GROWING IN A TOUGH RETAIL ENVIRONMENT

Transcription

1 GROWING IN A TOUGH RETAIL ENVIRONMENT Copyright 2014 The Nielsen Company 1

2 TURNAROUND IN SIGHT! 2012 February marked a turning point for the Sri Lanka s financial landscape, as the government adopted corrective measures (20% devaluation of the Sri Lanka rupee) to cool down an overheating economy. This sparked double-digit price escalations across the board that deflated consumer demand and had a drastic effect on fastmoving consumer goods (FMCG) and household products. Positive macro indicators, which include 7.6% GDP growth, decreasing inflation and interest rates, and a stabilizing exchange rate, have made Sri Lanka one of the fastest-growing countries in the world. Despite the strong macroeconomic indicators, however, Sri Lanka s retail market isn t all smiles, as FMCG consumption levels remain relatively modest. In fact, they have yet to meet those the country enjoyed in early Even though the market is challenging for retailers, some companies have been able to break away from the rest and grow rapidly. Their performance highlights the opportunity even when things look bleak. Let s take a look at what these companies have done to succeed in a tough market. 2 GROWING IN A TOUGH RETAIL ENVIRONMENT

3 CONSUMER CONFIDENCE IS STILL DECLINING LMD- NIELSEN BUSINESS CONFIDENCE INDEX (BCI) AND NIELSEN CONSUMER CONFIDENCE INDEX (CCI) BCI CCI Post 20% devaluation of LKR BCI Recent months CCI JULY 11 AUG 11 SEP 11 OCT 11 NOV 11 DEC 11 JAN 12 FEB 12 MAR 12 APR 12 MAY 12 JUNE 12 JULY 12 AUG 12 SEP 12 OCT 12 NOV 12 DEC 12 JAN 13 FEB 13 MAR 13 APR 13 MAY 13 JUN 13 JULY 13 AUG 13 SEP 13 OCT 13 NOV 13 DEC 13 JAN 14 FEB 14 MAR 14 APR 14 MAY 14 JUN 14 The macroeconomic conditions are helping businesses, but consumers are still feeling pinched. Recent confidence indices show that business confidence is improving while consumer confidence isn t. The decline in consumer confidence suggests that the consumer feel-good factor is still some way off. Copyright 2014 The Nielsen Company 3

4 FMCG STARTS TO RECOVER ALL FMCG VALUE AND VOLUME TRENDS IN TRADITIONAL TRADE VAL: LKR (000) V0L: KG/LTRS 18,000,000 35,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 H1 12 H1 13 H1 14 FMCG VALUE FMCG VOLUME 30,000,000 25,000,000 20,000,000 6,000,000 4,000,000 2,000,000 15,000,000 10,000,000 JAN 12 FEB 12 MAR 12 APR 12 MAY 12 JUN 12 JUL 12 AUG 12 SEP 12 OCT 12 NOV 12 DEC 12 JAN 12 FEB 12 MAR 12 APR 12 MAY 12 JUN 12 JUL 13 AUG 13 SEP 13 OCT 13 NOV 13 DEC 13 JAN 14 FEB 14 MAR 14 APR 14 MAY 14 JUN 14 For the past two years, price increases have driven FMCG growth (value growth), but consumers have been making fewer purchases. Since Q4 2013, however, the trend has started to turn around. In looking more closely at recent consumer confidence data, we see that consumers have increased their spending on home improvements and clothing since Q2 2013, but more people (41%) are saying they are without spare cash. The split between spending in some areas and recessionary sentiment has created a negative tilt in consumer confidence. Not all FMCG sectors are suffering, though. The personal care category, for example, has helped drive FMCG growth, as more and more consumers are focused on looking and feeling good. The personal care category comprises items like deodorant, creams, lotions and toothbrushes. 4 GROWING IN A TOUGH RETAIL ENVIRONMENT

5 QUARTERLY FMCG VALUE GROWTH & SOURCE OF GROWTH IN TRADITIONAL TRADE COMPARED TO SAME QUARTER A YEAR AGO Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 % VOLUME CHANGE COMPONENT -17 PRICE CHANGE COMPONENT OVERALL GROWTH THE EVOLVING CONSUMER % Volume growth 4.7% Average for All FMCG 30 Deodorant Washing Powder FAST LANE: 2X GROWTH BY VOLUME AND BY VALUE Creams & Lotions 15 Shaving equip SanNap Soya Shampoo Light Snacks Noodles Toothbrushes 10 MFD Toothpaste Hair Dye HH Cleaners Analgesics Talc Choc Tea Yoghurt Soup5 FW Rubs Butter Mosquito repel equip Perfume Washing soap Biscuit 0 % Value growth Hair cream/gel Batteries Squashed IMF -5 Home Insecticides % Average for ALL FMCG Milk Powder -15 Copyright 2014 The Nielsen Company 5

