Prices are Rising in Estonia; It's Time to Adapt Your Trade Promotions or Lose Out
Trade promotions are more important now than ever. Increasing prices create an environment where consumers are putting more thinking into their purchasing decisions. Consumer goods companies need to understand how rising prices are affecting consumers and how their purchasing behavior is evolving. Doing so allows FMCG companies to gain a competitive advantage when it comes to profitable growth.
Rising Costs of Goods and Inflation Leaves a Strong Impact
Looking at the rising inflation rate in Estonia also helps to dive deeper into the overall situation. In January of this year, the inflation rate was already at 11.3%. While that was a small decrease from the December 2021 inflation rate of 12.2%, inflation has only continued to rise. In July the inflation rate hit a staggering 22.8%, with no signs of slowing down. The chart below visualizes this upward trend, only solidified by the fact that already in May, Estonia’s rate of inflation was marked as the highest in the Eurozone.
According to the Estonian Statistics Bureau, prices have risen by 2.7% in June compared to May, and by 21.9% when compared to the previous year. Price increases in Estonia have been the fastest in the Eurozone as well, especially in part to the current electricity and gas fiasco. Additionally, the prices of services and industrial goods rose faster than in other Eurozone countries.
In May of this year Analyse² did an independent study of the pricing and selling data in Estonia from January until May 2022. In this study it was discovered that while the total value of sales in groceries increased by 11% compared to the previous year, there was only an increase in the number of products sold by 3%. Essentially, this means that the sales growth in terms of quantity was small but still grew, but primarily products have been sold at a higher price point.
Looking at how the current situation is affecting trade enterprises, as indicated by the blue arrow in the chart above, costs in the first quarter of 2022 surpassed both turnover and retail sales. While when compared with Q4 of 2021 it seems that turnover and retail sales were rising, according to the results from Q1 of this year, they are now declining. Essentially while the increased cost of goods was the reason for the increase in revenue, profit margins are lower. In the same data set, it was also visible that the selling time from warehouse to consumer increased which meant that consumer consumption has also decreased.
According to Statistics Estonia, as referenced in an article by ERR, the rise in food and non-alcoholic beverage prices accounted for 20% of the total increase in the Consumer Price Index (CPI). In addition to this, the CPI food increases between July 2021 and July 2022 were astonishing. As shown in the graphic below, the increase compared to last year was very high. Sugar increased by 40.3%, pasta products increased by 43.1%. Oils increased by 49.5 percent, eggs by 56.7%, fresh fish by 59%, and the increase in the flour and cereal category is a whopping 72.3%.
Even with ongoing efforts to combat energy and other crises, inflation and price increases are expected to continue to rise for the foreseeable future. While this inflation crisis certainly will affect the FMCG industry in the long term; adapting fast and creating smarter trade promotion strategies will ensure profitable growth can continue.
Price Hikes Draw Consumers' Attention to Promotions
Rising costs do not mean that consumers have stopped purchasing items or shopping less frequently. Kristjan Anderson, the Director of Business Accounting at Selver mentioned in an article in July 2022 on the news site ERR that the biggest noticeable change in consumer behavior is that nearly 40 percent of the items in consumers' shopping carts were discounted items.
Outside Estonia, the Swedish firm Matpriskollen recently conducted a consumer survey which showed that a whopping 83,8% of consumers will be basing their purchases on sale items and current promotional offers. Over 31% of the customers surveyed are planning to start buying cheaper products and brands as well. These trends show that to cope with rising prices consumers are especially looking for relevant and useful promotions that cater to their needs.
Trade Promotions Matter More Now Than Ever: Make Them Count
Recent studies, reviews, and data all solidify the importance of not only maintaining trade promotions but ensuring that they are profitable and relevant for the right customer segments. You cannot repeat the same old trade promotions anymore unless you want to take a losing gamble on profitability.
So how can FMCG brands not only have trade promotions that drive profitable growth but ensure that they maintain customer loyalty?
- First, analyze the impact of increasing cost levels on the profitability of your latest promotions by combining all the relevant data sources
- Second, test new promotions to learn how consumers react to higher promotion price points
- Also, try out smaller bundle sizes, this can work well if consumers are not yet used to the new higher normal prices
- Leverage AI solutions to learn from these trials faster
- Simulate the profitability of upcoming promotions with different price levels and trade terms
- Negotiate your adjusted promotional plan with the retailers based on insights on changing consumer demand to create win-win deals
Utilizing these insider tips, brands and major FMCG companies can not only combat the rising costs and price increases, but they can solidify their position in the market and drive profitable growth.
To learn more about how FMCG brands can thrive even now, book a demo today.