The energy crisis and the inflation of raw materials are disrupting the food market. Manufacturers are forced to review their strategy and rationalize their offers. In supermarkets, 80% of shelves have lost references and this percentage even rises to 89% in e-commerce. In other words, the choice is shrinking. More seriously, innovation is hampered. By sacrificing it on the altar of sobriety, manufacturers run the risk of cutting themselves off from some of their consumers.
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Statistics: a changing food market
Inflation disrupts the food market
In line with what we predicted at the start of 2022, the food market is undergoing a profound change. Not only are sales declining (for example -2.9% in volume in France in the 1st half of 2022), but in addition consumers are making sometimes radical decisions. The organic food market is thus bearing the brunt of the crisis, which is forcing consumers to sacrifice their ideals. The decline in sales reached 8% in volume in May-July 2022. As it is now customary to say, it is the end of the month that prevails over the end of the world.
The crisis forces consumers to sacrifice their ideals.
In a context of inflation, consumers are now looking for bargains. “Entry price” products thus increased by 5.6% in the first half of 2022. This sudden transition heralds a rise in the power of Private Labels (MDD) which should regain some best ghost writers in the 2nd half of 2022. Their market share has tended to erode in recent years and the inflationary crisis we are going through should restore their colors.
Rationalization rhymes with fewer references on the shelves
Since the outbreak of war in Ukraine and the surge in inflation, food manufacturers have taken radical decisions to control their costs. We first talked about shrinkflation and cheapflation, 2 techniques which consist respectively of:
- reduce the size of the packaging while keeping the price constant (less product for the same price)
- change the recipe by favoring cheaper and lower quality ingredients in order to contain the cost price
These measures have obviously not been sufficient and we are now witnessing a new phenomenon: the rationalization of product ranges. In other words, manufacturers are reducing their ranges to make them:
- less complex to manage
- less complex and cheaper to produce
In France, for example, Danone has eliminated its Tailfin range and integrated the products into Light & Free.
These rationalization effects are now beginning to be seen in stores. In France, the country of supermarkets and hypermarkets par excellence, the offer fell by 1.9% in the first half of 2022. To put it another way, there are on average 1.9% fewer references on the shelves than in 2021. To materialize even more precisely what this represents, this 1.9% drop corresponds to:
- 418 fewer references in hypermarkets (22,000 references offered at the end of 2021 on average)
- 209 fewer references in supermarkets (11,000 references offered at the end of 2021 on average)
However, the situation is contrasted depending on the surface area and type of business:
- -8.2% on food and the beauty section of e-commerce sites
- -4.1% on stores under 800m²
Space is limited (both online and offline). The consumer should not be lost with a plethora of options. Consequently, we cut with an ax in the offer and we only offer the essentials.
Rationalization rhymes with less innovation
The pace of innovation in the food market has slowed markedly in 2022. We were able to observe this at SIAL 2022. Although plant-based meat was the most important underlying trend in 2022, other innovations were relatively rare compared to other years. This is due to the policy of rationalization which is now the norm in the agro-food industry.
Companies are indeed cutting their innovation budget to reduce their fixed costs and thus try to compensate for the increase in their products on the shelves. The strategies implemented are very similar (see our article on the subject).
This brake on innovation does not go without raising many questions about the future of agro-food brands.
Conclusion: where is the food market headed?
Finally, we must ask ourselves about the direction that the food market is taking. Certainly, sobriety has become an imperative for all companies. For the agro-food industry in particular, it was necessary to clean up product assortments that had become unreadable. But aren’t we going too fast and too far? In June 2022, 13.2% of references disappeared from convenience stores.
Risk 1: losing loyal customers
By rationalizing at all costs, distributors and manufacturers run the risk of confusing their loyal consumers. First of all, remember that 80% of food products purchased from one week to the next are the same. Consumers, once convinced by a product, never change it. Upsetting scales inevitably leads to a risk of churn. In other words, a customer who can no longer find his favorite product can:
- switch to a competing brand
- no longer come to shop in his usual store
The penalty is therefore double. And the risk, especially in local shops, is very real.
Risk 2: not gaining market share
The second risk concerns market shares. By drastically reducing the budgets devoted to innovation, brands risk seeing their market share your affordable Song Writing Services stagnate or even atrophy to the benefit of private labels. Conquering market share is invariably linked to pricing or differentiation. It is for this reason that innovation should not be abandoned.
However, innovation must be reasoned, which has tended to no longer be the case in recent years. Too often, in fact, innovation became an end in itself without consumers taking an interest in it. 80% of the “innovative” products presented at SIAL in previous years no longer existed at the following edition. By putting consumer interests back at the center, brands have a real shot at countering the price advantage of private labels.
