I know what you did last year... or FMCG overview in 5 minutes

The second year of pandemic life has ended. It has been clearly easier to manage than 2020, but not without tensions, coming from the prolonged state of limbo, but also from new challenges such as the rising inflation. It is clear by now that we in fact need to rewire our brains to this VUCA world, as the volatility, uncertainty, complexity and ambiguity is higher than ever and here to stay at least for the foreseeable future. But one thing has not change: managing through risky and turbulent times is easier when you are armed with up-to-date insights. This time, we bring you the results for 2021.?All the information is GfK Romania Consumer Panel Based and if you want to be part of our insights community, drop me a message and I'll subscribe you to our monthly local newsletter.

Not old, not new, but a pandemic normal

To no one surprise, 2021 ended with a slight contraction in absolute value for in-home FMCG purchases, coming from a negative development of volume. But we all knew that the performance of 2020, due to the homing effect and strict lockdown, will be hard to match. Behind it, we have two forces: frequency and spend per trip. And although we had a recovery on first, in the sense that it didn’t decrease so much, we registered rather a flat performance on second. In other words, frequency was not compensated by bigger baskets. Still, just to put the situation from another angle, we still had an almost double-digit growth when comparing with 2019 level.?

For the moment, food inflation is hidden in total year image, but if we were to look at it at quarterly level, we will see the evolution from a 1.8 in Q1 to a 6.2 in Q4, while the prediction for 2022 is even higher. The problem behind is quite complex, as we have a handful of factors building up, like rising costs for energy and fuels, of raw ingredients, of labor, global supply chains instability or bottlenecks, influx of cheap money as part of the recovery program, just to mention a few.

Bottom line, we can expect a lower purchase power and even a financial polarization among shoppers which will result in different coping strategies. It is also the explanation behind why we see, for the moment, an up-trade in 2021, which can be misleading. But this is actually coming from a migration towards mainstream price segment, which is now, along with that of budget private labels, the only one generating value. On the other hand, not all shopper segments will apply the same strategy to manage their budget: some will shop less often, but bigger baskets [less occasions to catch them], others will migrate even more towards private labels, other will promo hunt for brands, some will not even be affected. That’s why one size fits all strategy doesn’t work. On the other hand, it never did.?

Zooming on macro-baskets, private labels and promo dynamics?

Except for beverages, all macro-baskets were rather in sync with the general market trend: losing value due to a decrease in frequency, with personal care, home care and dairy underperforming the most. At a more granular level, from a 158 categories with at least 15% penetration, 4 out 10 were still growing in both pandemic years, some even more intensively in 2021, like fresh prepared food, coffee pods, pralines or chilled dishes. Many of those growing “talk” about a need of finding quick meal solutions or respond to snacking moments [e.g. frozen pizza, frozen desserts, fruit and cereal products, tortilla, chocolate for cooking, instant food]. However, 1 out of 2 categories are under the in-home effect, decreasing in 2021 after a boom in 2020, many from staple foods area. As for those underperforming in 2020, many in personal care, some are now on the rebound, but not many [e.g. shower gels, hair treatments, nail care].

Coming back to macro-categories, decrease came rather from branded segment, while private labels had a positive development almost in all macro-baskets. Consolidation was highest in dairy, where private labels added 3.5pp in value market share in 2021, up to 36%. Overall FMCG, private labels have reached a 22% share, with a clear intensification of growth starting 2019. Still, 2021 did not manage to bring the same level of additional market share as 2020 [+1.7pp vs. +2.1pp].

As for promo, at least for the moment, we have yet to see an intensification overall market, the value share was at a 19.1% in 2021, just slightly up compared with 2020 and almost 1pp up versus 2019. But at quarterly level we have seen an intensification towards the end and clearly there will be a higher need for pricing and promo communication as a response to the new budget pressures. But this is only a short-term measure, as a more complex strategy should be though of, one tailored to different shopper segments, different price elasticities, with changes in portfolio architecture, in roots to market and value chains and thinking even maybe new business models.?

And the winners are… once again discounters and online

One thing is clear: penetration is not making the difference among big modern trade format anymore. Discounters are ahead, just slightly, but what is more important, they are still growing thru all pillars – recruiting, bringing shoppers more often in store and having bigger baskets. In fact, the biggest change comes from shopping mission dynamic, where discounters have now officially surpassed hypermarkets on larger missions [56.9% vs. 54.7% value in 2021] and still growing on large stock-up, unlike hypermarkets. And this is in general quite an achievement if we were to consider that, overall market, only smaller?shopping missions are growing marking a tide of change compared with 2020 when it was all about large stock-up and one stop shopping. Online is the only other channel advancing through all drivers, but compared with 2020, the growth rhythm is lower [+57% in 2020 vs. PY compared with +33% now]. Also, if in 2020 shopper recruitment was the force driving growth, now it was more about more shopping occasions and bigger shopping missions. Proximity also positive, due to frequency.

On the losing side, hypermarkets did generate more shopping occasions, but at the cost of basket size, supermarkets registered the highest erosion in market share, being the only ones losing shoppers, while for traditional trade pandemic rather help, as it shrunk less during 2020 and 2021.?

As for retailers, there is a clear trend towards consolidation, as expansions will start to make less and less impact in terms of shopper recruitment. In fact, looking at the map of Romania*, we can clearly see that the majority of counties we already have a high density of stores [>20 stores at 100.000 inhabitants], while only 6 out of 41 are not there yet [Vaslui, Botosani, Suceava, Harghita, Gorj and Mehedinti – source Progresiv Magazine, Retail Map 2021]. Hence, the fight for market share is just entering the fierce stage and narrative will shift towards loyalty.

For the moment, we have the discounters, Kaufland and Mega Image still capitalizing in store opening and bringing in more shoppers, but there are also examples of players – such as Profi – for which the heavy expansions did not translate in growing the buyer base.

Bottom line, Lidl consolidated in 2021 its position of market leader for in-home consumption, with a plus of almost 2pp in value share, up to 15.6%, and 1.4pp in front of Kaufland. It was also the most dynamic in absolute value. But what is new in 2021 is the fact that Lidl has become – just slightly – the best performer in terms of loyalty or better said how much money it retains from the shopper wallet, surpassing Kaufland also on this parameter. It’s once again a sign of the structural changes in terms of shopping missions, where it captured more from those big ones.?

Looking at things thru different lenses

There are a lot of big business questions these days that are keeping everybody up at night, but just the other day, listening to Richard Herbert, our colleague and Global Insights Director at Europanel, one could clearly get beyond everyday hustle and see the big picture. And this image shows clearly that:

• There has been a lot of growth in the past 2 years despite the challenges and the prediction is that FMCG global value will be at least 10% higher in 2022 than in 2019;
• We have had high inflation also in the past, but its effect depends on each particular and historical context. Yes, there will be low spending power, but on the other hand, looking back, inflation and hardship rather led to a bigger focus on essentials and FMCG tends to benefit from it;
• And the rules of marketing remain the same: brands should continue to invest, think of strategies beyond price reduction, tap into brand equity, innovate, grow touchpoints. This way one can also prevent to be caught in the switching products phenomenon;
• Last but not least, there are still a lot of consumer trends, such as sustainability, that will continue to be considered by the shopper, but of course, not at any price.

That's all for the moment, but I'm keen to find out your take on the Romanian FMCG industry development, here or by pm, however you like :)

And of course you can always join our free webinar next week, where we will look at 2021 development even in more detail. You can book your virtual seat here.