A good day to die hard

Probably the more interesting question is to what extent last year laid the foundations for 2024, whether positive trend reversals can be expected or on the contrary: will the relative “brand disloyalty” of the last two years, the growing popularity of discounters, downtiering and the negative trends for manufacturer brands stay with us in 2024?

Episode recap

If we want to better understand what happened last year, it is worth briefly reviewing where we started. In 2021 – after the turbulence caused by Covid – there was notably strong growth, with domestic consumers spending 41.2% more than in 2020. Food inflation was 4.1% and volume sales were up 2.2%. 2022 was already an election year, so the previously announced tax refund, the 13th month pension, and the public sector wage increases meant shoppers had approximately HUF 1,200bn more to spend. Then came the war and then the energy crisis and in April inflation was already at 9.5%. In the summer the necessary fiscal adjustment took place, and by the end of the year food volume sales were falling by 1.6%, while real spending took a 6.8% dive due to the 26% food inflation. In 2023 the real crash happened from this already poor 2022 base, with food volumes reducing by 4.6%, and the decline in real consumer incomes and the drop in consumption hit FMCG brands particularly hard.

Between a rock and a hard place

Last year brought a further widening of the gap between manufacturer brands and private labels, as consumers were less willing to part with their money, so there was a significant shift in sales towards first-price or promotional products in almost every category. Private label sales surged at the expense of manufacturer brands. This phenomenon has often been reinforced by retailer communication, with a proliferation of private label advertising and campaigns emphasising the price advantage of the private labels or retailers. In some cases this took the form of comparative advertising, contrasting the current prices of manufacturer brands and private labels. In the past the Branded Goods Association Hungary (BGA Hungary) explained it to government partners that the private label vs. manufacturer brand type of comparative advertising doesn’t meet the objectivity criterion stipulated by competition law. In line with BGA Hungary’s position, the necessary legislative changes were made at the end of 2023. BGA Hungary has achieved similar lobbying success in connection with the mandatory price discount regulation that replaced the price cap system, where there were attempts in the last round of negotiations to get suppliers to “share” the cost of price discounts with retail trade, at the expense of their own transfer prices. All over the world big brands wish to play an active role in building a circular economy. From this point of view it is really regrettable that last year we were clearly unsuccessful in our efforts to contribute to the development of an efficient, transparent, fair and affordable domestic EPR system. Our main problem isn’t the concession model or the EPR fees, but the lack of transparent calculations, predictability and the concept of eco-modulation, plus the legal conflicts between the relevant EU and national regulatory frameworks.

Die Hard series

Die Hard, Live Free or Die Hard, A Good Day to Die Hard…the titles from the Bruce Willis film series are pretty much the best way to describe what has characterised the domestic FMCG market in recent years. It was almost all about costs and transfer prices, high prices and inflation. We heard less about the values in the other pan of the scale: quality, innovation, performance, positioning, value creation, brand building. Being an incorrigible optimist, I will conclude by saying that, with a lot of hard work and joint effort, we can redress the balance that has been upset – and BGA Hungary we will continue to work on this. //