Penny's new packaging is brilliant for consumers but cruel for manufacturers
September 10, 2024
The discounter launched a new range of price-marked packs in a larger format earlier this month, with the aim of emphasizing low prices rather than product.
Five lines are available: oat flakes, toast, salt, chips and own-brand mayonnaise. This is a brilliant strategy that only discounters can implement. It was developed in collaboration with Serviceplan NEO from Munich.
In a press release, Penny's Marketing Director Dr Jan Flemming said: "With our 'Big on Small Prices' campaign, for the first time ever we have put the price of the product on the packaging. This eye-catching limited edition packaging shows that Penny's own brand is still the best value."
Everything is fine. The cost of living crisis has caused food and drink prices to rise by up to 19 % in Europe.
Discounters' turnover soars as costs rise
But let's not forget that price increases have driven customers to discounters in droves – Penny's Germany's turnover will reach €9.5 billion by 2023. Aldi's turnover in the UK increased by €2 billion last year to €15.5 billion, and Lidl's by €9.3 billion.
What about food manufacturers, beverage suppliers and ingredient suppliers? When will food and beverage manufacturers get their “low price”?
Manufacturers continue to be under pressure from retailers who are under pressure to lower prices for the cash-strapped consumer, even as they have made efficiencies and cut costs, or invested in new technology (where possible).
Profits of small and medium-sized companies Mid-sized food and beverage manufacturers have fallen to their lowest levels in some countries. The unleashed manufacturers' health index shows a 9.18 % drop in average profitability this financial year, despite a 9.16 % increase in sales.
After a sharp rise in inflation, commodity prices are starting to stabilize, but not at the levels seen before the pandemic.
Food and beverage industry profits down
Recent EFFP statistics show that just under two-thirds of food industry executives worldwide are aware that they may not be able to recoup their profits due to rising costs. Manufacturers are “caught” between volatile and higher raw material prices, as well as constant pressure from retailers to maintain or lower their prices.
It’s a way to shut down all sorts of business needs, including investment in technology, R&D and innovation. Recent research shows that many food and beverage manufacturers aren’t investing in these areas. Risk aversion due to spiraling costs.
Not only have material prices increased, but energy and input costs like other materials and components have also increased or remained the same. It is not just material costs, energy and other input prices have increased or decreased barely.
While the industry is raising wages, trying to cut costs, and innovating wherever it can, all while maintaining high standards of safety and product quality, there are still skills gaps that continue to widen, creating problems years later.
Penny PMPs may be great for the consumer. For manufacturers, it's just another reminder that margins are tight.
Nicholas Robinson, FoodNavigator’s Editor, is responsible for setting the daily agenda for digital content. His extensive experience in food and drink includes time spent as Editor of thegrocer.co.uk and roles as Senior Content Director, Editor and Editor at other leading food and drink media titles. He has also worked for luxury brands and in superyachting and FMCG PR.
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