Fast Moving Consumer
Goods Pricing Strategy
Pricing Strategy - FMCG
FMCG / Retail Industry Insight
Excessive discounting across all retail formats, whether in FMCG or general merchandise, is heightening consumer price sensitivity and decreasing baseline sales. In this new retailing model, prices and price architecture need to be better developed so that it can flex with the new market reality.
The FMCG and retail industry has come under substantial margin pressure in recent years.
The growth in traffic through budget stores like ALDI and the rise of online shopping platforms has seen traditional high street retailers losing volume to competitors who offer larger ranges and same day delivery to customers.
Retailers are having to contend with low-cost operators such as ALDI, expanding their once limited product range to take an even greater share of the grocery wallet.
Retailers such as Myer have seen their traditional markets eroded by a profusion of online platforms such as the Iconic. Global retailing giant Amazon has also announced plans to open an even greater presence in Australia, which will put further pressure on already squeezed retailers.
Investment analysts have already identified that many high-street retailers will have up to 20% of their profits reduced by the Amazon presence.
With Coles and Woolworths determined to protect market shares with reinvestment in lower prices, FMCG manufacturers are under even greater pressure to give up margins to the major supermarkets.
Coles and Woolworths have employed aggressive price promotions and discounts of 50% off branded products to drive store traffic and capture gross margin dollars. These tactics are designed to attract shoppers who then make full price purchases as part of their routine trolley shop.
The introduction of whole number pricing by Woolworths in April 2017 is an attempt to use price to position Woolworths as being a simpler, more transparent place to do your shopping. This pricing strategy will ultimately place further pressure on suppliers to give up margins to maintain round number price points. As a result, there will be further pressure on pack size formats, investment in R&D and brand building.
Retailers and suppliers to the retail chains have an opportunity to work together to develop more effective and profitable pricing strategies. They need to build a price architecture that optimises margins on key lines while still ensuring they are perceived as competitive. Crucially, retailers and suppliers need to be seen as a genuine alternative to online or low-cost budget chains.
Pricing Insight’s experience in the FMCG and retail sector is substantial, spanning over 20 years.
We have helped one of the largest farmed salmon companies in Australia develop a pricing strategy to improve profitability while continuing to work with a major Australian retail chain.
We have helped one of the largest fitness centre companies redevelop their pricing in the face of stark competition from low-cost 24/7 gyms.
We also work with bulky goods retailers, consumer durable and electronics OEMs and ASX listed retailers with over 150 retail shop fronts in Australia.