An increasing number of retailers offered discounts in July to encourage cost-conscious consumers to part with their cash, according to the latest data from the British Retail Consortium (BRC) and KPMG.
That’s despite experts warning against “senseless” price promotions to stimulate sales in the short term.
At the same time, as discounts pick up, data from the BRC and NielsenIQ shows July saw the first monthly fall in shop prices for two years, down 0.1% compared to June. Meanwhile, shop price inflation dropped to 7.6%, down from 8.4% in June.
This slowing rate of inflation can partly be explained by retailers cutting prices and rolling out sales in the month. BRC chief executive Helen Dickinson notes clothes retailers were “leading the cuts” with wet weather driving promotional activity to boost footfall and sales.
While a month of rain may have encouraged clothes shops, normally boosted by summer purchases, to make cuts, there has been a rise in promotional activity even in categories that are less obviously affected by the weather.
Around 23% of FMCG purchases in the four weeks to 15 July were made on offer, according to data from NielsenIQ Homescan. In the same period last year, that figure was 20%. This was also the highest level of FMCG products bought under offer in the last 12 months, excluding the Easter and Christmas periods.
|% of FMCG value sales bought on offer|
|4 weeks ending :|
|18th July 2020||20%|
|17th July 2021||21%|
|16th July 2022||20%|
|15th July 2023||23%|
|Source: NIQ Homescan|
Bank holiday events in May and sunny weather in June helped drive FMCG sales during those months but in the absence of both those external factors, retailers relied on promotional activity to drive demand, says NIQ.
While lacklustre weather may have encouraged a surge in promotional activity, the supermarkets continue to go head-to-head on discounting activity, in particular, on loyalty member pricing. Tesco, Sainsbury’s, Morrisons, and Co-op all now have schemes in place that allow loyalty card members to access exclusive discounts.
In the notoriously competitive UK supermarket sector, being perceived as having the best discounts will be important to each of these players.
“We are starting to see a big rise in the number of promotions that retailers are putting in place in order to get shoppers through the door, as they battle to keep market share,” says KPMG UK head of retail, Paul Martin.
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He adds that, in the current environment, shoppers are “more aware of where bargains can be found” and may be actively looking for discounts.
Meanwhile, NielsenIQ’s head of retailer and business insight, Mike Watkins says shopper behaviour is changing to adapt to the cost of living crisis. This changed behaviour might include “only buying when there are promotions”, he says.
Last week, retailer Next reported its clearance sale had performed ahead of expectations and outperformed last year, adding £4m of profit before tax, suggesting an increased appetite for discounts from consumers.
While continuing bad weather may dampen retail footfall, retailers may be looking to the August bank holiday to boost demand. However, in order to tap into this demand, retailers may again have to look to promotional activity.
“Retailers must invest further on marketing promotional events and provide competitive discounts to encourage volume and sales growth on bank holidays,” says GlobalData retail analyst Tash Van Boxel, citing the company’s data, which find more than seven in 10 UK shoppers agree retailers should do more promotions around bank holidays.
While price promotions and discounting may seem like a straightforward way for retailers to drive demand in the current environment, it is a risky strategy for their brands.
Speaking back in October, adam&eveDDB’s group head of effectiveness and the co-author of The Long and the Short of it, Les Binet warned against “senseless” promotions. While he acknowledged they “appear to be an incredibly powerful tool for stimulating sales”, he urged marketers to recognise that this spike is just an “illusion”.
Marketing Week columnist Mark Ritson has also rallied against price promotions, warning marketers of what he said is the “inarguable damage that price promotions have on brand equity, customer loyalty and corporate profitability”.
Despite warnings about the damage discounts can have on brand, the evidence suggests many marketers are turning to them regardless. The most recent IPA Bellwether report showed a record proportion of marketers upwardly revising their sales promotion budgets in the second quarter of the year.