After years of prosperity and growth, Czech trade is going through a difficult period and retailers and suppliers are having to deal with a situation they are not used to. The economic crisis halted the growth in purchasing power, moreover the huge media coverage of the problem resulted in the „crisis“ getting into to both the customers´ wallets and their heads.
The result was a decrease in retail spending for certain categories of durable goods (electronics, home furnishings, fashion, etc.) by dozens of percentage points. Three fifths of the population have changed their shopping behaviour. Among the typical accompanying features are the postponement of certain purchases of non-essential goods until a later date, shopping for cheaper alternatives than in the past, and a dramatic increase in the purchase of items on sale.
When we monitor the structure of household expenditure, we can see a huge increase in the proportion of items purchased on sale during the last 2 years. While the the purchase of private labels stagnated in 2009, brand name products were able to strenghten their market share in most categories. However, what generated this increase was premium brands on sale (often at drastic reduction in profit margins), whereas purchase of brand names not offered on sale decreased.
However, the increased price sensitivity of Czech households does not mean that customers compromised on their quality requirements. As a result of the strengthened competetive battle in the second half of the last decade, customers have become accustomed to quality and are not willing to take a step backwards in this area.
Their relationship towards shopping place has changed though. The research SHOPPING MONITOR 2009/2010 confirmed that the main factor when choosing shopping place is still location, but „value for money“ has moved into second place, meaning the value which customers get for their money. Shopping for items on sale has increased significantly, whereas low prices in general has stagnated and the importance of width of assortment has decreased.
What does it mean for overall shopping habits? The total number of chains visited has not changed much but the frequency of visits has increased markedly. The main reason for this development, are visits specifically for the purchase of items on sale. However, the size of the average shopping basket has decreased in most chains due to this fact.
The terms „on sale“ or „price reduction“ became the most frequently used term in the Czech retail market last year. Retailers together with their suppliers bet on intensive price marketing. The key mode for information regarding promoted products naturally were leaflets put out by the chains.
As shown by LEAFLET MONITOR - the continual monitoring system of retail leaflet content (GfK is currently operating in more than 6 countries in the CEE region), the average number of products presented in leaflets has grown by 50%. Most large suppliers were aware of the importance of marketing activities in the problematic period – therefore they increased the number of products on sale by one quarter.
The list of the main companies advertising in leaflets has not changed for many years. The top positions are taken by multi-national suppliers, Nestlé, Unilever, Procter & Gamble, Henkel and Kraft Foods.
The most frequently promoted categories are alcohol, meat products and processed meat, followed by non-alcoholic beverages and fresh meat. The leaders among private label and non-brand label products are fresh bakery and fresh meat.
Analysis of LEAFLET MONITOR´s results also showed that while in 2007 the average price discount communicated was 21.7%, last year it was 23.9%.
Sales are now virtually continual and the peak period for fighting for customers „at any cost“ occurs during the pre-Christmas sales. Even though promotions are the main driver of turnover, it is often at the cost of slashed profit margins and other negative consequences. The trade has got itself into something of a trap by constant spinning of the price spiral. Customers partially „unlearned“ how to purchase naturally last year – either they do not shop, postpone their purchases, or shop, not according to their usual needs and preferences, but according to which goods are currently on sale.
But building customer trust through sales is very shortsighted. Promotional marketing weakens the perceived benefits of the retail chains, such as overall selection and shopping environment. Customers no longer prefer a store for its merits but because they bought a certain product at a low price there. In such an environment it is very difficult to build the profile and image of the chain and achieve perceived long-term comparative value. The faithfulness of customers is decreasing over time and formerly loyal customers are becoming unstable.
Of course it is not easy to get off the train – when competitors increase their number of sales, it is not possible to sit on the sidelines. The end result however, is that everyone makes less money, customers are slightly confused, while drowning in a sea of sales information and spending more time shopping than ever before. This year retailers and suppliers will reap what they sowed last year. The way back will be very difficult. It will lead through an analysis of the effectiveness of marketing events and a more selective approach towards sales, analysis of decisive factors for customers and a stronger emphasis on the „non-price“ factors which influence them, searching for new opportunities to approach customers and on through an overall optimalisation of the marketing process.
Tomáš Drtina, INCOMA GfK, drtina@incoma.cz