Consumer packaged goods (CPG) manufacturers are reining in pricing and shifting focus to product quality and innovation as grocery retailers ramp up private-label merchandising to draw cost-savvy shoppers, CPG/retail sales and marketing firm Advantage Solutions found.
Just 28% of manufacturers polled in March for Advantage Solutions’ “Manufacturer and Retailer Outlook Spring 2023” report, released last week, plan list price hikes in the next six months, down from 46% in the December survey. Meanwhile, 35% of manufacturers said they aren’t planning increases, up from 28% in the December report.
The letup in pricing reflects findings from Advantage’s “Manufacturer and Retailer 2023 Outlook” released in January, in which 46% of retailers expect “significantly fewer” and 44% anticipate “somewhat fewer” price increases for this year. Almost half (48%) of manufacturers polled for the full-year outlook reported receiving price reduction requests from retailers over the previous six months.
A steady decline in grocery price inflation has given manufacturers and retailers more breathing room. The food-at-home Consumer Price Index dipped 0.2% month over month for April following a 0.3% decrease in March the first decline since September 2020, according to the U.S. Bureau of Labor Statistics. Year over year, the food-at-home index was up 7.1% in April—still elevated but continuing sizable drops this year from 8.4% in March, 10.2% in February and 11.3% in January and high levels through 2022.
Price, though, will be a linchpin of manufacturer marketing in the coming months, Advantage’s research shows. When asked to name primary promotional tools to stay competitive, companies cited off-shelf merchandising (55%) and digital couponing (45%) as the top two strategies. Those were followed by supporting retailer-focusing marketing (42%), more aggressive promotional pricing (35%), in-store marketing (27%), more frequent temporary price reductions (27%), promoting in multiples (23%), lowering everyday price (9%) and shelf point-of-purchase matching brand marketing message (9%).
Retailers surveyed by Advantage clearly indicated that private label will be their top strategy in tackling rising costs. Seventy-three percent of respondents plan to boost private-brand availability, while 57% aim to require higher margins on promotions. Forty-three percent are looking at increasing brands’ everyday low price and 25% at sharing cost hikes with vendor partners. Also, 60% of retailers are turning to their digital platforms and data assets for monetization opportunities.
In growing own brands, 97% of retailers said they plan line extensions, 94% new categories and 92% expansion of their premium labels, with 71% expecting to expand their lower-priced brands. Product categories slated to get more space this year to accommodate private brands, retailers reported, include frozen (45%), general food/grocery (41%), beverages (28%), home care (23%), refrigerated consumables (13%), health (12%), general merchandise (10%), beauty care (10%) and liquor (3%).
To counter retailer brands, 65% of manufacturers surveyed by Advantage said they aim to market brand quality over the next six months, while 55% plan to introduce innovation/new products. Other strategies by manufacturers to tackle store-brand competition include more trade promotions (32%), in-store shopper marketing (27%), list price reductions to lower everyday shelf prices (5%) and improved product quality (3%). Over the next 12 months, 92% of manufacturers expect to bring new products to market, with 34% saying they will do so “aggressively.”
“Consumer packaged goods innovation is rising, list price increases are waning and retailers are focused on private-brand expansion,” Irvine, California-based Advantage Solutions stated in the Spring Outlook 2023 report. “The survey also found branded product manufacturers are responding to private-brand expansion by marketing the quality of their products and launching product innovation. Their top tool for remaining competitive is off-shelf merchandising, as trade promotion activity has inched up gradually since the COVID dip.”