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Is economic uncertainty affecting FMCG sales? Topline Report – Half Year (H2 2011) Tim Eales

Director of Strategic Insight


Key Findings •

Economic pressure is impacting confidence levels which have decreased across Europe mainly since second half of 2011, however the German economy is still performing strongly.

Purchasing power is under pressure due to increasing prices which are impacting volume sales in most countries. Spain being the exception.

The frugal shopper has become smarter, buying less and more wisely - leveraging from the multiple sources of information and the multi-channel opportunities.

Unique context: Prices are rising faster than earnings so this means ‘Consumer Recession’.

After a short lull, promotional activity increased again in second half of 2011, most noticeably in the UK and Germany, mainly driven by the Food products price increase and consumption slowdown. A similar trend is developing in The Netherlands, France and Italy.

Own Labels are challenging national brands with share increasing everywhere except in France and competing with increased trade promotion in some countries.

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PRICE RISES

SMART SHOPPER

PROMOTION IS GROWING


GDP Growth – Q4 2011 - % change vs. previous year

Euro area GDP up by 0.7% Germany

2.0

France

Netherlands

Italy

Spain

1.4 0.3 -0.7

UK

0.8

-0.5

Growth rates of GDP in volume (based on seasonally adjusted data) Source : Eurostat Q4 ’11 - Published 15th February 2011 3 Copyright © SymphonyIRI Group, 2012. Confidential and Proprietary.

Greece

-7.0


December 2011 EU (27) Unemployment rate up from 9.5% in Jan ’11 to 9.9% Netherlands

Germany

UK

Italy

France

Greece

Spain

22.9

19.2 OCT ’11

8.4 4.9

5.5

OCT ’11

(4.3)

(6.4)

(7.8)

8.9

(8.2)

9.9

(9.6)

Source : Eurostat Sept ‘11 4 Copyright © SymphonyIRI Group, 2012. Confidential and Proprietary.

(14.7)

(20.5)


FMCG Growth – H2 2011 - % change vs. previous year Netherlands

Germany

VALUE TREND

UK

Italy

France

Greece

Spain

Italy and Spain, with the lowest price increases are showing growth

3.8

4.5

4.2

4.0 3.3 2.4

-0.2 With prices up more in Germany and UK, volume is declining.

VOLUME TREND 0.7 -0.2

-0.6 -2.2 5 Copyright © SymphonyIRI Group, 2012. Confidential and Proprietary.

0.3 -0.7

UNITS trend for Greece

3.9


FMCG Consumer Reaction to Economic Uncertainty

2011

Food prices have increased in all countries and it is impacting more heavily volume sales where there is a significant price growth. Rising prices have predominantly resulted in increased value sales.

Non-food products sales have fluctuated during the year and sales levels vary from country to country. Volume sales are stable or decreasing except in Spain. Shoppers make them lasting longer and get more cautious when purchasing.

In Spain consumption has increased as the Spanish are tired of tightening their belt.

In Spain and Greece, shoppers are transferring more of their spend to larger supermarkets rather small grocery shops with a larger Own Label range and promotions choice.

Shoppers are cautious about the cost of their shopping basket and are willing to buy value for money, this can be the Own Label offering against which national brands respond with strong trade promotion activity. Own Label sales have increased in all countries except France, and after a pause promotion is on the rise again end of 2011 – higher than same period in 2011 – in most countries.

‘Consumer Recession’: return to a few basic principles that have been forgotten during a time of rapid expansion and waste: people are buying what they need when they need it, buying less each time they shop and buying more often: not wasting so much. Turning down the heating and turning off more lights. Eating out and having their hair done a bit less, baking at home and preparing more meals from scratch.

