OPINION28 March 2022

Sweetening the deal

FMCG Opinion Trends UK

UK government regulations on high fat, salt and sugar product promotions in-store are imminent. Nicole Duckworth and Nicolas Ricci from PRS in Vivo outline what repercussions this will have for the fast-moving consumer goods industry.

Supermarket shelves with promotions

With only a few months to go before new regulations on high fat, salt and sugar (HFSS) products take effect, retail groups are continuing to pressure the government for a more generous timeline – possibly shifting implementation into spring 2023. Whether these efforts are successful or the current October 2022 target is maintained, retailers will need to make considerable changes to their merchandising strategies in the coming months in order to comply with the incoming directives.

Outlined in 2020 as part of the government’s strategy to tackle childhood obesity, the new regulations take aim at unhealthy products in two different ways. The first objective is to reduce or eliminate promotional tactics that are believed to increase overall consumption of fat, salt and sugar, such as buy-one-get-one or three-for-two. 

The second pillar more specifically concerns children and their so-called ‘pester power’ – the tendency to relentlessly pester parents to buy certain things – which is thought to be triggered when products are placed in prominent locations in-store, including store entrances, aisle ends and checkouts. By banning HFSS products from those locations, the government hopes to reduce the number of unplanned ‘impulse’ purchases generated by children’s pester power as well as by adult shoppers themselves – a thorny situation for retailers and suppliers alike, as many of the targeted categories (e.g. confectionery, soft drinks and savoury snacks) derive a significant proportion of their sales from impulse purchases.

While it may be relatively straightforward to estimate the impact of reduced promotional activity, it is more difficult to predict how supermarkets and other retailers will tackle the location-related facets of HFSS regulation – and, in turn, the impact that their actions will ultimately have on sales both overall and within individual categories. Ultimately, the priorities of retailers and suppliers in dealing with the location ban may diverge, as retailers attempt to get the most out of the newly freed-up space in key in-store locations while suppliers focus on minimising the losses incurred by their brands.

Suppliers’ first instinct may be to rely on the experience of the 2018 soft drinks industry levy (‘sugar tax’) and to suggest reformulated non-HFSS variations of existing brands, but it’s uncertain whether these better-for-you variants can deliver the same kind of performance across the various concerned categories as sugar-free soft drinks did, as the latter were already a long-time market staple at the time the sugar tax was implemented. There is a risk that, in some cases, consumers will see the reformulated products as inferior substitutes and reject them, wasting valuable store space and creating tensions between suppliers and retailers.

Gondola end-caps and checkouts may then become fair game for plucky, innovating companies proposing high-growth alternatives, with less imaginative brands being relegated to lower-footfall locations. Alternatively, suppliers may try to pre-empt competitors by creating new brands altogether or acquiring existing better-for-you ranges, but this also runs the risk of putting historic brands on the back foot. Given the potential pitfalls for existing brands in this environment, retailers could additionally choose to create new promotional spaces for them outside of regulated areas, possibly involving special displays or visually disruptive point-of-sale materials.

Some of these scenarios are being trialled at the moment, with retailers like Tesco and Sainsbury’s rolling out new end-cap displays featuring sugar-free biscuits, healthier savoury snacks or even products that won’t be impacted by the upcoming legislation, such as kitchen roll or washing-up liquid – which gives an idea of the challenge this legislation poses to traditional food retailing practices.

In fact, a survey conducted among retailers in 2021 by Censuswide revealed that 35% were concerned they would fail to comply with HFSS regulations, with 18% unsure how to even approach them; 42% of respondents also said that brands should play a role in rethinking store layouts. Facing complex decision-making in the upcoming months, retailers may be looking for help from their suppliers to solve the HFSS puzzle – making it all the more important to have an informed opinion on this topic.

What should suppliers and retailers do next?
There are three main elements that will need to be considered as part of this strategy: product, point of sale and store layout.

The locations freed up by HFSS regulation provide an opportunity for brands to speak to shoppers and to make a case for promising, innovative products. Suppliers and retailers should work together to determine whether reformulations or new products have the best chance to make an impact in each category. It will also be critical to optimise the packaging for these products, as concerns about taste or health may lead to a low trial rate – leading to underperforming aisle-ends and checkout units. 

Displays and point-of-sale materials will also play a critical role, both in maximising the visual impact of the new products and in familiarising shoppers with their selling proposition. As supermarkets are often visually cluttered environments, shoppers tend to tune out information that they consider superfluous – so it will be important to validate that displays will really have the impact that is expected of them. This can only be done by testing assortments in a realistic context that integrates the clutter and stimulus of a real retail environment.

Last but not least, the impact that reorganising HFSS categories will have on whole-store sales will also need to be assessed. For example, if we create an HFSS-compliant variation of a well-known product and merchandise it on an aisle endcap, will this support the sales of the original, non-compliant product? Will it simply cannibalise it instead? Or, in the worst-case scenario, will it damage overall equity and sink the brand altogether? These are all plausible outcomes that require comprehensive testing within a context that allows for true-to-life shopping behaviour. 

Nicole Duckworth and Nicolas Ricci both work at PRS in Vivo, where the former is head of Europe & global commercial excellence and the latter is senior insight manager for the UK.