6 VALUE CONTRIBUTION OF SUPER CATEGORIES (%) FMCG VALUE GROWTH IN GENERAL TRADE OTC 1% HHC 9% VALUE GROWTH (%) MAT GROWTH JULY 13 - JUNE 14 VS. JULY 12 - JUNE 13 YTD GROWTH H VS. H PC 25% F&B 65% FOOD AND BEVERAGE HOUSEHOLD CARE PERSONAL CARE ALL FMCG ACHIEVING OUTSTANDING GROWTH PER COMPANY GROWTH FASTEST GROWING 60% 38% 11% 30% 29% 26% 24% 23% 20% 19% 18% All Co1 Co2 Co3 Co4 Co5 Co6 Co7 Co8 Co9 Co10 SLOW GROWING 11% 7% 7% 7% 6% 3% 1% 0% Co8 Co9 Co10 All Co1 Co2 Co3 Co4 Co5 Co6 Co7-12% -33% -35% 6 GROWING IN A TOUGH RETAIL ENVIRONMENT

7 AVERAGE GROWTH RATE PER COMPANY 29.0% -5.1% Despite the challenging market, some companies have grown rapidly. The top 10 fastest-growing companies in Sri Lanka have increased their revenue by as much as 29% over the last 12 months, compared with the average FMCG value growth of 11%. Interestingly, the top 10 fastest-growing companies grew rapidly irrespective of the categories (food and beverages, personal care or household) they operate in. Expansion in retail distribution by the fast-growing companies contributed to increased demand for their brands, thus proving that market presence is a crucial factor in driving demand. With the infrastructure development that has taken place across the island, consumers expect goods to come as close to their homes rather than be inconvenienced by searching for goods. FMCG VALUE GROWTH FOR COMPANIES (MAT MAY 14) FAST GROWING SLOW GROWING IMPULSE FOODS OTHER F & B PERSONAL CARE HOUSEHOLD CARE OTC PHARMA Realizing the power of communication, the top 10 fastest-growing companies increased their share of advertising and created awareness during the FMCG slump and reaped the benefits. These winners know that being on top of mind, especially during hard times, is fundamental to maintaining and growing market share. The 10 fastest-growing companies increased their prices by an average of only 5%, while companies that grew the least increased their prices by 10%. Thus, the top 10 companies created value for consumers, sparing them from excessively high prices during trying times. Furthermore, top 10 companies understood the value of innovation, as they accounted for 122 product launches during the 12 months period to May Copyright 2014 The Nielsen Company 7

8 Looking at the pricing mix, the fast-growing companies have been less-dependent on mid-price segments. They have had a better balance of brands in all three price segments (mass, mid-price and premium), while slower growth companies have been more reliant on the mid-price segment, making them more sensitive to downgrading. NO RAIN, NO RAINBOW Sri Lanka s retail sector has seen its share of dark days. Fortunately, the dark clouds are starting to dissipate, and the sun is beginning to shine through. The country s GDP indicators are encouraging and business confidence is strengthening. But despite some positive momentum, consumer confidence remains lackluster. Although Nielsen Consumer Confidence Index Survey shows that consumer spending has picked up from last year, 40% of consumers say they don t have any spare cash. As a result, companies need to empathize with the aspirations and struggles of both groups when positioning their offers. The growing number of middle-income earners is leading Sri Lanka on its path to development, and this opens unprecedented opportunity for modern trade. It s clear that the top 10 fastest-growing companies have risen above the average during the hard times by managing the basics properly. Understanding that affordability and reach are cornerstones of driving growth, the top 10 companies used premiumisation to drive value, while expanding the mid-priced (mass) segment to retain consumers. Ringing true to the statement flowing water is never stale, the top 10 fastest-growing companies boldly innovated by introducing new brands and variants to provide greater value for consumers. Their continued investment on advertising during tough times worked well as an increasing share of advertising spend for these companies drove consumer demand for those brands. More successful companies have driven value by setting the right pricing mix, establishing a wide spread distribution network, by thinking about new ways to enhance their offers, and by effectively communicating their propositions. 8 GROWING IN A TOUGH RETAIL ENVIRONMENT

9 ABOUT NIELSEN Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence and mobile measurement. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit Copyright 2014 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 14/8123 Copyright 2014 The Nielsen Company 9

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