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ColumnistsRising Inflation and the Move to Discount

Rising Inflation and the Move to Discount

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By Mike Ljubicic

Nothing that happened in 2020 was expected. The growth in FMCG observed at the beginning of the pandemic continued throughout the year. Canadians continued to work away from the offices and turned to hosting socially distanced events for family and friends; travelling within the country and investing time and money in their property created a notable impact on several categories. Sales grew by 10 per cent in Canada during the third quarter of 2020 alone. Now, nearly three years after the pandemic began, we are once again facing uncertainty.

Inflation continues to dominate our industry, reaching +8 per cent in the latest 12 weeks across NielsenIQ-tracked categories. With regular and promotional prices increasing, consumers are adjusting their shopping behaviours. We’ve seen three behavioural trends repeat themselves in Canada during inflationary times: consumers shifting to discount stores; increased penetration and purchase of private label; and leveraging promotional offers whenever possible/reducing trips. 

A growing discount channel

Today, the discount channel share has hit an all-time high, and 26 per cent of consumers have switched to private-label offerings and are taking advantage of larger pack sizes to help save. With recent “price freezes” announced by some retailers for the coming months, consumers are likely to react and continue comparing price gaps within their brand purchases. Discount is also home to a tighter selection of items per category, which, combined with a higher penetration/share of private label, will make “price gap comparisons” for shoppers easier.

In the latest period, we’re also seeing promotional elasticities (reactions to price discounts) and a sign of adjusted shopping behaviours and expectations around promotions being reset. This provides an opportunity for retailers and manufacturers to adjust promotional strategies to address shopper perceptions around promotions. In the latest study period, promotional elasticities were starting to rise. They are still well below pre-pandemic levels, but the window for changes to promotional pricing and discount levels with fewer sales impact has started to close. It’s important to manage the balance versus regular price and gaps within the category as consumers continue to compare.

What will drive inflation in 2023

While labour shortages, shipping costs, and raw ingredient prices have been assigned most of the blame for rising prices, they are not the only factors driving inflation.

Inflationary impacts will likely continue mid to longer term, at minimum through 2023

Factors to watch

  • extreme weather events
  • increased demand for home delivery
  • oil price increases
  • transportation infrastructure bottlenecks
  • reverse migration
  • labour-intensive processes
  • taxes associated with environmental and regulatory issues

These are all factors that create added costs and “unknown unexpected” global situations nobody can predict but must manage through.

Without question, recent rising inflation has exposed fragilities in both supply chains and value chains. International supply chains have been especially strained during the present cycle, which has exacerbated their more fragile frameworks versus localized supply structures. In the months ahead, the speed at which supply will catch up to demand will vary.

As we close out 2022, the holiday season will likely be filled with traditions we all enjoyed before the pandemic and are eager to resume. The weeks leading up to Christmas are usually the most important of the year for all categories. However, it’s still to be determined whether inflation and supply chain issues will impact the FMCG industry this season. The market continues to change, and costs will continue to rise, which will, in turn, exert added pressure on inflationary pricing.

As you plan your strategies and tactics, be mindful of price gaps as you look to regular price changes, and take advantage of the lower promotional elasticities to adjust your trade spend and bring more profit to your promotions.

Mike Ljubicic is NielsenIQ’s managing director for Canada

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ECOSYSTEM

Positive growth.

Nature, in the common sense, refers to essences unchanged by man; space, the air, the river, the leaf. Art is applied to the mixture of his will with the same things, as in a house, a canal, a statue, a picture. But his operations taken together are so insignificant, a little chipping, baking, patching, and washing, that in an impression so grand as that of the world on the human mind, they do not vary the result.

outside-01-1314362
outside-02-5508185
outside-03-1073449

Undoubtedly we have no questions to ask which are unanswerable. We must trust the perfection of the creation so far, as to believe that whatever curiosity the order of things has awakened in our minds, the order of things can satisfy. Every man’s condition is a solution in hieroglyphic to those inquiries he would put.

ECOSYSTEM

Positive growth.

Nature, in the common sense, refers to essences unchanged by man; space, the air, the river, the leaf. Art is applied to the mixture of his will with the same things, as in a house, a canal, a statue, a picture. But his operations taken together are so insignificant, a little chipping, baking, patching, and washing, that in an impression so grand as that of the world on the human mind, they do not vary the result.

outside-01-1314362
outside-02-5508185
outside-03-1073449

Undoubtedly we have no questions to ask which are unanswerable. We must trust the perfection of the creation so far, as to believe that whatever curiosity the order of things has awakened in our minds, the order of things can satisfy. Every man’s condition is a solution in hieroglyphic to those inquiries he would put.

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