For a better understanding of the following lines, some clarifications are necessary first. This article is based on sales data from the international food retail chains active in Romania. A list of these chains is available at the end of this article.
The major tendency emphasized by the sales data of 2015 is the migration of purchasing behaviour towards small format, a tendency that has been already present for some years. We don’t use hypermarkets anymore for big weekly shopping, but the small store next door for more often purchases. We go to the supermarket on our way home from work even for shopping the big articles we previously used to buy from hypermarkets, like detergents, cosmetics or diapers. Data also say that only during big holiday seasons, like Christmas or Easter, hypermarkets manage to attract the majority of sales. In the rest of the year, their sales share goes below 50% in favour of their smaller counterparts.
Another important trend we have noticed is the up trading. Yes, commodity categories like milk, edible oil or sugar are decreasing, but within them, value added segments start to grow, as premium or bio products.
So, after years of educating the shopper, big hypermarkets need to find their readjusting formula.
How has 2016 begun?
The phenomenon described above continues strongly this year also. Figures for the first quarter of 2016 confirm the continuous increase of the proximity channel (supermarkets). Unlike big selling surfaces (hypermarkets), small stores continue to increase sales, both in volumes and values. The main food categories also continued to increase in volumes, with the drivers of this growth being an increase in general consumption and the migration of purchases from traditional, unorganized trade towards the modern retail.
Should we consider FMCG as comprising food, drug (detergents and cosmetics), tobacco and non-food (IT&C, white goods, apparel, shoes, small furniture and so on), food constitutes the biggest chunk of this market, with approximately 70% of sales value. The rest of 30% is split between drug – 11%, tobacco – 9% and non-food – 10%. In supermarkets, however, food represents over three quarters of value sales, thus confirming the role these stores play in serving daily, mainly fresh, food purchases. In the case of hypermarkets, food is responsible for over two thirds of sales value, taking into account that non-food is far better represented, with over 18% contribution to revenue, in the first quarter of this year.
Supermarkets gain also in drug and non-food
How does each channel perform? Keeping in mind that we compare Q1 2016 versus Q1 2015 all throughout this article, the value of the retail market monitored by RetailZoom generated an 8% increase overall. Hypermarkets marked just a mere 1% growth, while the lion share went to supermarkets, with 16%!
If we further split these figures into each big segment, we may notice that, although food is the most important category, it does not have the biggest contribution to growth. Especially in the case of supermarkets, the segment which registered the biggest increase in value was… drug. If we take into account the fact that, in hypermarkets, drug has a tiny 1% increase in value (and 1% decrease on like for like), we can clearly see that shoppers migrated towards small stores also for detergents and cosmetics necessities.
What does that mean? Simply put, if one goes to the supermarket every other day for groceries, one might as well buy a pack of detergent or a shampoo, knowing one will run out of it the other day. It has definitely become far more convenient and financially reasonable not to do stock up anymore, but just once a month or even seldom. The size of the supermarket basket constantly enlarged in recent years, starting to include personal and home care and baby products. It is not as we predict the extinction of big selling surfaces, as supermarkets will never be able, nor should they try to compete on choice, shopping experience, prices or entertainment. Each format caters for different needs and shopping missions, but as supermarkets are on their ascending curve – in Romania and everywhere else in the world –, hypermarkets are on their descending path, at least until they find another enticing proposition for their customers.
Winners and losers in food
Which are the categories with the biggest sales increases and decreases? Fresh food, (including fruits & vegetables), cakes and pastries are those with double digit value growth. The trend was somehow foreseeable for at least two reasons: rapid expansion of supermarkets, along with the introduction of in-store bakeries. Supermarket operators have seen and seized the opportunity represented by freshly baked bread and bread products in their stores.
Meat products don’t fare as well, on the other hand. A shy 5% increase in value is driven only by new supermarkets, while if we take into consideration the same stores universe (stores existing in January 2014), the sales value decreased by 3%. Same goes for dairy products or groceries (staple food). It is interesting to notice that within the grocery segment, diminished value is driven by decreases in categories like rice, seasonings, tomato paste or pate. On the side of winning categories we may as well note edible oil, sugar, flours or prepacked bread.
… and drug
Within the drug department, we have two major segments: personal and home care. Personal care overall increased 12% in value, while home care just 7%. I would say that this is good news, because, taking into consideration the general VAT decrease from January 2016, having increased values compared with Q1 2015 actually means more sales or increased sales for more expensive items. Either way, signs are good.
In cosmetics, there are some categories with staggering increases: razors and mouthwash +26%, face cleaners +24%, make up +21%, just to list those with over 20% growth. We may as well highlight deodorants +14%, toothbrushes +17%, shower gel +11% or hair colorants +9%.
