumption is increasing again. The economy has grown 2.3% in Q compared to last year, the strongest growth for years. Inflation in the Netherlands is low (+0.3% over H1 2016) and in July there was even a deflation (-0.3%). Unemployment rates are down and back to 5.8% in July. This means it is at the same level as it was in 2012, but still much higher than the 3.7% that it was in 2008 before the crisis started. Total supermarkets value growth is 2.3% until period 8/August 2016 and for the first time, the growth is not driven by the hard discounters, Aldi and Lidl. Supermarkets are showing stronger growth than the hard discount channel and are regaining market share. Petrol stations are growing well (+3.6% in value until period 8). Supermarket growth is mainly driven by the fresh food categories, more specifically fruits and vegetables. The growth in turnover is mainly driven by price increases in these categories, but also volumes are up. Promotional pressure keeps rising in the Netherlands. In 2016 (until period 8) 20.6% of total sales (excluding fresh) were sold with some kind of promotion. Private label sales are stabilising after years of growth and on average over the last five periods (April until August) the share of private labels sales is lower then it was last year, driven by a slower assortment increase. The high promotional pressure of national brands is also impacting private labels as shoppers opt for national brands rather than private labels when the price gap has narrowed. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 21

22 In H1, food prices remained flat and volume sales increased again. Non-food deflation continued and volume grew here too. FOOD SALES IN GERMANY, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) VALUE VOLUME PRICE 3,3 3,6 3,3 1,7 1,6 2,6 1,1 0,6 1,9 0,7 1,9 1,5 0,6 0,9 1,3 0,2 0,4 0,7 1,5 1,2 1,2 0,7-0,3-1,4-2,4-2,9-0,9-1,0-1,4-2,3-0,5-0,3 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN GERMANY, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 1,8 1,0 1,9 1,7 2,1 1,7 2,0 2,6 1,8 1,7 2,1 1,6 1,4 2,6 2,1 4,2 3,8 3,1 3,5 2,4 4,7 2,2 1,3 0,71,4-0,0-0,3-0,2-2,1-1,9-1,8-2,4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, all outlets Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 22

23 Overview Germany VAT on food: 7.0% and 19.0% The German economy is currently experiencing a moderate upturn. GDP is expected to grow by 1.8% versus This upturn is mainly driven by private consumption. FMCG value sales in year to date (YTD) H increased by 1.4% compared to YTD H1 2015, bringing FMCG market value to 61 million in YTD H This positive development is led by the categories of household products (+9.0%), chilled and ready to eat (+5.3%) and sweets (+3.7%). While volume sales are increasing (+1.3%) prices stay stable. Aldi, Lidl and Norma in Germany remain static in value and volume sales compared to the prior time period. These retail formats are undergoing a slight change process from real discount formats to supermarkets with an increasing range of national brands on the shelf. Supermarkets, with a clear focus on key accounts, Rewe, Edeka and Markant remain strong across all size classes, especially smalland -medium-sized stores ( square metres). The growth of sales (volume +2.3%, sales +2.8%) is strongly influenced by growing promotional sales in the first half year of The sales at Edeka show a comparable development. Growth of promotional sales (by 8.3%) leverage value sales and volume sales both by 3.3%. These promotional efforts can be interpreted as a reaction towards the transformation at the discounters. Soft discounters offer a broad variety of branded products and manage to have a good balance between national brands and private label products. In the first half of 2016 they displayed value growth of 4.5%. In this retail channel promotion sales (+7.5% growth) drove the business overall as well. Drugstores displayed a moderate growth with an increase of 2.8% in value sales. The success of the previous years seems to be over. Value sales on private labels among FMCG is slightly increasing by 1.4% compared to YTD H The development of prices remains stable (+0.6%) which is an indication for a more or less constant structure between economy and premium private labels. Also the broadness of the assortment overall (measured by the average number of items) remains steady. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 23