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In France, Food volume sales have stopped growing, with prices well up. Non-Food volume is almost flat for H2 after growth in Q4. VALUE

VOLUME

Trend of Food Sales in France

PRICE

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

6 5 4 3 2

4.5

3.9 3.0

2.3

2.0 3.4

2.2

1

2.1 3.9

2.8

VALUE GROWTH FROM INFLATION

2.6

2.0

1.8

4.4

2.9

2.6

2.0

4.4

1.2

0

0.8

0.4

0.0

-1

Q2 2009

Q3 2009

Q4 2009

6

Q1 2010

4

3.2

1.7

2

-1 -2

Q4 2010

H1 2011

Q3 2011 Q4 2011

0.4

1.4

1.5

1.4

-1.0

0.3

3.4 2.1

1.6

0.9

0.6

0.0 -0.7

-0.3

SOURCE: SymphonyIRI, Hypermarkets & Supermarkets YoY Value & Volume price change

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H2 2011

4.6

(Pet Food, Health, Toiletry, Household)

3.2

2.9

3

0

Q3 2010

Trend of Non-Food Sales in France

5

1

Q2 2010

0.9 -0.6

0.2


Overview - France

VAT on Food 5.5% & 19.6%

• As feared, 2011 finished worse than it began with declining growth rates. • Nevertheless, food volume grew by 0.9% and non food volume by +0.3%. • This can be considered quite a good performance and a “consolidation” after the excellent growth in 2010. • Unlike many other European countries, Own Labels and Hard Discounters decreased in France. • For many the current situation is considered more negative because of the social, economic and political climate. • Given the most recent trends not very surprising that the volume sales decreased in January 2012 (-1.9%). • Concerning food products, the situation is improved for ‘home made products’ and ‘essential categories’ (compared with ‘ready to eat’ or ‘pleasure’ products).

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In Italy, Q4 2011 Food growth is minimal in volume with prices rising. The decline in Non-Food volume has worsened although prices are up less. VALUE

VOLUME

Trend of Food Sales in Italy

PRICE

(Packaged Food, Confectionery, Drinks, inc.. Alcohol)

8 6

5.1

4

6.5

2.9 4.3

2

1.4

0.9 0.8

2.6

0.2

1.1

Q4 2011

H2 2011

-3.0

-4

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

4.5

5

Q4 2010

H1 2011

Q3 2011

Trend of Non-Food Sales in Italy

3.3

(Pet Food, Health, Toiletry, Household)

3 2 0

2.0

-3.5

-2

1

2.4

2.0

4.1

VALUE GROWTH FROM INFLATION

3.6

2.3

6.4

0

4

4.5

4.1

3.6

3.8 1.3

1.8

1.1 1.4

0.6

0.8 -1.9

-1 -2 -3 -4 9 Copyright Š SymphonyIRI Group, 2012. Confidential and Proprietary.

-2.4

-3.0

-2.0 -3.3

-0.9

-0.8

-2.7

SOURCE: SymphonyIRI, All Outlets YoY Value & Volume price change

0.3

0.0 -0.5

-1.1

-0.8


Inflation rate in FMCG– Italy:

In Sept the inflation rate of FMCG is almost equal to the general inflation rate in the country. Consumers in this sector will be impacted. 5,0 % Price changes - FMCG

4,0 3,0 2,0 1,0 0,0 -1,0 -2,0

Tot. Italia Ipermercati + Supermercati + Superette

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basket Inflation

c11 di

1 t-1 ot

11 ag o-

1

u11 gi

ap r-1

b11 fe

c10 di

0 t-1 ot

ag o10

u10

0

Difference (Mix effect)

gi

ap r-1

b10 fe

9

c09 di

t-0 ot

ag o09

u09 gi

ap r-0

9

-3,0

FMCG Inflation


Overview - Italy

VAT on Food 4% & 10%

The macro economic scenario in Italy shows a difficult situation for both consumption and GDP trend. During the third quarter the Italian GDP decreased by -0.2% vs. the previous quarter (Source: Istat). Moreover prices increased by +2.8% (annual average rate - Source Istat). All gasoline prices registered an increase.

Unemployment is up to 8,9% in December 2011. This is the highest rate registered since 2004.

The purchasing power of households is under pressure. In the third quarter of 2011 it decreased by -0.3% vs. the previous quarter. (Source Istat).

2011 Q4 volumes registered a negative trend in all categories apart from fresh food and fruit & vegetables which were stable year-on-year.

