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The Exceedra


Confectionery revenue management in COVID times faces headwinds

The past twelve months have been challenging for one of Australia’s favourite categories, confectionery, with sales likely to remain subdued. Pantry stocking of indulgent treats earlier in the pandemic, combined with consumers working from home snacking on anything and everything, resulted in consumer ‘COVID kilo’ weight gains.

The past twelve months have been challenging for one of Australia’s favourite categories, confectionery, with sales likely to remain subdued. Ibisworld forecasts 0.3% category growth during 2020-20211 and Illuminera Australia suggest 21 per cent of households intend to consume less confectionery in the next 12 months2. But by using revenue management principles there are ways to ride out the perfect storm of consumer and shopper trends.

Pantry stocking of indulgent treats earlier in the pandemic, combined with consumers working from home snacking on anything and everything, resulted in consumer ‘COVID kilo’ weight gains. According to Illuminera Australia3, this saw consumers shift to healthier snacking alternatives from around August, including baking their own. This acceleration of healthier alternatives places increasing emphasis on new products in the category including sugar free and vegan alternatives.

Extended working and cooking at home has meant consumers are looking for variety and to experiment; some are “roaming the supermarket, looking for inspiration”4. This again is an opportunity to play up interesting new products, and possibly promote more premium items. Earlier in the pandemic consumers shifted to mainstream well-known brands due to financial uncertainty. However, a degree of trading up was observed, so premium brands can still play a role.

The trend of shopping local and hyperlocal means ranging opportunities for small scale local players, particularly those with interesting niche and healthier alternatives.

Entertaining at home reduced substantially and remains subdued, however there has been a shift to outdoor events and get-togethers which represents an opportunity for bag confectionery and chocolate, and box chocolate, in picnic style sharing occasions.

From a shopping vantage point, the return of the weekly stock up shop means less footfall and shoppers at the checkout in a category reliant on impulse sales – nearly half of chocolate gifts were unplanned purchases in the leadup to Christmas 2020, for instance – and with an aisle avoidance rate of around 40 per cent. This places more emphasis not only at checkout but on off location displays. And the shift to online during lockdowns again negatively impacted impulse purchases, so online promotional programs need to be shored up. This means being clear on whether your promotional objectives are to address driving revenue and transaction value in online baskets, and to what extent your online pricing tactics differ from your offline promotional program. Is your cost to compete or promotional intensity for your brands within the key segments you play being optimised? What is your true baseline, and are you winning your share of profitable promotional volume?

Implications for revenue management strategy

So, the name of the game from a volume perspective is getting the confectionery category into shopper baskets. In other words, basket penetration. This will require a combination of price, promotion and display adjustments and may require sacrificing some AWOP activity such as multibuys for the good of the greater goal.

Aisle promotions planning, particularly on core SKU’s, may require greater depth – we are already seeing deep discounts on Lindt blocks for instance. As mentioned, pricing tactics need to link back to your overarching objective and agenda to drive the category and maximise shopper value. Deep discounts may be the right strategy as long as they are part of a brand and pack strategy that enables margin management and planning on where to accelerate or reduce investment. Promotions should look to tie down off location displays in as much of the program as possible given aisle avoidance rates. Displays need to be tied to an occasion for relevance. Easter, a natural chocolate occasion, is obvious but other occasions include leveraging outdoor events, being an alternative to popcorn for Netflix evenings on the couch, or even new occasions and partnered promotions such as a ‘treat with coffee’ (coffee at-home consumption increased hugely in 2020, including purchase of coffee machines, ensuring elevated levels of at home coffee consumption through 2021).

At the checkout, the role of confectionery is typically one of treat or reward for having completed the grocery shopping trip. Shoppers do rough calculations about cost of treat versus cost of basket and time spent on the shop (and to what extent the grocery shopping trip is a chore), so typically sub-$2 price points at checkout work. Promotional programs may include drops to $1 and $1.50 for instance. Optimising price here means understanding competition pricing, and whether the retailer category profitability norms are still relevant. How are all the brands working in the category to support the retailer’s growth objectives, and provide fair share choice to the shopper, without rebasing price points to unsustainable levels?

However, chasing basket penetration doesn’t necessarily have to be at the expense of value realisation. I firmly believe that right now brands need to have a clear strategy for price realisation and in the case of confectionery, this means a price per kilogram position where the brand aspirationally is growing faster than the category. Having a clearly defined brand and pack strategy to refresh or re-launch into more premium tiers and find ways to encourage your shoppers to spend more based on value-added benefits. In confectionery especially, you need to satisfy your consumers in a guilt-free way whilst being able to charge more at the same time.

What to do?

Key to revenue management in the confectionery category in the medium term are:

  • Evaluating and protect market positioning by continually monitoring and reacting to channel shifts
  • Continuous tracking of consumers and their changes in how, what and when they buy
  • Mapping products and packs to specific, differing occasions, missions, and price points
  • Portfolio management, involving end-to-end value chain assessment across the portfolio; seeking opportunities to premiumise through adjustments to price and weight; and launching into higher price tiers via additional product benefits or larger pack sizes, premium innovation, and mix management to accelerate higher value lines.

While there are short term benefits to chasing high basket penetration via discounting, it is critical to protect the most profitable and valuable parts of the portfolio. Done right, confectionery can again resume its place as one of the category darlings of Australian retail.

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