Low Prices Challenge CPG Performance

August 17, 2010

Lower consumer packaged goods (CPG) prices have been beneficial for consumers but are hurting retailers and manufacturers, according to recent data from The Nielsen Company.

Recession Pressures Push Down CPG Price
As recessionary pressures intensified at the end of 2008, gasoline and commodity prices started to drop and many retailers began passing on the savings to their shoppers and cutting prices broadly to be more competitive with value retailers.


Nielsen’s recent review of retail prices found that during the 44-week period ending June 12, 2010, prices were off or flat compared to a year ago, providing exceptional value to consumers, but weakening trends for retailers.

Unit prices have been dropping sharply since March 2009, and the number of items on promotion has gone up. When one store slashes prices to gain competitive advantage, others follow suit. Meanwhile, brands have resorted to more promotions to stimulate sales and stem the growth of private labels.


Unfortunately for retailers, these price cuts and heightened promotions have not achieved the desired effects as both dollar and unit sales were off in each of the last three (four-week) periods leading up to June 12, 2010, according to Nielsen analysis.

Increased Prices Boost Some Department Sales
Some departments showed price increases in recent quarters, such as dairy, fresh meat and fresh produce, but prices are still value-focused. Within dairy and fresh produce, it is interesting to note that increased prices are yielding stronger retail sales trends. In addition, the deli department has held up quite well, while alcoholic beverages have posted sales increases in both dollar and unit terms.


The departments with the most negative sales trends were fresh meat, non-food, and general merchandise, with dollar and unit losses the greatest among the non-food and general merchandise departments. Dry grocery department sales trends were similar to the total store trend. The frozen department was on a stronger sales trend, but unit and dollar sales have fallen in recent periods.

In a further sign that price cuts were not having a positive impact, only one of the top 16 categories with the largest price cuts actually saw dollar sales rise (frozen novelties, about 5%). Nielsen advises this suggests drastic price cuts don’t appear to provide incentives to alter the frequency of consumption.

Price Hikes Justified in Some Cases
In the short-term, Nielsen advises CPG retailers and manufacturers to look for opportunities to raise prices on selected items when justified. Retailers are also advised to raise prices on merchandise assortments where they have a competitive advantage, look for opportunities to up sell shoppers to build baskets, and offer special attention to their biggest spenders.

Environmental Concerns Affect Packaged Beverage Purchases
Consumer environmental concerns are having an increasing impact on their packaged beverage buying behavior, according to a new study from BeveragePulse.com. Even during the current recession, “Environmental Concerns: The Impact on Beverage and Package Decisions,” indicates that an overwhelming majority of consumers have maintained their focus on the environment.

Ninety-four percent of consumers are very or somewhat concerned about environmental issues, with 49% considering themselves very concerned.

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