Retailers, suppliers wasting $11bn on pointless discounting: Nielsen

Sue Mitchell
August 8, 2018
AFR
Food and grocery suppliers and retailers are wasting $11 billion a year on pointless discounting, according to new research which appears to back Coles’ and Woolworths’ shift away from promotions towards every day low prices.
Shoppers are spending $51 billion a year on promoted sales, according to a report by Nielsen, but 48 per cent of this spend would have happened whether the products were discounted or not.
Nielsen senior manager Raone Zeviani estimates the retail sales value of discounting, which generates little to no incremental sales, is more than $11.3 billion a year.
“Australian manufacturers and retailers are investing an exceptional amount of time and money executing promotions on a regular basis, with the hope that both parties will benefit from a maximum return on their investment,” the report said.
“The reality is, however, that this outcome is rarely ever achieved.”
Australia’s $100 billion food and grocery market is now the most highly promotional in the world after New Zealand, with the proportion of products sold on promotion rising from 30 per cent to 40 per cent over the last eight years.
This compares with 59 per cent in New Zealand, which like Australia is largely a duopoly, 30 per cent in the US and 27 per cent in the UK.
Promotions create peaks in demand, adding costs and contributing to more stock-outs. And judging by Nielsen’s research, the discounts are pointless because consumers would have bought the products at full price.
Nielsen analysed the amount manufacturers and retailers spend on discounts across 7,000 items and 22 categories to look at how sensitive shoppers were to shelf price changes and promotional price changes.
Some products, such as chocolate, are more sensitive to promotional pricing and are deeply discounted more frequently. For example, Woolworths is this week selling Lindor boxes and Cadbury Old Gold chocolate bars at half price, while Coles is selling Kit Kats, Mars bars and M&Ms at 50 per cent off.
Products such as pet food and pasta are highly sensitive to both shelf and promotional prices, while canned vegetables, bread, and coffee have low price sensitivity.
“This is the (area) where a significant amount of discounts are often ‘given away’,” the report said. “In fact, 59 per cent of the most highly-promoted items do not react to discounts.”
As Australian consumers develop discount fatigue, the major supermarket chains are now shifting away from deep discounting and moving towards every day low prices.
At the Australian Food and Grocery Council’s annual conference in May, outgoing Coles managing director John Durkan railed against the level of discounting, saying Coles was being “bombarded” with promotions from suppliers seeking to boost volumes and meet sales targets.
“It’s promotional madness, it’s worse than ever,” Mr Durkan said.