Magazine article Marketing

News Analysis: Will Food Vanish from the Shelves?

Magazine article Marketing

News Analysis: Will Food Vanish from the Shelves?

Article excerpt

With supermarkets clamouring for non-food lines, FMCG companies fear they will be marginalised.

It is not often that a food manufacturer will publicly criticise the supermarkets, preferring not to bite the hand that feeds. So it was all the more significant last month when sales and marketing directors from Kraft Foods and United Biscuits used the Institute of Grocery Distribution (IGD) conference to highlight food companies' worries that their products could be marginalised by retailers' hunger for non-food items.

According to an IGD report, 11% of UK shoppers visit supermarkets to buy non-grocery items such as cosmetics, clothes, homeware and electrical goods. ACNielsen Scantrack found that non-food was the fastest-growing category in the pounds 67bn spent at UK grocery multiples last year, with 15% annual growth.

For supermarkets, the appeal is simple: non-food items offer significantly higher profit margins than food, where fierce price competition has slashed profits to a minimum. Supermarkets typically make margins of 6% on food, whereas clothing and homeware can bring in as much as 15%.

Most of the major supermarkets are enthusiastically embracing the charge into non-food products (see box). Sainsbury's is a notable exception, having recently announced that its recovery plan will focus on a back-to-basics approach, with non-food expansion limited to its 157 biggest stores.

But, as Gavin Rothwell, senior retail analyst at Verdict Research, points out: 'Sainsbury has a target of growing sales by pounds 2.5bn over the next three years, and it wants pounds 700m to come from non-food, so it must still be high up the agenda.'

Marginalised traffic generator

Considering that non-food expansion plans cannot be catered for solely by building bigger stores, grocery brand owners worry that something has to give - they fear it will be them. 'I do not want to see food reduced to a traffic generator for retailers,' says Steve Newiss, vice-president for global customers at Kraft Foods International. 'I fear that the growth in non-food is opening the way for food to become marginalised and a means of selling other products.'

Rothwell argues that retailers are giving less space to non-food items than the rise in sales suggests - 'sales are growing faster than space' - but he agrees there is more pressure on FMCG manufacturers to have strongly performing lines.

Though this pressure has always been a feature of the manufacturer/retailer relationship, retailers are now far more motivated to remove an underperforming food brand if they know it will make room for a higher-margin non-food product. This applies particularly to the traditional, 'ambient' grocery market of tinned, dried products, where it is harder to build premium appeal and add value. The result is more emphasis on product innovation and value.

Newiss says Kraft Foods has been focusing more on innovative products and packaging to ensure its brands do not fall victim to line rationalisation.

For example, it has worked on the taste of its Philadelphia brand, supported by marketing designed to drive home the message. Kraft has also invested in innovative packaging, such as resealable packs for chocolate.

Procter & Gamble is similarly looking at ways of creating extra value. …

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