UK Food inflation leads to less (multibuy) promotions

Recent research shows that UK grocers are running substantially less multibuy promotions than they used to do a year ago. Three of the top four retailers, Sainsbury, Tesco, Morrisons have cut multibuy promotions, with Sainsbury having pledged to phase out the mechanic entirely.

Food inflation and Brexit

Brexit and the decline of the pound have led to increased costs of imports affecting many categories.

The Grocer is citing figures indicating that multibuys used to have a share of around 30% of featured promotions a year earlier, while it has fallen to roughly 20% in 2016.

Interestingly, this move comes on the back of food inflation driven by the fall of the pound against major currencies (around -15% since the announcement of the referendum). Inflation has been very visible and not just in the high profile cases of Marmite or Toblerone. Private label products from foreign origin (or containing foreign ingredients) are equally affected by a fallen pound. Increasing costs of these products are making it harder to fight price wars and are affecting retailer's bottom lines.

Single unit promotions to the rescue! Single unit price promotions help to keep prices low and have suppliers pay for it. The mechanic lowers the price, albeit temporarily, for all shoppers: shoppers who buy regularly in the category as well as those who enter the category thanks to the promotion; shoppers loyal to your brand as well as those who normally buy a competing brand; shoppers who had planned to buy the promoted product and pay full price anyway as well as those who are truly seduced by the offer.

The biggest efficiency drain of promotions is putting discounts in the hands of shoppers who gladly would have paid full price. The ones planning to buy your product but finding themselves lucky finding to buy it on promo. It is called subsidisation and the single unit mechanic is the worst possible kind. Shoppers should be rewarded with a discount in return for changing (upgrading) their behaviour.

The better alternative to multibuys is no promotions at all. Single unit promotions make the economics worse, not better. However, while it lasts, shoppers can only benefit from it - at the expense of loyalty and the overall commercial sustainability of the industry.