PARIS: One consequence of the price deflation currently being seen across the European grocery sector is that shoppers appear to be channelling their nominal savings towards brands as they buy fewer private label items.

An analysis by market intelligence firm IRI of the FMCG price war in France – FMCG Price War in France – An Overview and Lessons for other European Countries – suggested that consumers were moving upmarket in certain sectors. While deflation reached 1.3% in 2014, the price of a shopping basket increased 0.3%.

Price deflation, said IRI, has only affected national brands in France, so reducing the competitiveness of private label. This has driven a trend to upgrade, as consumers invest what they save back into their everyday purchasing.

Retailers and manufacturers are also in the early stages of a price war, but IRI reported that there had been little or no impact on volume consumption overall.

Price is not the strongest sales lever, it said. Its own findings indicated that an expanded offering had the greatest impact on performance, followed by promotion and only then price.

So far, it added, the price war in France had re-energised certain sectors and brands.

All sectors have had to drop their prices, with particularly sharp deflation being seen in cleaning products and hygiene/beauty. Both these sectors had been on a declining path, but deflation – in combination with promotion – had successfully boosted sales.

But IRI cautioned that shoppers might only see short-term gains, as an extended price war would likely lead to reduced choice and lower quality as manufacturers attempted to maintain their margins.

"There's no escaping a price war, but there are opportunities for growth," noted Jacques Dupré, IRI's Insight Director and author of the report, pointing out that deflation in 2014 had returned about €1bn to the pockets of French shoppers.

"Retailers and manufacturers should work together to make the most of the opportunities this presents, with a shared approach to reviewing ranges, price positioning of products and innovation," he advised.

Data source from IRI; additional content by Warc staff