STANDING OUT DURING A SLOWDOWN - Nielsen · launches, including ITC’s Sunfeast Dark Fantasy and Mondelez’s Oreo. Chocolates too saw products like Dairy Milk Silk that grew rapidly

1STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company

STANDING OUT DURING A SLOWDOWNINDIA FMCG:WHEN THE GOING GETS TOUGH

2 STANDING OUT DURING A SLOWDOWN

I N T R O D U C T I O NIn 2008, when the banking crisis set off a global meltdown, India

continued to offer a safe haven for investors, boasting a 6+ percent

GDP growth rate and stable governance. Yet, as the crisis prolonged

globally, ruptures in the Indian economic fabric began to emerge.

Manufacturing was the first to be affected, as industrial production

indices contracted from previous years.

Over time, the malaise spread, affecting services, causing large

foreign companies to reduce their planned IT expenditures. Worsened

by governance issues and news of widening national financial deficits,

the hitherto optimistic Indian consumer finally began to feel wary of

his prospects that hinged on the Indian growth story. Persistently high

inflation meant that consumers had to mind their budgets, prioritizing

essentials over everything else. Eventually, other sectors fell victim

as well. Passenger car sales, for example, fell to an 11-year low while

consumer durables dipped to a seven-year low.

Against this backdrop, the premise of Roti, Kapda and Makaan

assumed greater significance. Amid the downturn, however, fast

moving consumer goods (FMCG) were affected much later. This

may have been because consumers looked at options within specific

categories as they managed their budgets instead of abandoning

them completely. Also, as overall consumption dropped, some

manufacturers pulled a few tactical levers that protected growth and

increased consumption and value.


S O F T E N I N G M A C R O SIn 2013, India’s GDP growth, which had been at 6+ percent levels for

several consecutive quarters, dropped below 5 percent. With inflation

persistently high in 2012/13, India saw its rank on the Nielsen global

consumer confidence scale fall to third place in the third quarter of

2013. However, there were some silver linings just one quarter later,

as quarterly GDP growth and consumer confidence both inched

northward.

RECENT STRESS IN THE INDIAN ECONOMY

GDP GROWTH

CONSUMER CONFIDENCE BUSINESS CONFIDENCE

INFLATION (GPI)

4.83.8

115

65.767.269.3

71.8

63.9

56.353.6

55 54.952.951.3 51.3

51.249.945.7

48.6

58.7

66.167.6

66.266.7

62.5

66.3

61112

118119119123122121

126131131129129127

120121

5.6 5.5

9.7 9.511.2

9.1

15.0

6.5 6.5

4.44.8

4.75.2

5.4

9.7 9.4

8.58.3

7.8 7.77.87.5 7.3

6.1 6.3 6.1

6.9

8.68.9

9.3

5.85.3

2008 2010

2010

2010

2010

2010

2011

2011

2011

2011

2012

2012

2012

2012

2013

2013

2013

2013 JAN/06 JAN/08 JAN/10 JAN/12 JAN/14

2012 2013 04 05 06 07 08 09 10 11 12 13


F M C G S L O W D O W NThe Indian FMCG market, pegged at about US$ 36 billion, has grown

robustly year-on-year for several years now—both in terms of volume

and value-driven growth. In 2012, the industry grew at about 18

percent, which consisted of roughly equal measures of volume and

value growths.

2013 took off to a decent start for the FMCG sector even though the

rest of the economy was still looking glum, posting Q1 growth of 12.5

percent. By the end of the second quarter, however, the sector was

staring at a significant slowdown. In fact, volume growth tapered

through the quarters hitting a nadir in Q3, as total volumes contracted

and overall growth was only 5.9 percent (versus last year).

The year ended with FMCG posting overall growth of 9.4 percent on

the back of just one percent volume growth - well below the 18 percent

growth seen in 2012.

