The UK Government’s proposed introduction of new legislation targeting high fat, salt and sugar products is currently in consultation, with an expectation that it will become law in April 2022. (Full details on the proposals can be found here.) Here we provide expert analysis of this potentially disruptive development, and examine what HFSS will mean for brands and their customers.
If implemented in its current form, the legislation has significant implications on many brands and retailers. Our data shows 40% of take-home food and drink spend is on HFSS products, with 15% on HFSS products within the government policy. In addition, the changes will limit promotional activity and in-store merchandising locations for several categories such as soft drinks, confectionery, breakfast cereals, treats, beverages, crisps and snacks as well as pizzas and ready meals.
This article provides an overview of some key implications should the new HFSS regulations become mandatory. It also offers guidance for how brands can correct their category plans accordingly and work with retail partners in advance of the anticipated changes. Our guidance will cover the following:
- Scenario plan assortment changes to the main fixture
- Estimate where demand will flow with adjacent categories or main fixtures
- Create assortment recommendations focused on replenishment and on-shelf availability
- Ensure the brand portfolio is optimised for HFSS or identify new opportunities
- Create compelling insights and recommendation to retail partners
HFSS legislation implications
The legislation as drafted includes many products deemed HFSS under the UK Food Standards Agency’s Nutrient Profiling criteria. Historically, these categories have often been heavily promoted in terms of store location (gondola end, front of store, impulse) as well as promoted with price and volume driver deals. Under the new rules, neither of these will be permitted.
Stores over 2,000 square feet or with 50 employees will be subject to the measures, so all major multiples will have to comply. The expectation is that a six-month grace period to implement the changes (due from October 2022) will be allowed. This means now is the time brands should be coming together with retail partners to discuss next steps.
The central category strategy questions that arise for both retailer and brand will be:
- Where will volume flow (lost or transfer to main category aisle)?
- What will be the replenishment considerations for those impacted categories (change space, rationalise SKU or facings, macro space switching)?
- Will packaging have to change to ease replenishment e.g. with no front of store promotional pallets, should products be smaller on the main space available?
- Should store macro layout fundamentally change from traditional categories to more of an occasions/needs state, with complimentary categories located together?
- How to optimise the space in the checkout zone, a traditional location for many HFSS impulse products. COVID-19 has profoundly influenced how UK shoppers queue, and this will be the case for some time.
However, the checkout area will remain a key impulse zone.
How can brands prepare and help win retailer influence with category strategy
Commercial implications and trade spend tactics will be a significant factor for many brands. These will be specific to each retailer relationship, making it a topic in its own right. As such, we have not addressed it here. Instead, we have considered category strategy and execution.
1. Scenario plan assortment changes to the main fixture
Think how main fixture space could be utilised given some possible scenarios: products from secondary fixtures move to the main aisle; should space be made available for new SKUs, and what happens to the current space (facings)? What if we started from a blank fixture?
In many scenarios, understanding transferable demand (switching) behaviour between products by shoppers will be essential. We would advocate an incrementality-based model, utilising shopper behaviour metrics. Alternative scenarios will apply for each retailer, channel and category and, as the HFSS regulation impact is better understood, scenario planning that is flexible and dynamic will be essential.
2. Estimate where demand will flow with adjacent categories or main fixtures
It seems highly likely that retailers will not simply use existing category space. They may well evolve the space allocation for volume driver categories. The loss of promo volumes on certain categories may not easily flow to newly promoted categories. Retailers may consider expanding or reducing categories in line with volume and replenishment drivers. Being able to quantify and model the impact of flow across categories can be achieved by using macro space analysis of sales, together with shopper decision structures and hierarchies.
3. Create assortment recommendations focused on replenishment and on shelf availability
In the early phases of HFSS regulations implementation, retailers will probably focus on strategies to maintain volumes and support efficient in-store replenishment, avoiding risks of out-of-stock situations. Often seasonal (Easter, Christmas, Valentine’s Day) and highly promoted categories (soft drinks, beers) drive promotional volume through front of store, FSDU and gondola ends. If these are removed or reallocated, these products – often big-box, high-volume with minimal replenishment demands (pallet in/out) – will need replacing somehow.
Retailers will be looking for recommendations that can counter these constraints in the main fixture. Building assortment recommendations that account for pack size, shippers, sell and fill rates to avoid on-shelf availability (OSA) issues will be well received. This could be a combination of current space utilisation, complementary categories (occasions) or innovative pack redesigns.
4. Ensure the brand portfolio is optimised for HFSS rules, or identify new opportunities
For certain categories and products, the Nutrient Profiling criteria will make it impossible to reformulate the product without losing its purpose and appeal. Chocolate is an indulgent treat/gift/occasion category and will remain so. With HFSS regulations bringing in promotional limitations on the category, there may now be new opportunities to consider complementary products and/or categories that can be promoted as an occasion e.g. chocolate and fruit combinations, gifting etc.
For categories that have come under the HFSS regulatory remit during its draft stages, like pizza, ready meals and yoghurts, product reformulation opportunities should be explored where feasible. It may be more appropriate to consider the facings afforded to products that are not HFSS-compliant. The development of assortment recommendations that factor in nutritional values and demand occasions are achievable with modern advanced analytics assortment tools.
5. Create compelling insights and recommendations for retail partners
Retailers and brands alike are facing new challenges and uncertainties to which both must quickly adapt. No one party has all the answers, and this opens up a significant window of opportunity for brands to bring new perspectives and insights to their retail partners. In a recent conversation we had with a leading convenience operator, the retailer made the observation that few of its suppliers had been proactive around this issue. This comes as a surprise, given the potential transformative impact HFSS rules will have on UK supermarket space.
Retailers will initially be focused on recommendations that will drive anticipated lost volume with minimal supply chain and store operations implications. It is quite possible retailers could take the opportunity to pause traditional range review calendars, joint business planning and top-to-top conversations while they focus on HFSS compliance. Right now, brands should be developing scenario plans that can be easily translated in retail execution. The imperative is to get ahead of the curve before the legislation is finalised.
At Kantar, we are helping many manufacturers to tackle these challenges with our data-agnostic category analytics platform for managing portfolio, macro space and assortment. Contact us for more information