GROWING IN A
TOUGH RETAIL
ENVIRONMENT
Copyright © 2014 The Nielsen Company
1
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 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.
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GROWING IN A TOUGH RETAIL ENVIRONMENT
CONSUMER
CONFIDENCE IS
STILL DECLINING
LMD- NIELSEN BUSINESS CONFIDENCE INDEX (BCI)
AND NIELSEN CONSUMER CONFIDENCE INDEX (CCI)
BCI
CCI
200
Post 20%
devaluation of LKR
180
160
Recent
months
BCI
140
120
CCI
100
140
120
100
80
60
80
60
40
40
20
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
20
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
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
H1 ‘12
16,000,000
H1 ‘13
H1 ‘14
30,000,000
14,000,000
FMCG
VALUE
12,000,000
25,000,000
10,000,000
FMCG
VOLUME
8,000,000
20,000,000
6,000,000
15,000,000
4,000,000
10,000,000
JUN ‘14
MAY ‘14
APR ‘14
FEB ‘14
MAR ‘14
JAN ‘14
DEC ‘13
NOV ‘13
SEP ‘13
OCT ‘13
JUL ‘13
AUG ‘13
JUN ‘12
APR ‘12
MAY ‘12
FEB ‘12
MAR ‘12
JAN ‘12
DEC ‘12
OCT ‘12
NOV ‘12
SEP ‘12
JUL ‘12
AUG ‘12
JUN ‘12
APR ‘12
MAY ‘12
FEB ‘12
MAR ‘12
JAN ‘12
2,000,000
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.
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GROWING IN A TOUGH RETAIL ENVIRONMENT
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
24
%
12
8
7
14
2
8
8
3
6
9
3
9
6
6
-1
-2
VOLUME CHANGE COMPONENT
PRICE CHANGE COMPONENT
-17
OVERALL GROWTH
THE EVOLVING CONSUMER
% Volume growth
4.7% Average for All FMCG
30
Deodorant
FAST LANE:
2X GROWTH BY VOLUME
AND BY VALUE
25
20
Washing Powder
15 Shaving equip
-15
-10
Soya
Shampoo
Toothbrushes
Noodles
MFD
Toothpaste
HH Cleaners
Hair Dye Talc
Analgesics
Choc
Tea
FW
Soup5
Yoghurt
Rubs
Butter
0
5
10 Perfume 15
20
25
Mosquito repel equip Biscuit
Washing soap
Light Snacks10
-5
Hair cream/gel
0
Creams & Lotions
SanNap
30
35
40
% Value growth
11.2% Average for
Batteries
Squashed
-5
ALL FMCG
Home Insecticides
IMF
Milk Powder
Copyright © 2014 The Nielsen Company
-10
-15
5
VALUE CONTRIBUTION OF
SUPER CATEGORIES (%)
FMCG VALUE GROWTH IN
GENERAL TRADE
OTC 1%
HHC
9%
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
VALUE GROWTH (%)
PC
25%
F&B
65%
ACHIEVING
OUTSTANDING
GROWTH
PER COMPANY GROWTH
FASTEST GROWING
60%
38%
30%
29%
26%
24%
23%
20%
19%
18%
Co3
Co4
Co5
Co6
Co7
Co8
Co9
Co10
Co8
Co9
Co10
-33%
-35%
11%
All
Co1
Co2
SLOW GROWING
6
11%
7%
7%
7%
6%
3%
1%
0%
All
Co1
Co2
Co3
Co4
Co5
Co6
Co7
-12%
GROWING IN A TOUGH RETAIL ENVIRONMENT
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
30
SLOW GROWING
31
26
22
18
10
7
5
IMPULSE FOODS
OTHER F & B
PERSONAL CARE
4
HOUSEHOLD CARE
7
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 2014.
Copyright © 2014 The Nielsen Company
7
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.
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GROWING IN A TOUGH RETAIL ENVIRONMENT
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
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
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GROWING IN A TOUGH RETAIL ENVIRONMENT