We have more moderate evolutions for home care. Not only that growth rates are rarely above 15%, but there are categories with severe drops in values. Overall, the segment gained 7% in value versus Q1 2015, but with flat evolution like for like. On the winners side, we have categories like toilet paper +10%, laundry conditioner and kitchen towels with +13% and air freshener with +18%, and one notable exceptional growth of 31% for fabric maintenance due to a new launch in the category.
Who are the losers? Carpet cleaners and furniture cloths, with 22% and 7% losses respectively. Windows cleaners don’t fare better either. The segment lost 11% in value, driven mostly by hypermarkets where the sales value of this product decreased by 17%. We may also add here an interesting evolution of baby diapers, with an 8% decrease in value in the first three month of the current year. Actually, diapers are on a descending trend for about two years, in part because of the rise of private labels and in part due to the decrease in natality rates.
Browsing non-food data also surfaces interesting conclusions. Like in the case of personal and home care, non-food is no longer the exclusive privilege of hypermarkets. We have over 30% increases for beach accessories items in supermarkets, as well as for travel bag & accessories. Womenswear, menswear and underwear also found their place on the supermarket shelves, along with some DYI or garden & pets items. Overall, the non-food segment grew 6% in value and even if this is an area where big hypermarkets retain their advantage with an 11% growth, small format surpasses with a 12% increase in value.
Private Labels and Promotions
Private labels are on a descending trend in categories where they used to claim a high percentage of sales. Among the products where PLs were most developed were sugar and edible oil. While PL increased its share in edible oil by 7% in the first quarter of 2016 against the similar period last year, in sugar, PL value share decreased by 24%. Another category with a sharp drop in PL value share is chocolate tablets, with -30%. All-important non-alcoholic categories registered a decrease in PL share versus Q1 2015. In carbonated soft drinks, PL share dropped with 11%, in non-carbonated with 8%, beer saw a severe PL decrease of 17% and mineral water of 12%.
Private Labels’ shares diminished more significantly in the personal and home care categories. Paper products, one of the segments with a high percent of retailers’ brands, were most affected. In toilet paper, for example, PL value share dropped by 18%, while in kitchen towels by 6%. Other categories where private labels decreased were laundry detergent (-34%) and laundry conditioner (-23%), toothpaste (-39%), shower gel (-16%).
As far as the promotional activity is concerned, this is also on a descending trend. There may be at least two reasons for this situation. On one hand, suppliers and retailers seemed to have finally understood that promotions are no longer a strong differentiator and, on the other hand, the VAT decreases helped households improve their purchasing power. This is especially true for food, where the value of promotional sales registered lower levels than in Q1 2015 in categories like non-alcoholic beverages, processed meat, sugar, nuts & seeds, snacks, bread or coffee. On the contrary, though, in cosmetics and detergents, promotions secured between 30% and 50% of sales revenue, percentages which are significantly higher compared to the first three months of last year. Just to show some relevant examples, hair colorants, toilet soaps, face care, baby wipes, deodorants, shampoo are all categories with increased shares of promotional sales. And, to further endorse the claim in the title of this article, the growth driver of the promotional activity in the personal and home care sector was the supermarket channel. On the contrary, hypermarkets maintained or decreased the promotional activity in these categories.
Volumes speak the truth
So far, we have analysed data from the value point of view. Although value is a very important trend indicator, it may be affected by various factors like VAT decrease, promotions, retailers – suppliers’ agreements, up trading or down trading and so on. In order to validate one’s assumptions, it is preferable to check the value trend against the volumes. If both are going in the same direction, we may say that a market is increasing or decreasing. If volume is up and value down, we face an up trading trend, or down trading, if volumes are up with a decrease in values.
So, what do volumes say? In the first quarter of this year, sales volumes both for food and for personal and home care are growing. Main drivers of this trend are the newly opened stores, price cuts following VAT decrease and the increase in consumption overall. Among the big food categories, there are two exceptions from this course: roasted and grounded coffee, with a 4% drop in volumes and white yogurt with flat sales like for like. Of course, there are differences between hypermarkets and supermarkets. Categories with decreasing volumes in hyper are carbonated soft drinks, coffee, biscuits and yogurt, while in supermarkets all food categories are growing in volumes.
In personal and home care, laundry detergents and baby diapers have quite severe volume drops, which come especially from hypermarkets.
To sum up, we can say that the reduction of value added tax helped shoppers increase their spending even if not all disposable income went into shopping. In the first month after the VAT decrease, food prices went down with an average of 10 – 12%, although they have a tendency to revert to prior VAT cut levels at the beginning of this year. We are also witnessing a decrease of the promotional intensity, especially in food, along with a moderation of the private label fiver. We also predict that, at least this year, supermarkets will continue to expand at a much higher rate than large selling spaces.
Retailers covered by the data in this article are Billa, Carrefour, Cora, drogeriemarkt, inmedio, Mega Image, Metro, Penny, Profi.