24 Food prices fell again in H1 as did volume sales, producing another drop in food value sales. The decline in non-food volume slowed a little. FOOD SALES IN THE UK, % CHANGE, YEAR-ON-YEAR (Packaged food, confectionery, drinks, exc. alcohol) 4,7 4,8 3,6 VALUE VOLUME PRICE 2,0 0,7 0,2 2,6 2,4 2,3 0,7 0,2 1,6 0,9 0,2-0,8-0,4-0,1-1,8-1,6-1,3-1,4-2,1-1,9-1,6-1,2-1,5-1,9-2,4-2,4-1,7-2,6-3,4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H NON-FOOD SALES IN THE UK, % CHANGE, YEAR-ON-YEAR (Pet food, health, toiletry, household) 3,0 1,5 2,0 2,3 2,4 0,3 1,4 0,9 0,8 0,2 1,6 0,6-1,3-1,6-1,0-0,9-1,1-0,8-0,3-0,3-1,2-1,5-2,1-1,4-0,5-0,3-1,6-1,8-1,2-2,1-1,8-0,5 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Q3 Q4 H Source: IRI, all outlets, excludes Northern Ireland Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 24

25 Prices are still down year on year as supermarkets aim to address differentials with discounters. Topline inflation (CPI) has begun to increase. % CHANGE VERSUS LAST YEAR SHOPPING BASKET, ALL ITEMS IN THE UK ,1 3,5 3,3 3,1 2,8 2,6 2,4 2,5 2,6 2,0 1,8 1,9 3,63,5 3,5 4,3 4,2 3,63,7 3,0 1,8 1,51,6 1,7 1,41,3 1,4 1,0 0,70,8 0,50,3 0,0 1,6 1,1 0,8 0,4 1,3 0,50,6 0,3-0,2 0,0 0,8 0,0-0,3-0,7-1,0-1,4-1,4-1,7-1,7-1,8-2,3-2,5-2,8-2,8-2,0-2,4 TOTAL PRICE Monthly CPI -2,2-1,5-2,0-2,0-2,1-2,1-2,3-1,7-1,7-1,6-2,0-2,1-2,0-1,9 Jul, 16 Jun, 16 May, 16 Apr, 16 Mar, 16 Feb, 16 Jan, 16 Jan, 16 Dec, 15 Nov, 15 Oct, 15 Sep, 15 Aug, 15 Jul, 15 Jun, 15 May, 15 Apr, 15 Mar, 15 Feb, 15 Jan, 15 Jan, 15 Dec, 14 Nov, 14 Oct, 14 Sep, 14 Aug, 14 Jul, 14 Jun, 14 May, 14 Apr, 14 Mar, 14 Mar, 14 Feb, 14 Jan, 14 Dec, 13 Nov, 13 Oct, 13 Sep, 13 Aug, 13 Jul, 13 Jun, 13 May, 13 Apr, 13 Mar, 13 Mar, 13 Feb, 13 Jan, 13 Dec, 12 Nov, 12 Oct, 12 Sep, 12 Aug, 12 Jul, 12 Jun, 12 May, 12 Apr, 12 Mar, 12 Mar, 12 Feb, 12 Jan, 12 Dec, 11 Nov, 11 Oct, 11 Sep, 11 Aug, 11 Jul, 11 Jul, 11 Jun, 11 May, 11 Apr, 11 Mar, 11 Feb, 11 Jan, The average basket price was falling month by month but increased in The CPI remains very low but has been rising. The growth of the discounters is forcing the supermarkets to retaliate with lower prices. So far, to July 2016, the reduction has been 3.8% since prices started to fall in April/May Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 25

