IRI’s latest study analyzed 3,500 new branded products – across more than 300 grocery categories – that were launched in UK’s major supermarkets between February 2014 and February 2017.
“While total sales revenue from new product development (NPDs) was down by 6.5% – equating to revenue losses £99.6m ($127.26m) – food was down by 9.4%, which was a loss of more than £58m ($74.11m),” Tim Eales, strategic insight director at IRI UK told BakeryandSnacks.
The number of branded NPDs launched declined by 8.4%, while own label launches fell by 2% in the past 12 months.
The analyst calculated that the typical UK product range has declined by 5.7% in the past year. This follows a decline of 5.1% the previous year – which means a two-year decline of 10.5%.
This equates to 1,820 fewer new products available to the consumer since 2015.
On the slippery slope
IRI’s data found the downward trend is consistent across most food categories:
↓ 7.2% (the change in number of items per store)
Bread and bakery
The impact of range rationalisation
According to Eales, the downward trend is due to “range rationalisation”, which involves supermarkets cutting back on the number of products they stock.
“Launching a new brand is expensive and, for years, we have seen much more range extension rather than pure new brand launches as a way of reducing cost,” he said.
“Now with budgets squeezed further by trade promotion costs and price deflation, suppliers are forced to limit their NPD programs.”
Harder to get out there and stay out there
New products are finding it tougher to hammer down distribution.
“Once a new product has been launched, range rationalisation has made it harder for manufacturers to stay on shelves as well as get new products into stores.
“They are finding it more difficult to get the high level of distribution they need to make a success of NPD and cover the expense of innovating,” said Eales.
IRI found only one in 26 new products achieved distribution in major UK retailers in the first 12 weeks, while only half of all new products attained more than 33% distribution spread.
The average maximum distribution achieved by new products was just 39%.
“Once a new product has been launched, range rationalisation has made it harder for manufacturers to stay on shelves as well as get new products into stores."
Asda led the number of cut-backs, with 9.8% less items on shelves than the year before. Tesco and Co-op followed, decreasing their product ranges by 8.3%. Waitrose reduced its range on shelf by 2.7% and Sainsbury’s by 1.7%.
Within a year of launch, 7% of all NPD is delisted, while 34 weeks is their average length of listing, according to the study.
There were significant declines in the initial price premium traditionally associated with launching NPDs, too.
Suppliers can expect a 45% price premium compared with the average price of a similar product in the same category in the first four weeks. In IRI’s last study – measuring the period between 2013 and 2015 – it was 60%.
No end in sight
The biggest challenge, according to Eales, is the trimming is set to carry on.
“We expect this trend to linger while range rationalisation continues, and it will remain a challenge for manufacturers to achieve the levels of distribution they require,” he said.
“Manufacturers are caught in a downward spiral.
“To get out of it, they need to work more closely with retailers, analysing data and market opportunity in order to leverage the real benefits of NPD.
“The challenge of achieving a sales rate for new product launches that is greater than most of their direct competitors makes most of them vulnerable to delisting in some stores,” said Eales.
Getting back on track
Ultimately, securing distribution is the most important changing variable in the NPD landscape, Eales noted.
However, he added the pressure on NPD budgets may ease as promotion costs are reduced from falling promotion levels, while grocery costs continue to increase.
“Innovation is extremely important to drive category growth due to increased product awareness and it usually brings premium pricing that drives value harder than volume and should therefore improve profits,” said Eales.
“The way forward is to ensure consumers get the right choice of what’s new.”