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At the most recent IRI Seminar Charlie Llewellyn took a look at current and future trends in FMCG. Here we recap the key points on spotting emerging trends.

Donald Rumsfeld has been famously reported to have said:
“Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know.”

Sounds obvious really? In practice, sorting what you know, from what you don’t, can be difficult. In the complex FMCG marketplace, understanding the trends around you, whether you know they exist or not, can make all the difference. Let’s take a look at some of the main trends in FMCG at the moment, based on what we call ‘The Rumsfeld Continuum’:

Price Premiums

Price premiums are a known known, as we can look at the price of products across time. New products in particular are generally introduced at a higher price. In grocery categories, without including NPD the overall rise in prices would only have been 0.4%. When you add in the value NPD has contributed, the rise in prices increases to 1%.

Pricing has been a big driver of trends, categories managing price rises also seem to be managing growth. In eight out of nine cases, increasing the price of the category overall will generate an increase in value sales.

Healthy / Light

With the current public debate on obesity, it should be no surprise that healthy living and ‘light’ or ‘better for you’ products are another key trend, but we don’t know as much about their affect on the market yet.

Sales of over the counter (OTC) medicines are intimately linked with our health. In 2005, the total category grew by 22%. The trends that are emerging in this area give some vital clues to our attitude to health in general.

Consumers are moving to a preventative, rather than cure, approach to their health. The OTC market can be split into two groups, wellness and illness. The wellness sector is showing the fastest growth, since 2002 this sector has grown by 12.2%, compared to growth of 6.4% in illness. A good illustration of this trend is the performance of Vicks First Defence, a cold treatment designed to stop the development of a cold rather than treat the symptoms.

Another area that highlights a changing attitude to health is the growth of own label products. Own label performance is often linked to consumer understanding of active ingredients, the increased performance of own label products suggests consumers are becoming more educated about their health and are willing to ‘self-prescribe’.

Is this long-term educated approach to health also becoming apparent in the grocery market? Slimming aids has seen a rapid decline (22%) as have some of the less specialist markets, which are not necessarily performing as well as might be expected. The sales growth of ‘light’ products is mostly to do with the expansion in the number of products that are now available, rather than a real demand from consumers.

Products that are deemed to be genuinely healthy, rather than products that are simply healthier, are performing better. Sales of olive oil, dried fruits and mineral water have all seen above average growth rates.

Ethical / Responsible

Ethical products have become more commonplace in the last few years, but we don’t know if this trend will continue, or how much of impact it has really had. Ethical products on the whole are premium priced, which drives growth in market value. Fairtrade Foundation put 2004 sales for Fairtrade marked products up +51% yr on yr at £140m. TNS put total Organic for the latest yr up by +18% to £915m

Consumers don’t mind paying a higher price for these products as they feel good about themselves for giving something back to the producer. Brands that are truly ethical are performing well as they are seen as all round good guys. Ethical products stretched from leading brands are doing less well as consumers don’t really differentiate them from the ‘normal’ brand

45+ Consumers

The aging population is another key trend, in particular consumers over 45 years of age. We know that in 2004 the average age in the UK was 38.4 years old. We also know that life expectancy has been rising over the last decade. The latest estimates anticipate that by 2020, over 40% of Western Europe will be over the age of 50. However, although the 45 – 64 age group accounts for the biggest household segment by expenditure, there are few FMCG companies directly engaging with these consumers.

If we look at the sales of the top ten categories aimed at the older consumer between 2005 and 2006, we see that they have experienced an overall growth of 6%. This even includes dying categories such as talc!

Retailers have been the most successful at targeting this age group. Tesco Finest and Sainsbury’s Taste the Difference both over index on share of spend for the 45 – 64 age group, with over 40% of spend on Taste the Difference coming from these consumers. Combined the 2 brands grew by around 11% in £AWP Latest MAT (TNS). Both these premium brands trade on the quality, trust and service that older consumers demand.

Opportunities for the future..

• Grow category through the launch of premium priced offerings
• The product / service should be good for you and guaranteed by a trusted source to help with a known condition, easy to use / tasty to eat
• If you want to be ethical make sure you have a totally ethical brand
• Targeting the 45+ market, with high quality and unrivalled levels of back up and support
• Enter into a market or sector that has seen unit sales growth but is yet to be fully exploited by manufacturers and retailers

There are many other trends out there that we don’t know about, or that we don’t know will have an effect on the industry. Keeping your eyes open for them and reacting quickly is the key to success. Imagine if last year we knew what we didn’t know then?

• The top 10 categories in actual growth in 2005* (context only) were:
  • Fresh Milk
  • Chilled MultiServe Juices
  • Chilled One Shot Juices
  • Ambient One Shot Juices
  • Main Meal Wet Cat food
  • Pasta Sauces
  • Tuna
  • Olive Oil
  • Sun Preps
  • Healthier Biscuits
• These categories generated an additional £170m sales in a year
• So far this year, these categories have generated more than double that in additional sales – a massive £373m
• A year ago new product development in these categories generated £44m
• Together, NPD from last year and this year generated £165m

* Combination of IRI categories and sectors 52 w/e Fe 06 (IRI HBA, IRI Major Multiples, IRI Groc and Drug)

If you would like any more information please contact Charlie Llewellyn, senior insight manager at IRI, on +44 (0)1344 746360 or Charlie.Llewellyn@infores.com