It has been described as the biggest change to supermarket retailing since supermarkets were invented. Now that the promotions for the platinum jubilee have been taken down, work has started on a transformation of the way £17bn of food is sold each year in the UK.
By the start of October, all stores in England run by companies employing more than 50 people and occupying more than 2,000 sq ft will be banned from using prominent locations on the shop floor to promote products high in fat, sugar or salt.
The government’s own impact assessment estimates the long-term cost to retailers at more than £1bn and according to Sally Ball, strategic insight director at researchers Kantar, the legislation directly affects about £17.5bn of annual sales of products including ready meals, pizzas, ice cream, milkshakes, bakery items and confectionery.
“It’s a big undertaking,” admitted Simon Roberts, chief executive of J Sainsbury. “We’ve got 600 supermarkets and this requires us to re-lay [change the layout of] significant parts of every store.”
Publicly, supermarkets are talking up the change as an opportunity to showcase newer and healthier products. But behind the scenes, there is nervousness about the impact on sales, especially at a time of sustained food price inflation.
“We are all working out the same problem: how to avoid spending a load of money re-laying stores only to end up with lower [sales] volumes,” said one senior executive at a major supermarket chain.
Ecommerce is also subject to the new rules, which are designed to try to tackle obesity and its impact on health services by reducing sales of unhealthy products.
The legislation bans advertising and product placement on supermarket’s key website pages, including the homepage, checkout pages and pages that make recommendations or suggestions.
Retailers and the brands that supply them have long used areas near the entrances to stores and the “gondolas” at the end of each aisle to run attention-grabbing promotions for Christmas, Mother’s Day and Easter.
These types of promotions drive sales volumes and also bring in several hundred million pounds each year for supermarkets from brands paying for enhanced placement.
An Obesity Health Alliance study in 2018 found that 43 per cent of locational promotions were for sugary foods and drinks while barely 1 per cent were for fresh fruit or vegetables.
The areas around tills, meanwhile, are often used to sell individual items of confectionery, designed to encourage impulse buying and generate “pester power” by children.
Bryan Roberts, an industry analyst who spent much of the coronavirus pandemic working on the shop floor of a large Tesco store, said confectionery would be particularly hard hit, given that “something like half” of all sales volumes in the category are generated from promotional locations.
The changes have left retailers trying to work out where to put the offending items. For big stores, this might be a back wall or a standard middle aisle, but for smaller ones the challenges are more acute. “It is harder for us to move stuff around,” said Richard Walker, managing director of Iceland Foods. “We have a lot less flexibility than a 60,000 sq ft Tesco”.
There are some obvious potential products for the prime real estate that is being vacated. “The big winner in all of this will be alcohol,” predicted Roberts. “The big drinks firms have the will and the financial firepower [to do more promotions] and they are fans of shopper marketing.”
The irony is not lost on Walker. “If I can’t sell sweets at the checkouts, I’ll probably sell alcohol and vaping products instead,” he said, adding that he thought the legislation would increase costs and “do nothing to combat obesity”.
Food groups have also lobbied hard against the new rules and the government recently delayed a proposed ban on multibuy promotions by a year.
Local authorities are responsible for enforcing the supermarket layout rules, which some say will lead to wide regional variations. Others, such as Co-op’s head of food Jo Whitfield, have pointed out that the changes are coming hot on the heels of other huge upheavals such as Brexit and the pandemic.
If products are reformulated to comply with the UK’s “nutritional profiling model” that is used to determine whether an item is unhealthy, snacks and chocolate could remain in high-profile locations.
“From what we are hearing, there is significant work going on across the industry, even in those categories where we might once have said reformulation was too difficult,” said Ball, noting that supermarkets are also under pressure from campaigners and investors to promote healthier eating.
She cited the experience of the UK’s soft drinks industry levy introduced in 2018, which led to widespread reductions in the amount of sugar in soft drinks but did not notably reduce sales.
Tesco’s chief executive Ken Murphy said recently that the retailer was “working with suppliers to reformulate products to make them healthier and HFSS compliant, and we’re working on all the alternatives we can provide to HFSS products”.
Roberts said Sainsbury’s was “absolutely focused on healthier choices, more sustainable choices”.
The big question is whether they will sell in anything like the kind of volumes that the unhealthier ones did.