Higher Costs, Harder Price Increases, and More Pressure on Promotions
Across UK and continental Europe, FMCG suppliers face rising costs, but retailers are becoming more demanding about which cost-price increases they will accept. At the same time, shoppers remain highly value-conscious, making promotions and price investment increasingly important to maintaining volume.
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Tesco CEO Ken Murphy confirmed last week that the retailer uses a "should-cost model" to evaluate whether suppliers' requested cost-price increases are justified. In Germany, Edeka recently challenged AB InBev on essentially the same grounds. In Belgium, Delhaize has publicly argued that price increases need to be proportionate and defensible compared with competing brands. And in France, Carrefour has said it is prepared to shift purchasing volume from suppliers seeking significantly higher increases towards those offering better terms.
If the retailer will not fund your cost inflation, where else can you recover the value?
Price recovered the cost, but which volume did it lose?
Let's consider the case of JDE Peet's. In 2025 the coffee company faced €1.6 billion of cost inflation, mostly from record green coffee prices. Pricing added 19.5% to organic sales, while volume/mix took away 4.3%. In Europe, volume/mix fell 7.9%, with retailers pushing back hard during price negotiations.
That 7.9% says how much volume went. It does not say where it went, and that is what decides the cost.
If shoppers moved to another of the company's own brands or packs, little was lost.
If they bought the same coffee at another retailer during a dispute, the volume comes back when the dispute ends.
If they moved to private label or a competitor, it may be gone for good.
If they simply bought less coffee, the category shrank and the retailer lost too.
The same 7.9% can be a minor problem or a serious one. The published figure cannot tell you which. An analysis of where the volume went can.
Same sales loss, very different profit
Take a supplier selling £100m a year through its largest retailer at a 40% gross margin. Its cost of goods rises 8%, adding £4.8m. The retailer accepts a 3% cost-price increase, worth £3.0m. That leaves £1.8m to recover.
The supplier has three options. Each one reduces sales by £2.0m on the products it touches:
A. Shallower promotions. One-third off becomes 25% off on the lead brand. This saves £1.5m of promotional funding.
B. Fewer SKUs. The 12 slowest lines are delisted. This saves £0.6m in complexity, stock and listing costs.
C. More price on the second brand. A further 6% on a £25m brand that sits below its main competitor on shelf. This adds £1.4m of margin on the volume that remains.
A conventional review sees each £2.0m as lost. To keep the arithmetic simple, every £1 of lost sales costs 40p of gross profit, so each option gives up £0.8m.
A Source of Business view first asks where each £2.0m went:
Where the £2.0m of sales went | A. Shallower promotions | B. Fewer SKUs | C. More price |
Bought later at full price (stock pulled forward) | £1.2m | £0.0m | £0.0m |
Moved to the supplier's other products | £0.3m | £1.3m | £0.2m |
Moved to competitors or private label | £0.4m | £0.5m | £1.4m |
Left the category | £0.1m | £0.2m | £0.4m |
Real loss to the supplier | £0.5m | £0.7m | £1.8m |
Read conventionally, only A and C pay. Together they recover £1.3m, the gap stays open, and the supplier goes back to the retailer for more price. Read by source, A and C recover £2.0m and close the gap without another price request. B, which the conventional view rejects, adds a further £0.3m.
Option A gains most because most of what it "loses" was never incremental. It was stock pulled forward and volume taken from the supplier's own products. This is not an extreme case: across 44 GB grocery categories in 2022-2024, Accuris benchmarks show that only £11 of every £100 of promotional spend creates new demand. A leading UK brewer using this approach cut its share of loss-making promotions from 60% to under 10%.
Option C barely moves. When the volume lost to a price rise goes to competitors, there is nothing to recover. That is the point of the method. It does not make every option look better. It shows which ones are better.
Every lever has a version that only looks successful
Each response to cost pressure has two versions. One looks good in the sales report. The other makes money. What separates them is where the volume came from, or where it went.
