UK shelves now house less than 1,000 packaged grocery items, a drop of 6.3% over the 2013 to 2015 study period. There were 13% fewer new branded items launched in 2015 than in 2013.
The trend looks set to continue, with a further drop of 4% in product numbers into June 2016, report author Tim Eales, director of strategic insight at IRI notes.
“As UK retailers look to rationalise their ranges, new products are finding it harder and harder to get listings,” said Eales, adding: “We are seeing a significant reduction in the numbers of branded new products being launched.”
“The reduction was steeper amongst food categories than amongst non-food categories.”
However, the fall in branded product launches was mild in comparison to private label, which tumbled 26%. Private label has suffered all across Europe, a previous IRI report suggests.
The latest figures are based on a review of more than 3,000 new products (in their first year of sales) launched between 2013 and 2015 across a range of categories.
Supermarket wars
Supermarkets battling to be the cheapest is one likely reason for the decline, with grocery bills down by around £3 bn (€3.5 bn) per year since 2014.
Tesco is the supermarket with the biggest drop in the number of products stocked, down 16% from 2014.
Other supermarkets culling ranges between January 2013 and June 2016, includes Sainsburys with a 9% drop, 4% for Waitrose and Asda and Morrisons which cut product numbers by 12%. For Morrisons, the majority of product range cuts came in the build up to 2015 when range rationalisation activities plateaued.
However, Eales argues that supermarkets should be heralding new products as they could give them the advantage over discounter competitors which are increasingly broadening choice for shoppers and swiping customers.
“The key question our study raises (…) is whether manufacturers and retailers can find a way to collaborate and champion the right innovative (new product developments), whilst managing range reduction agendas. If they get this right, (new products) can continue to be a differentiator for all parties,” Eales added.
“More than ever it is important to only spend the new product development budget on really good ideas,” he said, noting test marketing could re-appear as standard practice.
Skewed competition
Another reason new product staying power is so low could be the pressure to achieve better sales than existing, well-established products in the same category or be swiftly pulled from the shelves.
“Delisting is happening more often and more rapidly under the scenario of more aggressive range management by retailers. All of this culminates in a big drop in the contribution of (new products) to overall grocery sales, a serious concern given that it is recognised as the lifeblood of an industry that is struggling to cope with a number of serious challenges,” Eales said.
Sales performance of each new product is measured by comparing it with its competitive category, a number known as the sales rate index (SRI). The goal for new products is to beat its average competitors’ SRIs.
Essentially, a new product’s longevity is largely to its initial success, which is deemed to be SRI of 80 or more.
The report found that 71% of new products did not hit the 80 SRI bracket. An SRI of less than 40 are starting to be delisted after 36 weeks of trading, and 10% of all new products were pulled in the first year, lasting on average 32 weeks.
“The best start high, usually attaining a peak of over 200 (so selling around 2.5 times faster than average),” Eales said.
“Most products in a store will undersell the overall average as it includes the very high sales achieved by a small number of best-selling items,” Eales said, adding: “New food products find it far harder to break through than non-food products do.”
Conversely, products which start life with a low SRI stay low and get lower, the report shows. However, Eales conceded there could be a good reason for this, such as being too expensive, having ineffective ad campaigns, poor store positioning or unsuccessful packaging.
The report shows that in 20 new launches managed get to 75% distribution within 12 weeks and the average maximum distribution achieved by new products among multiple retailers was 44%, 5% down from 2010 and 2011 figures.
The first year sales of branded new products launched contributed just 2.1% to the UK’s overall sales figures in 2014 and 2015, a drop from 3.4% in 2010 to 2011.