Economic Troubles Bringing Consumption Changes
Many companies are repackaging successful standard products into less-costly, smaller versions for low-income shoppers, much as the companies have done in Asia and Latin America.
Across Southeast Asia, for the local equivalent of about 10 cents each, Nestlé sells products suc as single-sachet versions of Nestea lemon tea and Nescafé 3-in-1 coffee. Now, the Switzerland-based company is introducing similar products and sizes in parts of Europe. One of Nestlé's key products has been instant noodles. The noodles, developed for Asia and produced in Ukraine, are now sold on the Continent.
Unilever has been producing lower-price containers of shampoo and household staples for European consumers, such as its Knorr Economica bouillon cube, which costs 60% less than standard cubes.
Unilever also is stepping up output of items with retail prices of €1 or £1, or roughly $1.25 or $1.50, respectively.
"With around one in five people now officially living beneath the poverty line in countries like Spain and Greece, it's critical that we find new solutions to ensure that people across the region continue to enjoy our brands, while keeping in control of their household budget," says Matt Close, Unilever's head of European marketing.
He says the strategy is vital for Unilever to reignite growth in Europe. The Anglo-Dutch company's sales increased just 0.7% in the region last year.
"This year will be a big challenge with some economies in recession," says Laurent Freixe, the head of Europe for Nestlé. "There are unemployed young people, students, single parent families, and pensioners. These people are generally living on a lower income, and their budgets are being stretched. We can provide them with relevant options," he says, referring to smaller and sometimes reformulated less-expensive items.
Nestlé this year plans to step up offerings of what it calls "popularly positioned products" (PPPs) to defend against the rising importance of private-label brands, which more consumers gravitate toward when purse strings are tight. PPPs typically are more affordable than mainstream products because they come in smaller packages or use slightly different recipes. A typical example in Europe is a pack of 25 individual Nescafé instant-coffee sticks, which sells for less than €2 in France.
Nestlé says sales of PPPs rose last year at more than double the 4% rate of its European business as a whole. "We expect it to continue at the same rate this year," Freixe says.
In the tough economic climate, private-label food products and supermarkets' own brands are rising in popularity, as squeezed customers increase their search for bargains, damping prospects for makers of branded goods.
The Private Label Manufacturers Association expects to gain at least an extra%age point in market share in Europe this year, with Spain, Britain and Eastern Europe leading the way. Private-label products currently account for just under half the volume sold in these countries, according to the trade group.
From the May 29, 2012, Prepared Foods’ Daily News