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Confidence in fast moving consumer goods: a global perspective

Pakistan holds huge prospects and opportunities for FMCG sector

Global conditions continued to improve for consumers as this year was though consumer sentiment didn’t rise unilaterally and several countries saw dips in consumer confidence, with the largest drops coming from emerging market economies.

From a global perspective, conditions and prospects for the remainder of the year appear largely positive. In the first quarter of the year, confidence grew across Western Europe, the economic recovery in Latin America looks promising in a number of key markets, dollar sales of fast-moving consumer goods (FMCG) in North America performed well, and population growth and growing disposable incomes across Asia-Pacific are having an effect well beyond the immediate region.

There are a huge prospects and opportunities for FMCG sector in Pakistan. As the rural markets are not much developed, the FMCG companies have enormous opportunities to capture the market. Purchasing power of customer is steadily increasing income. Hence a the FMCG companies has better prospects than ever to tap. FMCGs operating in Pakistan are flexible enough to respond to local dynamics; simultaneously establishing or maintaining close distribution hubs and creating a powerful marketing presence. Household consumption drives the majority of sales in the FMCG segment. Growth in this segment has increased considerably in Pakistan in recent years, due in large part to long-term trends such as a growing urban middle class with rising disposable incomes and changing consumer preferences for traditionally Western products.

Domestic firms often have an advantage over their international competitors, because they are closer to their customers and better acquainted with their buying preferences and habits. While multinational corporations (MNCs) have to work hard to ensure their brands stay relevant by localizing their products, local players such as those in Pakistan have that knowledge built into their FMCG products.

Emerging Asian markets have had a significant impact on the growth of the fast moving consumer goods (FMCG) segment. According to a study, emerging market consumers make up less than one-third of global revenue for the 15 largest multinational FMCG manufacturers. However, consumer spending in these markets is expected to grow about three times as quickly as that in developed economies. By 2020 such spending will reach US$6 trillion and account for nearly half of total consumer spending.

Similarly in Pakistan, consumer product market has expended many folds in recent years. Indeed, for both large foreign and smaller domestic FMCG firms, participation in the FMCG segment requires a long-term view when it comes to investment and presence, along with sustainable growth. It is also necessary for amidst the challenging economic condition consumer product companies are optimizing their growth. Even though consumer confidence has taken a hit with high inflation rates with increased urbanization in the local landscape, demand for durables, furnishing and telecommunications has emerged as exponential growth stories. Most of country’s spending is on FMCG still but look out for areas such as telecommunication, housing and furnishing which includes durables.

The world isn’t without challenge, however. Myriad factors are affecting confidence and FMCG performance across Central and Eastern Europe, including political unrest, new laws and government policies, inflation—even the weather. And while the year looks promising for Africa and the Middle East, 2018 was rife with numerous economic, political and social challenges for the market, which are still fairly close in the rearview mirror.

And regardless of region or current economic conditions, one fact remains consistent for manufacturers and retailers globally: They need to engage with and satisfying young, urbanized and digitally primed consumers.

Globally we see overarching trends. The year started off on the right foot for Russia, as GDP grew 1.3% in the first quarter, according to preliminary figures from the government. Inflation remained stable at 2.2%, real wages increased 9%-10% and retail growth grew 2.2%.

Bank deposits across the market have not increased amid the positive economic conditions, leading economy watchers to conclude that consumers are using the salary growth to pay off debt incurred during the 2015/16 economic downturn.

FMCG volume in the quarter was 1.2% higher than in the same period of last year, stretching the consecutive quarter-on-quarter string of growth to four. Meanwhile, unit value growth was up 1.8%, indicating the emergence of a trend characterized by low volume sales movement and minimal price increases.

Russia is expecting the sales of seasonal categories like carbonated soft drinks, ice cream and iced tea to bounce back mid-year after slumping during last year’s especially cold summer. But to maximize growth, consumer will still need to need to ensure they have the right combination of relevant product offerings, targeted distribution and informed pricing strategies.

