Growing In A Tough Retail Environment.pdf

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

GROWING IN A TOUGH RETAIL ENVIRONMENT

2 GROWING IN A TOUGH RETAIL ENVIRONMENT

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 fast-

moving 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 2012.

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.


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.

CONSUMER CONFIDENCE IS STILL DECLINING

LMD- NIELSEN BUSINESS CONFIDENCE INDEX (BCI) AND NIELSEN CONSUMER CONFIDENCE INDEX (CCI)

200

BCI

CCI

BCI

Post 20% devaluation of LKR

Recent months

JULY

‘11

MAR

‘12

NO

V ‘12

JULY

‘13

NO

V ‘11

JULY

‘12

MAR

‘13

NO

V ‘13

MAR

‘14

SEP

‘11

MAY

‘12

JAN

‘13

SEP

‘13

JAN

‘12

SEP

‘12

MAY

‘13

JAN

‘14

MAY

‘14

AUG

‘11

APR

‘12

DEC

‘12

AUG

‘13

DEC

‘11

AUG

‘12

APR

‘13

DEC

‘13

APR

‘14

OC

T ‘11

JUN

E ‘12

FEB

‘13

OC

T ‘13

FEB

‘12

OC

T ‘12

JUN

‘13

FEB

‘14

JUN

‘14

140

CCI

160

100

120

6080

2040

180120

140

80100

4060

20


H1 ‘12 H1 ‘13 H1 ‘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.

FMCG STARTS TO RECOVER

ALL FMCG VALUE AND VOLUME TRENDS IN TRADITIONAL TRADE

18,000,000 35,000,000

12,000,000

20,000,000

6,000,000

16,000,000

30,000,000

10,000,000

15,000,0004,000,000

14,000,000

25,000,000

8,000,000

10,000,0002,000,000

JAN

‘12

SEP

‘12

MAY

‘12

JAN

‘14

MAY

‘12

JAN

‘12

SEP

‘13

MAY

‘14

MAR

‘12

NO

V ‘12

JUL

‘13

MAR

‘14

JUL

‘12

MAR

‘12

NO

V ‘13

FEB

‘12

OC

T ‘12

JUN

‘12

FEB

‘14

JUN

‘12

FEB

‘12

OC

T ‘13

JUN

‘14

APR

‘12

DEC

‘12

AUG

‘13

APR

‘14

AUG

‘12

APR

‘12

DEC

‘13

VAL: LKR (000) V0L: KG/LTRS

FMCG VALUE

FMCG VOLUME


Washing Powder

Deodorant

Creams & LotionsShaving equip SanNap

SoyaShampoo

MFDToothbrushes

ToothpasteHH CleanersHair DyeAnalgesics Talc

Choc TeaYoghurt Soup Rubs Butter

PerfumeBiscuitMosquito repel equip

Washing soapHair cream/gel

Squashed

IMF

Milk Powder

Home Insecticides

Batteries

FW

Light Snacks Noodles

-15 -10 -5 0 5 10 15 25 3520 30 40

FAST LANE:2X GROWTH BY VOLUME

AND BY VALUE

30

% Volume growth

% Value growth

4.7% Average for All FMCG

11.2% Average for ALL FMCG

0

25

-5

20

-10

15

-15

10

5

THE EVOLVING CONSUMER

QUARTERLY FMCG VALUE GROWTH & SOURCE OF GROWTH IN TRADITIONALTRADE COMPARED TO SAME QUARTER A YEAR AGO

2 3 3

Q1’13

VOLUME CHANGE COMPONENT

PRICE CHANGE COMPONENT

OVERALL GROWTH

%

-17

-2 -1

Q3’13 Q1’14Q2’13 Q4’13 Q2’14

24

148 6 6 6

812

7 8 9 9


F&B65%

PC25%

HHC9%

OTC 1%

VALUE CONTRIBUTION OF SUPER CATEGORIES (%)

FMCG VALUE GROWTH IN GENERAL TRADE

VALUE GROWTH (%)MAT GROWTH YTD GROWTH

JULY ‘13 - JUNE’14 VS. JULY ‘12 - JUNE ‘13

H1 2014 VS. H1 2013

FOOD AND BEVERAGE 5.8 7.2

HOUSEHOLD CARE 8.4 6.7

PERSONAL CARE 16.0 14.5

ALL FMCG 8.5 8.8

ACHIEVING OUTSTANDING GROWTH

PER COMPANY GROWTH

11%

11% 7% 7% 7% 6% 3% 1% 0%

-12%

-33% -35%

All

All

Co2

Co2

Co4

Co4

Co6

Co6

Co8

Co8

Co1

Co1

Co3

Co3

Co5

Co5

Co7

Co7

Co9

Co9

Co10

Co10

60%

FASTEST GROWING

SLOW GROWING

38%30% 29% 26% 24% 23% 20% 19% 18%


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.

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 2014.

FMCG VALUE GROWTH FOR COMPANIES (MAT MAY ‘14)

10

IMPULSE FOODS OTHER F & B PERSONAL CARE

FAST GROWING SLOW GROWING

HOUSEHOLD CARE OTC PHARMA

5

30

18

26

7

31

4

22

7

AVERAGE GROWTH RATE PER COMPANY 29.0% -5.1%

8 GROWING IN A TOUGH RETAIL ENVIRONMENT Copyright © 2014 The Nielsen Company

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 RAINBOWSri 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.


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 www.nielsen.com.

Copyright © 2014 The Nielsen Company. All rights reserved. Nielsen

and the Nielsen logo are trademarks or registered trademarks of

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