This is the first in a series of 4 blogs we are sharing on How Categories Grow.
If you want help developing a category strategy based on the principles we are talking about please get in touch.
Right, onto the blog…
Is Your Category Really Growing?
Let’s start by talking about tides.
More specifically, two quotes to do with tides.
The first was popularised by John F Kennedy in the 1960s.
“A rising tide lifts all boats.” You’ll be familiar with it.
It’s a phrase used mainly by politicians and economists that refers to the macro-economic theory that improvements in the general economy will benefit everyone.
The second is from the legendary investor Warren Buffett.
“Only when the tide goes out do you learn who has been swimming naked.”
You probably also know it. He means that when things are good, all businesses are making money. But when things turn bad, many are exposed.
Why are we talking about this? Well, things haven’t been good. They’ve been bad. We’ve been going through a cost of living crisis. UK inflation has been the highest in over 40 years. Grocery inflation peaked at 17.5% in March.
But look at the headline numbers in most categories and things do look good. Value growth (often double digit increases) is going in the right direction. Price inflation has been driving value up.
However, start looking below the surface in many categories and things don’t look so good. In many categories shopper behaviour is going in the wrong direction. Price inflation has been driving volume and (non-price led value) down.
What do we mean? Many shoppers have been…
Trading down to cheaper products. To cheaper brands. To tertiary brands. To private label. Maybe you’re not noticing it. Maybe you are noticing it but don’t think it’s a problem. Topline value growth is strong, right? But it is a problem.
As inflation continues to fall so will value growth. Shoppers trading down to cheaper products will accelerate this.
Trading down to cheaper retailers. Principally to discounters. Aldi and Lidl are comfortably the fastest growing supermarkets in the UK. Aldi sales are up 25%. Lidl up 23%. Combined, they now have a market share of 18%. In some categories they have a 30%+ share.
This is good for discounters. Good for (some) brands selling in discounters. It’s not good for category value.
Buying Less. Buying less frequently or buying less each time they buy. This is being driven by using less. Putting less fabric conditioner in each wash. Not using it in some washes. Eating smaller portions of some foods. Having a particular meal every other week instead of every week.
Small changes in usage behaviour by enough shoppers can add up to pretty big drops in volume.
Not Buying. Shoppers can use less, or they can just stop buying a category altogether. Whilst many categories think they are essential, not many really are. Toilet Roll… yes. Toothpaste… yes. Wine, chocolate… definitely. But there are lots you don’t need to use – e.g. you can stop having a glass of fruit juice each morning. Or lots that you can substitute – e.g. buying biscuits instead of cereal bars.
You only need a small % of shoppers to stop buying and your category will see BIG drops in volume.
What we have been seeing in many categories is inflation led growth.
But this is growth by default. Growth that comes despite behaviour change in the category.
What you need to see is behaviour led growth.
This is growth by design. Growth that comes because of behaviour change in the category.
The inflation tide has been coming in for the last 18 months. It’s now starting to go out.
Is your category swimming naked?
Look out for the second blog of the “How Categories Grow” series next Friday.