Lever | Looks successful when | Actually pays when |
Selective price increase | Sales hold up better than the elasticity predicted | The volume lost moves mainly to your own products, not to competitors or private label |
Promotions | Uplift is high | The uplift comes from competitors or new category demand, not from stock pulled forward, your own products or shoppers who would have bought anyway |
Smaller entry-price pack | The new pack sells well | Its buyers come from private label or from outside the category, not from your larger, more profitable pack |
Premium range and mix | The premium range grows fast | It recruits new buyers or trades them up from competitors, not from your own products at similar margin |
Fewer SKUs | Complexity and cost fall | Most buyers of the dropped lines move to your remaining range |
Reformulation | Cost per unit falls | Loyal buyers stay: repeat purchase holds and switching to competitors does not rise |
These are the moves suppliers are making now. Lindt took 11.8% price in the first half of 2026 and lost 7.5% in volume/mix. In September it cut its 2026 growth forecast from 4-6% to 0-2%, citing increased price sensitivity. It is now turning to smaller packs and targeted price cuts in Germany, Switzerland and Austria. Nestlé said in September it is raising prices where needed, changing recipes, cutting costs and dropping items shoppers will not pay more for. Every one of those decisions turns on the right-hand column.
Elasticity tells you how far volume moves, not where it lands
An experienced RGM team will say it already does this, with cross-price elasticities and switching studies. Both help. Neither answers the question at the level these decisions need.
Own-price elasticity measures how much volume a price change costs. It treats a shopper who moves to your other pack the same as one who moves to private label.
Cross-price elasticities should show where the volume goes. In a category with hundreds of SKUs, most of the matrix cannot be estimated reliably, so models estimate a few key pairs and assume the rest.
Promotion post-evaluations measure uplift against a baseline. They count stock pulled forward, volume taken from your own products and discounts given to shoppers who would have bought anyway as success.
Switching studies and decision trees show how shoppers choose in general. They do not show what this promotion, at this retailer, in this week, actually did.
Separate studies double-count. Evaluate each lever on its own and the same shopper is "kept" twice: once by the new pack and again by the delisting.
Source of Business Management takes a different route. It splits each week's sales of every SKU at every retailer into seven sources: loyal baseline, subsidised baseline, stockpiling, cannibalisation, competitive switching, category expansion and retail switching. It models the whole category, competitors and private label included, not only your own brands. Because the seven sources add up to the sales actually recorded, no volume is counted twice and none goes missing.
That is how the £11 benchmark is measured. It is also how a large soft drinks company has tracked, across 14 European countries, how much of each promotion only subsidises shoppers who would have bought anyway.
Elasticity remains essential, but Source of Business gives it the necessary direction.
What the retailer actually loses
A should-cost model like Tesco's tests whether the supplier's costs justify the increase. The buyer's real question is different: what happens to my category and my stores?
A retailer loses in only two ways: when shoppers leave the category, or when they leave the store. When shoppers switch from your brand to a competitor or to private label in the same aisle, the retailer keeps the sale. With private label, it often keeps a better margin.
That gives the supplier a stronger conversation than cost justification alone:
Show where the volume goes after the increase. If most of it stays in the aisle, the increase costs the retailer little.
Show which of your promotions bring shoppers into the store and grow the category. Protect those.
Show which promotions only move volume between your own products. Offer to stop them and put part of the money into the ones that work for both sides.
A dairy drinks supplier used this evidence to show its retailers that its brand was the biggest traffic builder for most of them, and grew the category more than its competitors. That is a conversation about the retailer's growth, not the supplier's costs.
More of the right sales
Retailers have made it clear that cost inflation will not pass through automatically. Shoppers still respond to promotions. So suppliers will recover value through several decisions at once, not through price alone.
That changes the central RGM question. It is no longer only how much price can be taken, or how much uplift can be bought. It is where value can be recovered with the least loss of profitable, incremental business.
When costs are rising and retailers are resisting price increases, suppliers cannot afford to chase just any growth. They need more of the right sales, and fewer of the wrong ones.
Connect with an Accuris consultant today to explore how Source of Business Management can help you direct pricing, promotional and commercial investment towards the sources of growth that create the most value.
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