For the last 8 months trading down has been seen in the FMCG shopping basket. This has been caused by increased prices and the need to save money.

FMCG inflation is close to 3%. It reached the general inflation rate registered from ISTAT. From November the inflation rate has stopped growing.

There has been a large increase in the number of Own Labels, resulting in share improvement, particularly in the premium price sector. Branded products suffered worse than Own Labels in the difficult economic climate.

Trade promoted volume is relatively high at around 25%. The promotion pressure was especially high during the second half of the year.

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In Spain, food prices are barely changing and volume remains buoyant. Non-Food price rises have reduced after going up in Q3. Trend Spain Food Sales in Spain VALUE

VOLUME

PRICE

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

8

6.0

6 4 2

3.1

0 -2

0.0

2.3

4.8

-0.5

3.2

0.3 3.2

-0.9

2.0

2.4

0.0 1.7

1.9

2.6

-0.6

-0.5

Q2 2010

Q3 2010

Q4 2010

H1 2011

Q3 2011

1.8

5.0 5.2

3.9

-4 -6

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q4 2011

H2 2011

Trend of Non-Food Sales in Spain (Pet Food, Health, Toiletry, Household)

6

4.0

3

3.8 0

-3

4.4

-0.1

5.2

0.4

1.4 5.2

2.0 0.6 2.6

3.9

2.2 3.9

0.8 2.8

3.2

2.5

-1.0 SOURCE: SymphonyIRI, Hypermarkets & Supermarkets YoY Value & Volume price change

-6 12 Copyright Š SymphonyIRI Group, 2012. Confidential and Proprietary.

3.4 4.3

3.8


Spain - Prices stopped decreasing in March Sales Evolution FMCG Market vs. previous year: demand and price evolution

Precio Demanda 0.8 1.0

2.2 0.7

4.5

1.2 5.2

3.8

0.7

3.2 1.9

1.2

3.3

2.7

1.7 1.5

0,1

4.7 4.3

1.3 3.9

3.0

3.9

3.3 3.3

2.2

4.6

3.6 2.1 2.4

1.5 1.8

0.7

1.5 1.0 1.4 1.4

-0.6

Año Año Año Año Año

2007 2008 2009 2010 2011

-3.6

-2.5

-3.5 -3.6

-4.5 -4.6

-4.1 -4.1 -4.4 -4.3 -4.5 -4.0

-3.2

-2.0 -2.1 -2.3 -2.1 -1.8 -2.6 -2.2 -2.3 -2.1

4.4

1.1 1.3 1.3

0.2 -0.7 -0.7

1.2 2.2

3.1

5.8

2.4

0.4

-1.8

P01-09 P02-09 P03-09 P04-09 P05-09 P06-09 P07-09 P08-09 P09-09 P10-09 P11-09 P12-09 P01-10 P02-10 P03-10 P04-10 P05-10 P06-10 P07-10 P08-10 P09-10 P10-10 P11-10 P12-10 P01-11 P02-11 P03-11 P04-11 P05-11 P06-11 P07-11 P08-11 P09-11 P10-11 P11-11 P12-11

-1.9

-1.3

0.2 2.1 0.0 1.2 1.4

0.8

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Overview - Spain

VAT on Food 8% and 18%

Unemployment continued to increase, rising to 22.9% in Q4.

Annual inflation (CPI) for total 2011 was +3.2%. In January it was a +2%.

GDP has increased +0.3% in Q4, and for total 2011 is 0.7%

Sales in Q3 has increased +3.5%. This is due to the increase of consumption, +2.7%, and also prices, +0.7%.

Although Spain is still in recession, shoppers have learnt to buy, and they have internalized their shopping strategies, so they spent less time in front of the shelf to choose their shopping basket. Shoppers also seem to be tired of tightening their belts, and consumption has been positively affected.

Although shoppers are sensitive to prices, store and shelves are key drivers to leverage sales.

Trade promotion levels are decreasing, are 18.3% in volume.

Own Label for Q4 is 40.3%, and closed 2011 with 40.7%, a +6.3% more than 2010. Manufacturers Brands are also increasing their Sales in , +1.6% in 2011 vs. 2010.