26 Overview The United Kingdom VAT on food: 0.0% and 20.0% Inflation (CPI) was essentially flat from February 2015 to December 2015 but has been creeping up again, mostly driven by oil prices. Grocery prices were falling as the traditional trade reacted to the growth of the discounter sector but they started to rise a little in 2016 until falling again in the last two months of H Prices are down by 3.8% since the latest price war started, with food prices falling faster than non-food. Unemployment has been declining and so this has been good news for the UK economy, down to 5% in May GDP was up again (+0.4%) in Q versus Q This is a good sign and continues the trend of GDP growth seen now for the past twelve quarters with no definitive negative effect of the Brexit vote at the moment, although this is expected. Private label value share is levelling out after a considerable period of gradual decline, largely due to the food sector. Brands are keeping up the pressure with far more promotional support than private labels are given, with deeper discounts and more frequent offers. Grocery prices are still the key focus in the retail trade, as the major retailers battle against the growth of the discount sector. In early July, Asda announced plans to spend an extra 500m on cutting prices. Food and non-food volume sales were down year-on-year for H1 2016, by 1.7% and 0.5% respectively. Despite assumed increases in population, UK consumers are not buying more groceries. They are shopping more often and wasting less. Combined with the growth of the discounter sector, this means that value sales for the traditional trade have been trending down since early 2014, which is putting pressure on the major supermarkets to maintain profit levels. As a result store opening programmes are being re-evaluated and some existing stores are closing. Grocery ranges are being dramatically reduced by most major retailers in an effort to save money. Tesco has led this trend recently, cutting the number of grocery items in their stores by around 15%. Asda and Sainsbury s are doing this too while Morrison s has levelled out for now, having reduced their range over the past two years. The number of promotions being run is reducing, led by Sainsbury s, where the proportion of sales on deal is as low as it s been for five years. Sainsbury s has stopped running any multibuy promotions in their stores from April However, deal depths are at an all time high as deeper price cuts are offered increasingly on single item purchases rather than multibuys. Shoppers had been trading down their purchases to save as much as possible, on top of price cuts but this trend slowed down as pre-brexit consumer confidence levels improved and wages started to grow faster than prices, after several years of not doing so. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 26

27 IRI Topline Report Trade Promotion to Q

28 Deal levels vary enormously across Europe All products. % SALES ACROSS ALL PRODUCTS WITH TRADE PROMOTION, VOLUME, IN SEVEN EUROPEAN COUNTRIES Germany UK Netherlands 30 Italy 20 France 10 0 The latest data from Spain is temporarily unavailable, it will be added as soon as possible Spain Greece Driven mostly by the food sector, the total level of trade promotions is quite similar across the countries apart from Italy at 30% and the UK above 50%. The topline trend in the UK is down for the last 4 years and slightly down in Italy too since early 2014; whilst in Greece promotion is becoming more and more important over the years, overpassing the historically low country, Germany. Note: Exceptionally, Spain measurement stops at Q Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 28

29 Deal levels vary enormously across geo and food categories; most have been quite stable for the past year apart from the lower level in the UK. % FOOD SALES WITH TRADE PROMOTION, VOLUME, IN SEVEN EUROPEAN COUNTRIES Germany UK 40 Netherlands 30 Italy 20 France 10 0 The latest data from Spain is temporarily unavailable, it will be added as soon as possible Spain Greece Since the beginning of the year, promotion activity for food has decreased in most countries, significantly in the UK. Despite a slight promotional activity growth in Germany, the discounters country, in the last quarter, promotion over the past years remain in the same corridor. In Greece, promotions continue the progressive growth due to the economical context and the pressure on retailers by the growth of Lidl. Note: Exceptionally, Spain measurement stops at Q Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 29

30 Non-food categories also show variable deal levels across Europe and a considerable increase in Greece over the past two years. % NON-FOOD SALES WITH TRADE PROMOTION, VOLUME, IN SEVEN EUROPEAN COUNTRIES The latest data from Spain is temporarily unavailable, it will be added as soon as possible Germany UK Netherlands Italy France Spain Greece Trade promotion levels on non-food vary across countries in Q2. UK and Italy which have the highest promotional activity have stabilised, while Germany is back to growth in Q2, which is the same trend for France in H1. Non-food sales bad performance is common to all countries and promotion remains a tactic to try to sustain volume sales; with more or less success. Note: Exceptionally, Spain measurement stops at Q Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 30

