Consumers are being “trained” to buy only on promotion – and it can backfire on brands, warns Nielsen’s Kerith Botha.
South Africa is a nation of promotion-obsessed shoppers, according to a new Nielsen report, The Price of Promoting. It shows that 75% of the adult population say they know the prices of the grocery items they buy and notice changes in price. That’s 6% higher than in 2017.
In addition, 31% actively search for promotions and 16% go so far as changing stores if a brand they prefer is on offer elsewhere.
Nielsen Connect South Africa MD Kerith Botha says this stems from the fact that despite ongoing, relatively low inflation rates (4.4% in Q1, 2019) and stable consumer confidence. fixed expenses, like the spiralling price of petrol, taxes and utilities, have placed a massive strain on essential living costs.
“This has led to consumers seeking financial relief and the first casualty of their desire to ease their financial strain is discretionary spending, which has taken a toll on their grocery baskets. Unfortunately, this ‘money’s too tight to mention’ scenario has also seen South African shoppers prone to severe cases of Promo FOMO. The danger with this, is that for manufacturers and retailers alike, promotions can be a double edged sword.
“They bring consumers to the store and result in temporary pick-up in brand sales/ volumes but the long-term impact of promotions is more severe and can lead to loss of brand and store equity.” says Botha.
The intensity of discounting within the local retail market becomes apparent when one considers that, in 2018, 30% of the total volume of products in South Africa were sold at a discounted price. This has increased by 3% since 2017.
In addition, 22% of South Africans say that they change stores based on the best discounts on offer, while 34% say they do not change stores but actively search for discounts in store. Sixteen percent of consumers, versus 22% in 2017, also only buy products at a discount if they already like the brand.
Across the price and promotion studies performed in South Africa during 2017 and 2018, the average frequency of promotion increased by 3%. A significant relationship has also been found where more frequent promotions lead to higher consumer sensitivity to regular prices – which means in effect, cosnumers are being trained to buy on promotion.
But do promotions actually work? Says Botha: “Based on Nielsen global benchmarks, a promotion is said to break even if its ‘efficiency’ is 50% or greater. Out of the 200+ items analysed in South Africa for this report, only 33% surpassed the 50% efficiency threshold, which means that a massive 67% of promotions don’t break even.”
Botha also cautions that not all items see high uplifts when promoted, and pricing strategies need to be tailored to ensure the right categories are positioned at the right price. “Products need to be treated individually, as consumers display different sensitivities to everyday price increases and promotions on different items.“
This has created a complex environment for manufacturers and retailers, and underlines the need for key insights to understand South Africa’s preoccupation with promotions, to help create efficient promotion plans using effective pricing strategies,” says Botha.
In a vote of confidence about SA’s long-term prospects, New York-based food and beverages giant, PepsiCo, has made an offer to buy Pioneer Food Group, which makes Sasko breads and Ceres juices, in a deal worth about R25.4bn.
Amaro Foods, a baked goods company in the Libstar stable, has upped its game with the commissioning of a new par-bake facility within its factory in Epping, Cape Town, and the first of its kind in South Africa.
This strategic development, says Libstar, is in line with global market trends where artisanal baking products are part of the daily food culture.
The facility now produces a range of partially-baked goods which are shipped to Woolworths stores around the country to complete the baking process.
The par-bake facility was launched in May 2019 and is one of 42 manufacturing plants owned by Libstar.
Tony Amaro, CEO of Amaro Foods, says, “It is important to predict and quickly adapt to consumer trends, as well as utilise opportunities for new product development.
“Consumers looking for artisanal products will now be able to find these in their regular shops and some fast food outlets.”
He says par-bake is an economical way of offering freshly baked goods without the need for full in-house baking facilities.
“The technique involves partially baking dough and then rapidly cooling it. The retailer then completes the process. It allows for the production of a range of fresh artisanal breads and rolls.
“One of the key benefits of par-bake is the reduction of waste. With fully baked goods, there is an expiration date which leads to waste and loss of income for retailers. However, par-bake allows retailers to better manage their stock and bake according to demand,” continues Amaro.
As well as reducing waste, the new facility also taps into the global demand for healthier food alternatives. “Par-bake uses fewer ingredients, which is a healthier alternative to mass produced products.”
Andries van Rensburg, CEO of Libstar, says, “Libstar has a strategy of supplying innovative and value-added products to our customers and consumers.
“We focus on the low-cost manufacture of quality, innovative and value-added products for discerning consumers. These consumers have proven to be more resilient in the ever-weakening economy.
“In today’s competitive environment, it remains key to anticipate the needs of consumers to build loyalty to Libstar’s brands at the point of purchase and consumption.
“We continue to leverage our long-standing relationships with customers in the retail, wholesale, industrial and export channels to produce innovative products in partnership with them.”
SA’s ostrich industry, centred on Oudtshoorn, has gone from boom to near bust over the past 17 years. The two biggest producers, Klein Karoo International and Mosstrich, are arguing that they need to be allowed to merge so that the industry can survive.
Money, so they say, doesn’t grow on trees. But it might just grow on their roots, if a new breed of optimistic truffle farmer is right. Who would have guessed that truffle farming is now a thing in SA!