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In Greece, after a period of continuous price reduction, Food units growth has turned to decline in Q4 2011. Trend of Food Sales in Greece

Price per unit

VALUE

UNITS

PRICE

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

8 6 4 2

3.6

2.2

1.7 2.8

1.5

0

3.4 2.2

5.5

0.1 1.0

1.3

2.4

-2.3

-2

2.4

1.8 2.0

2.1

0.4

0.2 -0.5

-0.5

-4 -6

-5.0 Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

2.6

4 2

0.0

0 -4

H1 2011

Q3 2011

Q4 2011

0.2

(Pet Food, Health, Toiletry, Household)

0.7

2.2

0.3

-1.5

-1.6

-1.9

-2.4

-1.7

-8.5

-2.5

-0.3 -1.3 -0.6 -1.7

-8

-4.2 -7.2

-10

-9.4

SOURCE: SymphonyIRI, Hypermarkets & Supermarkets YoY Value change

15 Copyright Š SymphonyIRI Group, 2012. Confidential and Proprietary.

-2.7

-4.8

-6

-12

H2 2011

Trend of Non-Food sales in Greece

6

-2

Q4 2010


Overview - Greece

VAT on Food 23%

• Inflation in Greece was +3.0% for 2011. • Unemployment rates during 2011 reached 16.6%. • GDP for 2011 was -5.5%. • Promotion intensity has declined, since companies are trying to meet their profit margins. Within promotion activities, those with price off are gaining share. • Retailers are promoting Own Label products more and more. • Food category sales seem to suffer less, due to consumption a transfer from other small stores (e.g. kiosks, haberdasheries, convenience) to supermarket/hypermarket stores. • The top 7 retailer groups are gaining market share at the expense of smaller chains (due to both organic growth and stores network expansion). Especially for Lidl where there was an increase of sales in 2011.

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In the Netherlands, the Food volume sales have started to decline as prices increase. Non-Food volume has fallen in 2011. VALUE

VOLUME

Trend of Food Sales in the Netherlands

PRICE

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

6

4.7

5 4 3 2

1.6

0.7

1 0 -1

1.4 1.9

0.2 1.9

1.1 0.0 1.4

VALUE GROWTH FROM INFLATION

2.7

2.4 3.1

3.3

1.5

4.6

4.4

0.1

0.7

-1.0

-0.2

-0.5

-2 -3

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

H1 2011

Q3 2011

Q4 2011

H2 2011

Trend of Non-Food Sales in the Netherlands 4

(Pet Food, Health, Toiletry, Household)

2.2 2

1.5

0

0.9

0.5

0.1

0.9

-2.1 -5.2

-2.1

-1.8

0.2 -1.0

-1.6

-1.9 -2

1.2

4.1

-1.3

-4 -6 17 Copyright Š SymphonyIRI Group, 2012. Confidential and Proprietary.

SOURCE: SymphonyIRI, All Outlets YoY Value & Volume price change

-0.6

-1.6

0.3 -0.6

-1.1


Overview – The Netherlands

VAT on Food : 6%

• Economic growth for 2011 was 1,2%. But the last 2 quarters there was a decline. This means that The Netherlands are officially in recession again. • Unemployment went up to 6% in January 2012. • The mood among consumers has not changed and is still pessimistic. Consumers were less pessimistic about their own financial situation. The confidence in the economic climate showed a slight decline. • Total Supermarket growth was 2,7%. Price increase is the main driver, while volume sales is declining. Especially in food, prices are higher than in 2010. Keep in mind that prices in Dutch supermarkets are still behind on the price level in 2003! • Trade promoted volume is slightly declining for the whole year. But keeping in mind that EDLP fascias are gaining market share, promoted volume in hi-lo supermarkets is going up!

