4. Redefining “Discount”

Sizing how consumers are shopping to stay ahead

In this chapter:

A new era of “discount”
Value-driven premiumization
Evolution of private label

Redefining Discount

Sizing how consumers are shopping to stay ahead

The concept of “discount” has broadened and evolved over the past few years of socioeconomic disruption.

Today, consumers of all financial circumstances are seeking value in multiple ways, with every purchase.

From the marked rise of a new echelon of economy price-tiered assortment to the redefined perception of private label or challenger brand products, there’s a new, hybrid view of “discount” values that will drive 2025 spending decisions.

Norbert Herzog

Head of Global Strategic
Insights, Tech & Durables,
NIQ

4

“There's an interesting intersection currently in play among consumers: People have heightened expectations for efficacy in what they purchase, but they are simultaneously gravitating toward perceived discount options (across channels and brand choice).

That isn't to say that shoppers are averse to spending more, but rather that you're going to have to prove to them what makes your product premium on a level that speaks deeply to them and their unique needs.

Intentional consumers today will need multiple layers of justification to be compelled to purchase.”

Consumers have embraced (and expect) broader value from the concept of “discount”

The concept of "discount" has evolved beyond simply price reductions. Consumers now expect a hybrid approach that delivers value for money, encompassing factors such as innovation, health benefits, sustainability, and natural ingredients.

For instance, 62% of consumers are willing to purchase a product that has been innovated to make it more affordable, highlighting the importance of innovation in delivering value. Similarly, 69% of consumers are likely to switch brands based on lower prices, while 48% would opt for a cheaper alternative in the health sector if it offered comparable quality.

This shift in consumer perception underscores the need for businesses to adopt a broader view of "discount." It's no longer enough to simply offer lower prices; companies must also focus on delivering value through innovation, health benefits, sustainability, and other factors that resonate with consumers.

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Top 10 consumer saving strategies for CPG / FMCG – Australia

Shop at stores with loyalty points
Buy in bulk / or a larger size
Buy whatever brand is on promotion
Select lowest priced product from preferred range
Monitor the cost of my overall basket of goods
Substitute for a lower priced alternative (e.g., different cut of meat)
Stop buying certain products to focus just on essentials
Shop more often at discount/value/lower-priced stores
Select lowest priced product irrespective of brand
Opt for private label/ store brands

Long term cost saving and cheaper alternatives tops list as a primary driver of consumer decisioning

Looking into a ‘traditional’ frame of reference for the rise of ‘discount-minded’ shopping, we still see a heavy influence of promotions among the preferred saving strategies. When confronted with multiple promotional options, the act of “simply buying whatever is on promotion” still ranks among the key strategies for shoppers, and this tells us that consumers feel they are open to any deal in the absence of no deal, and likely to switch brands in case there is a promotion that particular week.

Consumers also claim some other strategies to save, such as preferring stores with loyalty points, and buying differnet pack sizes. When looking at pack sizes specifically, most of them tend to prefer larger pack sizes, with lower cost per use, but this depends on the category.

Top 10 consumer saving strategies for CPG / FMCG – New Zealand

Select lowest priced product from preferred range
Buy whatever brand is on promotion
Buy in bulk / or a larger size
Monitor the cost of my overall basket of goods
Select lowest priced product irrespective of brand
Stop buying certain products to focus just on essentials
Substitute for a lower priced alternative (e.g., a different cut of...)
Shop at stores with loyalty points
Shop more often at discount/value/lower-priced stores
Use technologies (e.g., Mobile app) to find better deals

52%

48%

44%

39%

38%

37%

35%

34%

31%

50%

49%

48%

43%

42%

41%

39%

37%

35%

But what happens when they are confronted with multiple promotional options – each offering a different value proposition? Assessing these types of nuances is how companies can learn how to align their promotional support, merchandising and assortment strategies to the specific deal types, pack sizes, formats and channels that consumers would most like to encounter. In the case of ‘lower cost per use” vs. “lower cost to buy”, it is clear that right now, close to half of ANZ consumers (49% in Australia, and 48% in New Zealand) would prefer to buy more large, bulk pack sizes compared to buying more smaller pack sizes at a lower initial cost to purchase (12% in Australia, and 16% in New Zealand). This type of assessment and analysis is how assortment can be leveraged to influence and even overcome pure price-based decisioning.

Assortment can influence pure pricing decisioning:

Lower cost / use

49% say they would buy large, bulk pack sizes of their product of choice

Lower cost to buy

12% say they would buy smaller pack sizes of their products of choice

Lower cost to buy

16% say they would buy smaller pack sizes of their products of choice

Lower cost / use

48% say they would buy large, bulk pack sizes of their product of choice

VS

Alternative retailers become increasingly more important in the shopping journey, as consumers shop around to find better deals

In their quest for value, consumers are increasingly turning to alternative retailers. Over 60% of categories are experiencing faster growth in alternative retail channels compared to the dominant "big four" supermarket chains. This trend is evident in the growing penetration of retailers like Aldi, Costco, Bunnings, Reject Shop, and Chemist Warehouse, some of which also demonstrate high shopper frequency. Aldi, for example, boasts an average purchase frequency of nearly every two weeks.

This shift highlights the importance of adopting an omnichannel perspective and understanding the full scope of consumer shopping behaviour. Focusing solely on traditional supermarket channels provides an incomplete picture of the evolving retail landscape.

The shopper journey is all around you

NIQ Omnishopper capture consumer purchases across online and offline channels for a complete view of changing omnichannel behaviours.

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Private labels further prove evolution beyond “traditional” perceptions of discount

“I will opt for Private Label as a strategy to manage expenses”, percentage of respondents answered YES:

Australia - 31%
New Zealand - 34%

In a context of higher cost of living, it’s not a surprise that Private Label has also been growing in both countries. In Australia, private label has grown from representing one-fifth of sales in 2021 to nearly one-quarter of the market today. While significant, this growth still lags behind Western Europe, where private label penetration reaches 40-50% in some countries, indicating further potential for expansion in Australia and New Zealand.

Interestingly, private label brands are no longer solely focused on affordability. They are increasingly offering premium products at competitive prices, such as specialty cheeses, protein yogurts, and premium ice cream, as a strategy to attract consumers and drive store traffic.

Private labels are rapidly transcending their traditional image as "discount alternatives." They are increasingly gaining consumer trust and loyalty, achieving recognition for their quality and value, and evolving into leading brands in their own right. Recent research reveals that 40% of global consumers would readily switch to a private label product they enjoy, even if it comes with a higher price tag. Furthermore, 50% of consumers report increased purchase frequency of private label products. These findings underscore a remarkable shift in consumer perception, where private labels have successfully overcome the stigma associated with "discount" offerings.

This trend serves as a compelling reminder that brands, regardless of size or origin, can achieve significant success by consistently delivering on affordability, innovation, and quality. Private labels are proving this point, gaining traction through both consumer sentiment and demonstrable market performance. A historical analysis of private label sales share reveals a swift and accelerating growth trajectory. From a modest 15% share in 2009, private label products now command 22% of the global CPG market, demonstrating a steady annual growth of approximately 0.5 share points over the past decade.

Over the past 3 years, private label brands have captured +0.3 share points of CPG spending

While private label products are often associated with budget-conscious shoppers, recent trends indicate a growing preference for these products among high-income households as well. This suggests that the appeal of private labels extends beyond price sensitivity, encompassing factors such as quality, value, and innovation. The potential for retailers to further expand their private label offerings, particularly in the premium affordability space, is evident.

Emerging opportunity
for retailers:
Diversify assortment
to meet shifting
consumer needs.