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August 20, 2020

How Skipping Trade Promotions During COVID-19 May Hurt Food Manufacturers Later

Tony Treadway

How Skipping Trade Promotions During COVID-19 May Hurt Food Manufacturers Later

We’ve been monitoring how food companies are reacting to the coronavirus in supermarkets since the beginning of the pandemic. While many food manufacturers are pivoting from foodservice to retail products, those whose items have been on supermarket shelves have stepped away from price discounts to promote trial. After all, why should you discount your price when retail sales records are at all-time highs? Resultingly, according to Nielsen, sales sold on promotion have reached a 4-year low. But some new analysis indicates that, while adding profit to their bottom line now, it could open the door to a big problem later.

“There is a mindset that is beginning to emerge driven by uncertainty about the economy.”

A quick check comparing the summer of 2020 to the previous year shows that 30% of food items were sold at a discounted price in 2019 compared to only 21% this year. That is fine for consumers who are trading the money they typically use for a trip to a restaurant by paying full price for premium retail items to cook at home as they shelter. But there is a mindset that is beginning to emerge driven by uncertainty about the economy.

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Economic worries may turn consumers away from large multi-pack purchases.

With today’s economic climate, and rising unemployment rates, consumers may have less discretionary income to work with. As a result, 78% of consumers surveyed around the globe indicate they are cutting back to save on household expenses, as measured via The Conference Board conducted in collaboration with Nielsen. In particular, families who are being most impacted by layoffs or job losses are in dire need of discount pricing.

Economic worries are expected to rise among all households as we wait for a promised vaccine that would bring the country back to a semblance of normalcy. They will likely move away from large multi-pack items found in wholesalers such as Sam’s Club and Costco and rely more heavily on products bought through e-commerce. They will also search for single pack value-priced items if the pandemic rebounds once more.

Food manufacturers should monitor their retail sales on a weekly basis to set multiple pricing, and product size, strategies that can be implemented quickly, including an increase in promotions that—at least temporarily—lowers the price. Creative Energy is helping several food manufacturers assess the changing retail environment. If you are interested in a discussion about your category and product line, let’s talk.   

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