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Research critical as financial woes Rolling media coverage is focused on financial woes in Australia as the economy hits recession, yet confectionery companies and retailers can do much to make the most of the situation. By Nerine Zoio. Word on the ground is that confectionery manufacturers and petrol and convenience outlets must pay attention to price at this time, especially when it comes to product price cutting, if they want to protect brand value once the market becomes more buoyant. Also important is that brands don’t recede from consumer awareness but take time to research the new consumer, what opportunities are available in the shadows, and the importance of NPD, Australian made, product differentiation and sustainability. The recently released AACS ‘State of the Industry Half Yearly Report 2020’, prepared for AACS by Convenience Measures Australia, shows that after a strong 2019 with growth of 2.1 per cent, the strongest year since 2016, confectionery has had a tough start to this year with MAT now at -0.9 per cent. While this isn’t dramatic, the past quarter decline of 10.6 per cent is, with some key confectionery segments being significantly impacted. The largest two segments, chocolate bars and sugar confectionery, remain in growth of 0.2 per cent and 7.3 per cent MAT respectively. However, chocolate bars have declined by 7.2 per cent over the latest quarter. The segment most adversely affected is gum and medicated, with a 29.8 per cent decline over the past quarter while chocolate blocks grew at 5.8 per cent over the same period. IRI Worldwide Lead Consultant Justin Nel says a recession could set a dangerous precedent in terms of price one-upmanship where manufacturers think the best way to get through it is to decrease pricing, which is directly opposite to IRI’s view. “Use price to maintain brand,” he said. “Don’t get dragged down to a price war, because it will take you a long time to recover.” The reason for this is that when the recession is over, it will take that much longer to rebuild not only a business but also consumer perception of a brand if it has been significantly devalued. Mr Nel says understanding the elasticity of a product is important, in terms of the expected uplift in sales for every one per cent change in shelf price. In this regard, items such as pregnancy vitamins, cosmetics and butter are relatively inelastic at a base price level, meaning that if their price is changed it won’t be followed by an uplift. However, if a change is made at the base price level of a product in a more impulsive category, such as confectionery, a bigger uplift can be expected. This can be seen in that if the price of confectionery on promotion is changed by one per cent, a 9.6 per cent sales uplift can be expected. This, says Mr Nel, shows how important it is to understand the elasticity of the brand and category at a base and promotional price level during a recessionary mind frame or time period wherein the elasticity of the brand or category may have changed. “So, the recommendation is to understand what the response will be to a base price or promotional price changes,” he said. “If you have, for example, a low promotional reaction and a low base-price reaction, then you really need to protect your price, which means conserving trade dollars. This means you have to maintain communications and look at your NPD strategy, which is quite a difficult place to be in. “On the flip side, if you're in that sort of high promotional reaction, and really TO PAGE 60 CONFECTIONERY SEP/OCT, 2020 CONVENIENCE WORLD 59