31 Growth Opportunities Price and promotion can t be the only levers. Retailers need to find differentiations in the shopping experience (e.g. assortment, services, channels). Local brands, organic, gluten free and small brands are the fastest growing opportunities. Systematic promotion analysis must become normal practice. With set goals, appropriate analytics solutions will simulate price and promotion tactics to improve margins, revenue, brand and category performance as well as competitive advantage. As margins are shrinking for retailers and manufacturers, they need to focus on collaboration and work as partners with one common objective: to enhance the shopper experience. Big data technology and collaborative portals will enable both parties to better understand the path to purchase. Manufacturers and retailers can use the same assortment optimisation solution that assesses the true value of each item, based on its attributes (such as pack size, format, function, price band, etc.), to identify and understand crucial elements that influence shopper decisions and the drivers of growth for individual brands and a category as a whole. Brand teams need a clear view of what impacts each trip mission for each shopper segment if they are to gain market share and/or develop margins. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 31

32 Resources HOW WE CAN HELP YOU FINDING GROWTH? WHY ONLY WITH IRI? IRI Global Executive Market Reviews (IRI GEMs) give fast moving consumer goods manufacturers and retailers access to POS-based information outside of their home country. This solution is ideal for exploring new market opportunities, to understand the players and products in countries where you don t yet have a presence. This is also valuable for understanding new or adjacent categories in foreign markets. IRI GEMs are based on the retail census data IRI collects from grocery, drug and other available FMCG retailers across countries. Information is available from the United States, the UK, France, Germany, Spain, Italy, the Netherlands, Greece, Puerto Rico, Australia, New Zealand and Japan. IRI Price & Promo models provide a global analytical solution for all revenue management needs. They enable both retailers and manufacturers to get fast and in-depth category insights on key price and promotional levers, to understand their respective impacts on the portfolio, allowing full return on investment analyses, identifying growth opportunities, and enhancing overall bottom line. Faster: IRI s unique Liquid Modeling technology, leverages WhiteBox in-memory database-farm to ensure integrated workflows with high responsiveness and unprecedented speed across the what, so what and now what. More Accurate: Proprietary IRI algorithms and advanced prescriptive analytic methodologies identify opportunities, quantify the revenue potential and recommend specific actions. Proven: A never before used integrated and expanded causal dataset, built on the basis of three decades of unique IRI expertise. Trusted: Working with 95% of CPG, retail and health & beauty companies in the Fortune 100. Certified: The biggest and fastest growing marketing analytics centre in the world, located in Europe and ISO certified. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 32

33 IRI Topline Report FINAL NOTES Source: IRI InfoScan, syndicated retail tracking service. Methodology: Quarterly review, year-on-year data for fast moving consumer goods. Country coverage: France, Germany, Greece, Italy, The Netherlands, Spain and the United Kingdom. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 33

34 Contact FOR MORE INFORMATION ABOUT IRI To gain deeper insights, predictive analysis and recommendations on specific products, categories, segments, channels or retailers contact your IRI Consultant or About IRI. IRI is a leading provider of big data, predictive analytics and forward-looking insights that help CPG, OTC health care, retailers and media companies to grow. With the largest repository of purchase, media, social, causal and loyalty data, all integrated on an on-demand cloud-based technology platform, IRI guides over 5,000 clients globally in their quests to remain relentlessly relevant, capture market share, connect with consumers and deliver growth. IRIworldwide.com International Headquarters 1 Arlington Square, Bracknell, Berkshire RG12 1WA, United Kingdom Copyright 2016 Information Resources, Inc. (IRI). All rights reserved. IRI, the IRI logo and the names of IRI products and services referenced herein are either trademarks or registered trademarks of IRI. All other trademarks are the property of their respective owners. Copyright 2016 Information Resources, Inc. (IRI). Confidential and Proprietary. 34