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In Germany, the effect of Food prices rising quickly has hit volumes again in Q 2011 with Non-Food flat in volume as prices stabilise. VALUE 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5

VOLUME

PRICE

-0.8

-1.2

2.2

0.5

Q3 2009

1.1

2.6

2.5

2.3

-1.1

Q1 2010

Q2 2010

Q3 2010

2.5

-2.4

-1.2

Q4 2009

VALUE GROWTH FROM INFLATION

2.8

0.2

-0.3

-0.7 -2.0

Q2 2009

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

2.4

1.8 0.2

Trend of Food Sales in Germany

Q4 2010

H1 2011

Q3 2011

-2.9

-3.7

Q4 2011

H2 2011

5

Trend of Non-Food Sales in Germany

4 3 2 1 0

2.5

2.3 0.9 0.7

(Pet Food, Health, Toiletry, Household)

1.7 1.4

1.8

0.8 0.2

-1 -2 -3 19 Copyright Š SymphonyIRI Group, 2012. Confidential and Proprietary.

0.9

1.0

0.6

0.4 0.5

0.3

0.1

-0.2 -0.9

-0.7

SOURCE: SymphonyIRI, All Outlets inc. Aldi YoY Value & Volume price change

0.3

0.7

0.4


Overview - Germany

VAT on Food 7% & 19%

Even though the evolving crisis in Europe is causing consumers to think twice about every additional spending, experts do not see dramatic developments for the German market and assume that a recession can be avoided.

The economic situation in Germany is based on the domestic demand which is very robust – the high employment rate and positive income situation are strong influences keeping economy on a stable high level.

The unemployment rate in 2011 has gone down to 7.1% - a strong decrease compared to 2010 (7.7%) and 2009 (8.1%).

The total FMCG sales have increased by 2.2% to 121.7 Billion . Strongest value sales in single categories are dairy products (+5.1%) and beverages (+3.9%).

We can clearly measure increasing overall price for total FMCG by 3.3% as value sales increase, volume sales however decrease by 1.0% compared to the prior year.

Own Label sales in Germany remain constantly high showing extremely large increases in categories like pet food, dairy products and frozen food.

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In the UK, price rises are causing volume decline again in Q4 2011 for Non-Food and flat on Food with value pushed up by inflation. VALUE 6

VOLUME

Trend of Food Sales in the UK

PRICE

(Packaged Food, Confectionery, Drinks, exc. Alcohol)

5.1

5 4

4.0

3.3 2.5

3

1.8

2 1

0.1

0

4.7

1.0

1.0

1.1

0.7

Q2 2009 Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

H1 2011

Q3 2011

Q4 2011

H2 2011

3.5 2.4

2.1

1.5

1.0

2

1.1

1.6

0.3

0.9 -0.8

-1.2

-1.3

-1.7

SOURCE: SymphonyIRI, All Outlets, YoY Value & Volume price change Excludes Northern Ireland

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2.0

1.9

1.3

-0.1

-2

2.1

1.5

1.0

-1

-3

Q4 2010

(Pet Food, Health, Toiletry, Household)

5

1

0.3

Trend of Non-Food Sales in the UK

6

3

0.0 -0.8

-1

4

VALUE GROWTH FROM INFLATION

1.7

0.0

0.5

4.6

2.0

1.9

1.5

4.6

-1.4

-1.6


FMCG Shopping Basket – UK – All items Price increases continued with +4.8% in December. The increase shown by Food items was higher at +5.3%. * 4w/e 24th December £10,500

8

TOTAL PRICE

7

£10,200

6

5.1 £9,900

3.8

£9,600

2.6

2.9 2.8

4.1

4.8

4.3

5

4

3.1 3

2 £9,300

% CHANGE vs. LAST YEAR

1

£9,000

0

May, 10

Jun, Jul, 10 Aug, 10

10

Sep, 10

Oct, Oct, Nov, Dec, 10

10

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10

10

Jan,

Feb,

11

11

Mar, Apr, May, 11

11

11

Jun, Jul, 11 Aug, Sep, 11

11

11

Oct, Oct, Nov, Dec, 11

11

11

11


Overview – United Kingdom

VAT on Food 0% & 20%

Inflation is still well above the Government’s target but has started to fall since October 2011.

Unemployment was 8.4% in October and rising. Temporary employment has increased within this total. This level is expected to increase further.