Like that of Russia, Chile’s economy continued its impressive trajectory in the first quarter, as the country posted one of its highest GDP growth levels since 2013. The strong economic backdrop was predominantly driven by rising copper prices and increased domestic demand. These two factors have set the foundation for a very strong outlook moving forward. Consumer optimism remained high in the opening quarter, largely due to recent presidential elections, but it did drop slightly from the end of 2018. Confidence in future job prospects remained strong by many, but job security is still the top concern cited by Chileans. After four quarters of successive volume compression in Chile, FMCG sales showed signs of recovery: volume sales grew 1.1% in the first quarter, driven by supermarket promotions. Many companies, however, still have large trade inventories that they are working to reduce while concurrently focusing on total probability.

 

Like Russia, Chile is facing new labeling and ad laws. In Chile, these laws, which target non-healthy categories and aim to fight against obesity, commence in June. Touted as very ambitious, these new laws will certainly have an effect on sales of categories that are considered unhealthy.

In Canada, the year started off well as FMCG dollar and volume growth increased in the first quarter—actually the most growth we’ve seen in over a year.Easter was a key contributor to the increase, as the holiday—and its sales—fell in the first quarter of the year, compared with last year, when the holiday benefit affected second-quarter sales. This year, consumers increased their spend an average of 7% during Easter week, making it the third-most-important holiday for FMCG sales, coming in behind Christmas and Thanksgiving.

Looking ahead, value remains a key motivator among shoppers, as private-label growth continues to outpace national brand. Additionally, discount retail formats continue to win over the consumers’ share of wallet. At the store level, the need for health and wellness remains prevalent in consumers’ minds, offering tremendous opportunity for innovation and growth. We anticipate that the disruption in retail will continue to offer challenges to the industry. Consequently, manufacturers and retailers will need to embrace and understand consumer preferences to meet demands. That will lead to better product decision making and more targeted innovation.

In the Asia-Pacific, The Philippines continues to maintain one of the fastest-growing economies, as it posted GDP growth of around 6.9% in the first quarter of 2019 — the 10th consecutive quarter in which the country has posted GDP growth above 6.5%.

Industry, services and government spending drove growth, easily offsetting sluggish performance from agriculture, growing inflation and a notable trade deficit. The buoyant economy and high consumer confidence bolstered FMCG performance, as total value growth increased 7.5% from the prior year. Additionally, the growth was almost entirely due to inflation-driven price increases.

Prices for these same six categories went up more in supermarkets, rising an average of 16.5%. As a result, channel sales fell by 8.1%. With the price hikes, it was no surprise that beverages recorded the slowest first-quarter growth (2.8%) of all FMCG categories. With more tax reforms to be implemented, FMCG players will need to closely monitor how consumers react and will need to test strategies to maximize growth in the evolving retail environment.

Across the retail landscape, small-store formats are now the fastest FMCG growth channel, posting growth of 9.5% in the first quarter. Within the broader channel, convenience stores lead the way, growing 24.6%. To stay competitive, supermarkets are expanding through small format stores. The rise of this channel is attributed to urbanization and evolving lifestyles where consumers are increasingly seeking convenience and ways to save time.

Economic and consumer indications in South Africa point to continued recovery throughout 2018. Inflation levels are at a seven-year low, annualized GDP growth is at its highest level in two years, and the South African consumer is finally experiencing the benefits. All three indicators of consumer confidence (job prospects, personal finances, and time to buy) posted significant recovery in the first quarter, culminating in the biggest quarterly increase in consumer confidence (+15 points), to reach the highest index level (95) in over 10 years. While this level may reflect much of the initial euphoria due to the leadership changes in first-quarter 2018, it signifies a shifting outlook for the South African consumer, who is finally feeling the injection of positive sentiment in the market. The stronger confidence is translating into spend, as South African consumers are finally able to put more into their baskets.

The author, Khurram Adeel Shaikh, is a PhD Scholar and a freelance writer. Currently he is associated with Bahria University, Karachi Campus, as Assistant Professor and could be reached at khurramadeel.bukc@bahria.edu.pk

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