The winners and losers of the UK’s HFSS restrictions: ‘There are great opportunities here’
The UK’s new HFSS rules will impose media and promotional restrictions on 'unhealthy' products. Volume promotions, such as buy-one-get-one-frees and two-for-one deals, will no longer be allowed for these items. A ban will come into force on HFSS products being placed in secondary promotional locations in stores, such as end of aisle displays, store entrances and checkouts. Marketing of HFSS SKUs will no longer be permitted in digital and pre-watershed TV.
“These new rules will lead to a huge change in how UK retailers will operate. I’ve heard it described as the most influence the government has on what we eat since post-war rationing,” IRI Strategic Consultant Joe Harriman observed.
IRI estimates that the changes place £1.1bn in sales at risk per year.
When assessing how this could impact brands, it is first worth noting that the rules only apply to selected categories. Soft drinks, chocolate, confectionery, breakfast cereal, yoghurt, sweetened milk drinks, juices with added sugars, ice cream, morning goods, puddings and dairy desserts, and sweet biscuits will all be governed by the new rules.
If a product belongs to one of these categories, the nutrient profiling model will be used to classify whether SKUs are HFSS or not. This is a scoring system that allocates points for energy, fat, sugar and sodium and deducts points for fruit and vegetables, nuts, fibre and protein content. A food product with four points or more is considered HFSS, for a beverage it is just one point.
“As the policy is targeting certain categories and products it will naturally present different challenges and opportunities for brands. Some will be hit hard. Look at products like crisp snacks, sugar confectionery and chocolate where 97% of products are classified HFSS,” Harriman noted.
Winners and losers in the battle for shelf
Estimating the incremental sales generated for HFSS products by promotions and display drives can provide an idea of how much is at stake. Chocolate, IRI calculations suggest, stands to lose the most.
“Chocolate is the most impacted category. Sugar confectionery and chocolate have a similar number of SKUs impacted… however, 14% of chocolate sales predicted to be lost versus 5% of confectionery. This is because chocolate gains more incremental sales from being placed on display or from volume promotions,” Harriman revealed.
Across all HFSS categories, IRI forecasts around 5% of sales are ‘at risk’.
On the other side of the coin, Harriman claimed that some categories and brands will ‘gain a windfall’. Currently HFSS products command 38% of in-store display space. IRI predicts this will drop to 12% when the regulations come into effect. With 26% of space up for grabs, this opens up opportunities for non-HFSS categories and products that fall under the HFSS threshold to increase in-store visibility.
“Non-HFSS categories may have more premium space in shop as HFSS products are forced to vacate,” Harriman predicted. “Healthier products in HFSS categories may have no in-category competition for display space, so it is good for them. Retailers will be looking to add healthy products to their range, so manufacturers with a unique offering in a healthy category could benefit.”
But it isn’t all good news for ‘healthy’ products. With retailers indicating that they will make changes to how they allocate space, it will become even tougher to secure share of shelf. “It is going to be even more important for brands and categories to justify shelf space,” he suggested.
In particular, as HFSS products are moved out of promotional areas, they will likely command more aisle space, IRI Head of Analytics and Tech Thomas Hall suggested. “The aisle is going to become a real battleground. Retailers are planning to increase space for HFSS categories,” he revealed. More space will be needed, he continued, because display spaces are not only used to increase visibility – they are used for stockholding.
Hall pointed to the rising popularity of ‘power aisles’, suggesting: “This will be the area of a massive amount of activity.”
Who will this space be taken from? “It’s either going to come from smaller brands, who will be pushed out, or from other categories that are non-HFSS.”
Hall also stressed the opportunity for ‘category leaders on health’ within HFSS categories and those who are able to reformulate to benefit. For instance: “A number of ice cream products are very close to the boundary and a few grams of sugar out, a few calories out, add fruit or nuts and you could get a lot of ice cream products below the threshold that would allow you to promote.”
Reformulation is one strategy manufacturers are looking at in response to the HFSS regulation. Hall went on to highlight two additional areas: increasing imports of overseas brands and M&A. “People are looking at buying in products from abroad and acquiring smaller companies with healthier products.”
The ‘lasting’ impact on NPD and marketing
“The lasting legacy on this will be its impact on NPD,” Hall predicted. “We know 91% of products fail within a year to 18-months. You need to make sure your NPDs don’t fail.”
Currently, 16% of all new products have display and marketing support in the first four weeks of launch. Without this, it will be difficult to get consumer attention. “That’s not going to be allowed for HFSS products so we need to have a new strategy around launch. If I was a retailer, why would I take a product and put it on a shelf that has no advertising and can’t be put on a secondary display? How are customers going to know it is there?”
The new marketing restrictions will weigh on the ability of HFSS products to raise their profile with consumers. However, there is an important exemption, according to IRI Senior Effectiveness Consultant David Wright.
“Brand adverts will be allowed online and on TV provided there are no identifiable HFSS products in these ads,” he explained. This means that by promoting a master brand, portfolios can benefit from a halo lift.
This opportunity will impact different brands in different ways, with those who already have a high profile best positioned. “We expect the strongest brands to increase their use of their distinctive assets and manufacturer associations to maximise that halo impact.”
While the new restrictions present a serious challenge to manufacturers of HFSS products, Hall stressed that effective ranging, portfolio and innovation strategies can also unlock new opportunities.
“There is a lot of negativity around what we are going to lose and how much less effective advertising might be. But for many, there are great opportunities here to take advantage of.”