Promotion fatigue sets in

Once upon a time at the mall, back when a price promotion was really a price promotion, consumers got excited about 5% off sales. Then came the hard smack of the early 1990s recession, and 5% off seem like a rounding error. Only 30%, 40% and 50% off could make shoppers whip out their purses.

But here's the scary part: when the economy recovered, shoppers remained immune to 5% and even 10% off. They had been permanently reprogrammed to expect half off. Otherwise it wasn't a sale.

It's a lesson grocers, and food manufacturers, may want to keep in mind as this year unfolds. That's because recent research from the U.S. suggests the thrill of the deal is wearing off among grocery shoppers. SymphonyIRI Group, a research firm, recently found that even though the number of consumer packaged goods products sold on promotion was up last year, the average volume lift per promotion fell.

The company found that while more than 30% of CPG products were sold on promotion, the average lift per merchandising event declined across 57% of CPG categories. "We do believe there's a level of promotion fatigue out there," Susan Viamari, the author of the report, said in an article in Advertising Age.

The dwindling impact of price promotions is an issue grocers will have to watch carefully this year. The other, of course, is rising prices. Commodity prices are on the march and manufacturers seem eager to pass this cost on to retailers.

In a perfect world, retailers would just raise their prices, too. But we don't live in a perfect world and the financial situation of consumers is still really iffy. The average person's wages are barely rising, their debt levels are no better than they were before the recession and there's evidence that house prices–the de facto bank machine Canadians have relied on for the past decade to pay for everything–are starting to fall. Oh, and gas prices are through the roof, too.

So we're now in a situation where food prices have to go up, but consumers can't afford them. Yet the deals that enticed them to buy last year aren't effective at moving merchandise.

It will force everyone in the industry to tweak their sales efforts. The result could be a greater focus on everyday low prices or a bigger push on shopper marketing strategies that go beyond discounts.

Either way, it's going to make the rest of this year rather interesting