UK SME manufacturers fuelling FMCG growth, but maintaining distribution poses challenges as unit sales decline

…UK SMEs now hold 15.1% value share of the market…

 Circana, the leading advisor on consumer complexity, has today revealed new research highlighting the critical role of data for Small to Medium Enterprise (SME) manufacturers in the UK FMCG sector. While the research indicates that their innovation (NPD) is fuelling growth, retaining distribution remains the linchpin for sustained success in response to large manufacturers who are intensifying sales promotions. It urges SMEs to leverage data strategically to secure their position and compete effectively against industry giants.

Despite easing inflation and lower interest rates, growth in the FMCG market has slowed. Large manufacturers are increasingly relying on volume share as the primary pathway to growth, with sales promotion as the key enabler.

Alex Lawrence, Senior Strategic Insight Director at Circana, emphasised the significance of SMEs to overall growth: “Fuelled by innovation, SMEs are disproportionately contributing to market growth, providing 22 per cent of all NPD value sales (vs. their 15 per cent value share) in the last 12 months. They are however more vulnerable in the Major Multiple Grocer Channel (MMG) – a cornerstone for sustained growth.

“But with the MMG channel accounting for 85% of FMCG market value retaining and building distribution in this channel is the key to sustaining growth. SME products will tend to have lower rates-of-sale, increasing their risk of de-list making retailer range reviews and refreshes a crucial battleground for SME manufacturers.

“With pressure on volume share growing, SME brands must develop a competitive advantage.”

SMEs making waves

SMEs – defined for the purpose of this research as manufacturers with less than £100M turnover across all categories – have made significant strides. In the past 12 months, they have contributed £20.1Bn to total store sales, experiencing 7.3 per cent growth. Over the last 13 weeks, SMEs maintained share growth, up 0.2 percentage points from last year. Currently, SME manufacturers hold 15.1 per cent value share, while large manufacturers account for 49 per cent and private label for 36 per cent.

Notably, SMEs played a pivotal role in NPD value sales, contributing 22 per cent (compared with their 15 per cent value share) to drive overall market growth.

Outlook, risks, and opportunities

While SME manufacturer growth mirrors the overall market slowdown, there’s a crucial difference; SME unit sales declined over the last 13 weeks. Further analysis of the top 500 brand value share winners across total store confirmed that 94 per cent of brand winners gained volume share, making this growth crucial in the current climate.

It shows that large manufacturers have turned to sales promotion to drive volume share and compete with private label. That coupled with their scale and larger budgets, means they have been able to secure additional store displays, most notably in non-food sectors. This in turn, helps them to sell more goods without risking a reduction in profits from the increased sales promotion investment.

Lawrence commented: “For FMCG SMEs, securing premium secondary display location with high gate fees is expensive and sales promotion will likely be from the product shelf location, greatly increasing the risk of margin and profit loss. As a result, range and distribution is a much more crucial battleground for smaller brands and an aspect of the marketing mix where SMEs need to establish a competitive advantage to drive growth in the second half of the year.”

Circana issued the following advice to SME manufacturers:

• Retaining and gaining distribution for existing products: Use robust and granular data in your range reviews and refresh processes to demonstrate your market and competitor SKUs and illustrate growth contribution and opportunities to retailers. Find out more via: https://insights.circana.com/page/waiting-list-liquid-data-go-uk
• Collaborate: Add an extra data level to be able to converse with retailers about having secondary display locations.
• Innovate: Continue driving NPD to capture consumer interest, maintain relevance and seek out emerging innovation opportunities.

About the survey

This research was carried out in June 2024 (and analyses trends across the 1 June 2023 to 1 June 2024 period) using Circana’s EPOS panel in the UK, where Circana collate store census data from the Major Multiple Grocers and combined this with a mixture of census and sample data from UK convenience retailers to create UK covered market EPOS read.

 About Circana

Circana is the leading advisor on the complexity of consumer behaviour. Through unparalleled technology, advanced analytics, cross-industry data and deep expertise, we provide clarity that helps almost 7,000 of the world’s leading brands and retailers take action and unlock business growth. We understand more about the complete consumer, the complete store, and the complete wallet so our clients can go beyond the data to apply insights, ignite innovation, meet consumer demand and outpace the competition. Learn more at www.circana.com.