“There are great opportunities here”
The UK’s new HFSS rules will place media and promotional restrictions on “unhealthy” products. Volume promotions, such as the purchase of a free item and two-for-one offers, will no longer be allowed for these items. A ban will come into effect on HFSS products placed in secondary promotional locations in stores, such as end-of-aisle displays, store entrances and checkouts. The marketing of HFSS SKUs will no longer be authorized in digital television and pre-watershed.
“These new rules will mean a huge change in the way UK retailers operate. I’ve heard that this is the government’s biggest influence on what we eat since the post-war rationing,“Observed IRI strategic consultant Joe Harriman.
IRI estimates that the changes put £ 1.1bn in sales at risk per year.
When assessing the impact this might have on brands, it should first be noted that the rules only apply to certain categories. Soft drinks, chocolate, sweets, breakfast cereals, yogurts, sweetened milk drinks, juices with added sugars, ice cream, morning products, puddings and dairy desserts, and sweet cookies will be all governed by the new rules.
If a product falls into one of these categories, the nutrient profile template will be used to rank whether the SKUs are HFSS or not. This is a scoring system that assigns points for energy, fat, sugar and sodium and subtracts points for the content of fruits and vegetables, nuts, fiber and protein. A food product with four or more points is considered HFSS, for a drink it is just one point.
“As the policy targets certain categories and products, it will naturally present different challenges and opportunities for brands. Some will be hit hard. Look at products like crispy snacks, sugar confectionery and chocolate where 97% of the products are classified as HFSS ”,Harriman noted.
Winners and losers in the battle for the shelf
Estimating the additional sales generated for HFSS products by promotions and display campaigns can give some idea of what is at stake. Chocolate, according to IRI calculations, is at risk of losing the most.
“Chocolate is the most impacted category. Sweets and chocolate have a similar number of SKUs impacted… however, 14% of chocolate sales are expected to be lost compared to 5% of confectionery. This is because the chocolate gains more additional sales by being on display or by doing volume promotions ”,Harriman revealed.
Across all HFSS categories, IRI predicts that approximately 5% of sales are “at risk”.
On the other side of the coin, Harriman claimed that certain categories and brands “would gain a bargain.” Currently, HFSS products occupy 38% of in-store display space. IRI predicts that figure will drop to 12% when the regulations go into effect. With 26% space up for grabs, this opens up opportunities for categories and non-HFSS products that fall below the HFSS threshold to increase in-store visibility.
“Non-HFSS categories may have more premium space in the store because HFSS products are forced to become available”,Harriman predicted. “Healthier products in the HFSS categories may not have any competition in the category for display space, so it’s good for them. Retailers will be looking to add healthy products to their line-up, so manufacturers with a unique offering in a healthy category could benefit. “
But that’s not all good news for “healthy” products. With retailers indicating that they will make changes to the way they allocate space, it will become even more difficult to secure shelf sharing. “It will be even more important for brands and categories to justify storage space ”,he suggested.
In particular, as HFSS products are moved out of promotional areas, they will likely take up more aisle space, suggested IRI and Tech chief analyst Thomas Hall. “The alley will become a real battlefield. Retailers plan to increase space for HFSS categories ”,he revealed. More space will be needed, he continued, because exhibition spaces are not only used to increase visibility, they are used for storage.
Hall pointed to the growing popularity of “power aisles,” suggesting: “This will be the domain of a tremendous amount of activity.”
Who will this space be taken from? “It will either come from small brands, which will be kicked out, or other categories that are not HFSS.”
Hall also highlighted the opportunity for “health category leaders” within HFSS categories and those who are able to reformulate to benefit. For example: “A number of ice cream products are very close to the limit and a few grams of sugar, a few calories, add fruit or nuts and you could get a lot of ice cream products below the threshold that you would promote. “
Reformulation is a strategy that manufacturers are considering in response to HFSS regulations. Hall then highlighted two additional areas: increasing imports of foreign brands and mergers and acquisitions. “People are looking to buy products from overseas and acquire smaller businesses with healthier products.”
The “lasting” impact on the NPD and marketing
“The lasting legacy on this subject will be its impact on the NDP”,Hall predicts. “We know that 91% of products fail within one year to 18 months. You have to make sure that your NPDs don’t break down.
Currently, 16% of all new products receive display and marketing support within the first four weeks of launch. Without it, it will be difficult to gain the attention of consumers. “It won’t be allowed for HFSS products, so we need to have a new launch strategy. If I was a retailer, why would I take a product and put it on a shelf without advertising and not being able to be put on a secondary display? How will customers know he’s there? “
The new marketing restrictions will affect the ability of HFSS products to market themselves to consumers. However, there is an important exemption, according to David Wright, IRI’s senior effectiveness consultant.
“Branded advertisements will be permitted online and on television provided there are no identifiable HFSS products in such advertisements.”he explained. This means that by promoting a main brand, portfolios can benefit from a halo lift.
This opportunity will have a different impact on different brands, with those that already have a high profile being the best placed. “We expect the strongest brands to make more use of their distinctive strengths and manufacturer associations to maximize this halo impact.”
While the new restrictions present a serious challenge for manufacturers of HFSS products, Hall stressed that effective range, portfolio and innovation strategies can also open up new opportunities.
“There’s a lot of negativity around what we’re going to lose and how less effective advertising could be. But for many there are great opportunities here. “