GDP fell in the 4th quarter of 2011 by -0.2% vs. Q3 2011. This is below the Gov’t forecast. The forecasts for 2012 and beyond were reviewed downwards during 2011.

VAT was reduced in Dec ’2008, returned in Jan ’2010 and went up again in Jan ’2011. This affected prices through 2011, the anniversary in Jan ‘2012 shows a corresponding slight reduction in the level of inflation.

Credit has started to reduce but the savings ratio has continued to fall.

Own Label (OL) value share is currently increasing very slightly in Food & Drink, unit share is up a little more but so far the anticipated rise of OL hasn’t really happened since brands are promoting strongly.

Food prices started to rise before VAT went up in Jan 2011 have continued to go up throughout the year. The current rate of increase is over 5%.

FMCG sales started to falter and volumes are down in 2011. Non-Food volumes have been hit harder than Food volumes but Food is still down for the year by -0.3%.

A spell of good weather, a different timing for Easter and the Royal Wedding all contributed to growth at some stage but the underlying volume trend is still down. Summer seasonal products have performed badly due to poor weather from May to July but improved dramatically for 2 weeks at the end of September when there was a short ‘heatwave’.

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Topline Trade Promotion Trends Topline Report – Half Year (H2 2011) Tim Eales

Director of Strategic Insight


Deal levels vary enormously across Europe - Food 60

% SALES WITH TRADE PROMOTION (Volume – SP, NL, UK Value IT, GE, FR) UK

50

40

Trade Promotion level is still very high and rising in the UK. Increasing in all countries in Q4.

30

ITALY NETHERLANDS SPAIN FRANCE

20

GERMANY 10

0 Q2 2009

Q3 2009

Q4 2009

Q1 2010

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Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011


Deal levels vary enormously across Europe – Non-Food % SALES WITH TRADE PROMOTION (Volume – SP, NL, UK Value IT, GE, FR) 60 UK

50

Trade Promotion levels have remained high in the UK and not increasing as quickly as for Food in most countries except in France.

40

30 ITALY NETHERLANDS

20

SPAIN FRANCE GERMANY

10

0 Q2 2009

Q3 2009

Q4 2009

Q1 2010

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Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011


Deal levels vary enormously across Europe – All Products 60

% SALES WITH TRADE PROMOTION (Volume – SP, NL, UK Value IT, GE, FR) UK

50

The increased levels of Trade Promotion on Food have pushed up the consolidated levels in all countries.

40

30 ITALY NETHERLANDS

20

FRANCE SPAIN GERMANY

10

0 Q2 2009

Q3 2009

Q4 2009

Q1 2010

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Q2 2010

Q3 2010

Q4 2010

Q1 2011

Q2 2011

Q3 2011

Q4 2011


Looking Forward Insights

Recommendations

Shoppers have access to multiple source of information and influence via internet, on real time.

Build strong brand loyalty with a direct access to your consumers. Retailers will see it as an opportunity for them as well.

Although promotion activity is high, it will be difficult to reverse the trend. It’s correlated to price increase which could continue at its present rate for some time to come.

Be very straightforward on the promotion strategy goals and get appropriate analytics solutions enabling you to simulate price and promotion impact on your margins, on your revenue, on the category and on your competition to achieve your performance target.

Multi channel shoppers.

Categories beginning to lose sales as shoppers carefully manage their budgets. Shoppers buying more based on need than want. Own Label will continue to gain share offering quality for value.

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Get a clear view of trip missions decision and impacting factors for each shopper segment to gain market share and avoid cannibalisation. Innovate to stimulate interest and curiosity in the category. Stimulate need through media activity. Understand the Own Label and brand portfolio in each category and what erodes key brand positions. Review shopper needs, retailer strategies, market mix and develop mitigation strategies in priority categories.


Final Notes • • •

Source: SymphonyIRI Group InfoScan, syndicated retail tracking service Methodology: Seven quarters of review, YoY data for FMCG Country coverage: France, Germany Greece, Italy, the Netherlands, Spain, United Kingdom

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Contact: SymphonyIRI Group, eu.marketing@SymphonyIRI.com, Tel: +33 1 30 06 23 62

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