18.5%

20.9%

16.0%17.5% 17.9%

11.4%

18.3%17.0%

20.4%

18.2%

12.5%10.5%

5.9% 6.4%

UNIT VALUE CHANGE

2010

-Q3

2010

-Q4

2011

-Q1

2011

-Q2

2011

-Q3

2011

-Q4

2012

-Q1

2012

-Q2

2012

-Q3

2012

-Q4

2013

-Q1

2013

-Q2

2013

-Q3

2013

-Q4

VOLUME CHANGE NOMINAL GROWTH

15.3%16.0%

10.9%10.9%

9.4%

0.3%

9.1% 8.2% 9.1%

3.6%2.4%

1.4%

4.9%6.4%8.0%8.9%9.1%8.9%8.9%9.2%11.1%

8.5%6.5%5.0%4.8%3.2%

11.5%


Urban areas were the worst hit, where growth slowed from 17 percent

in 2012 to 8 percent in 2013. Rural consumption slowed down as well,

hovering at 12 percent, well below the 21 percent in 2012.

The slowdown was felt the most in Personal Care categories, as

consumers looked to down trade or rationalize usage heavily. Overall

sales growth of Non-Food products dropped from 17 percent in

2012 to 8 percent in 2013. Sales of Food products slowed down as

well but still grew in double digits at 12 percent (vs. 19% in 2012).

However, the impulse segment continued to grow in healthy double

digits. Marketers also appeared to significantly reduce their overall

promotions in Food categories, as companies found it harder to give

away value. Comparatively, companies boosted price discount and

volume promotions in Non-Foods in 2013.

FMCG growth across town classes was impacted in 2013. Town class 1

which was a strong driver of growth in 2012, felt the maximum impact.

Rural continued to be buoyant with double digit growth.

2012

2013

15

21 2116

11 1288

URBAN

2012 vs 2011

METRO RURALROU TC1

RURAL

2013 vs 2012

POPULATION STRATA - GROWTH VALUE (YEAR AGO)

27%% CONTRIBUTION: 21% 19% 33%

Source: Nielsen

Source: Nielsen

17%

12%

8%

21%


2012 2013

% CONTRIBUTION:

18

18

22

32

17 18

13

19

17

12

13

8 5

9

14

8

9

9

FMCG

GROCERS/GS

IMPULSE

OTHERS

FOODS

CHEMISTS

NON-FOODS PERSONAL CARE

MT

CATEGORIES - GROWTH VALUE (YEAR AGO)

RETAIL CHANNELS - GROWTH VALUE (YEAR AGO)

72% 8% 7% 13%

Source: Nielsen

Non-foods excluding Personal Care

Source: Nielsen

When it comes to the various retail channels, growth in Modern Trade

significantly declined in 2013, slowing down to 8 percent. Chemists

continued to provide good value growth.


DECODING THE CONSUMPTION DECLINE As the Indian consumer sought to maximise her household budget

and balance her income versus expenditure, she appears to have

made a series of rational decisions in altering her purchase basket.

Food items directly impact the health and well-being of her family,

so in that regard, she did not compromise too much on food

consumption and only down-traded to smaller packs on each store

visit. We found that in several food categories, consumers actually

increased their transaction volumes. In Refined Oils for instance,

volume growth fell to six percent while the number of transactions

grew eight percent in 2013. Similarly, Biscuits, Chocolates and Salty

Snacks transactions grew faster than volume purchases. Specifically,

small pack purchases grew significantly faster than the overall

category in Foods. In Biscuits, small packs grew 24 percent, while

the total Foods category shrunk. In Refined Oils, small packs grew 16

percent while the total category grew at only 6 percent.

VOLUME SLOWDOWN STRONGER THAN TRANSACTION

BISCUITS OILSALTY SNACKS

SHAMPOO WASHING POWDERTOILET SOAPS

10%

9%

16%

14%

23%

6%

31%

10%

17% 21%

3%

3%7%3%

8%

4%

12%

20%

6%

2%

8%

10%

-6%

-1% -2%

FOODS

NONFOODS

VOLUME

VOLUME

VOLUME

VOLUME

VOLUME

VOLUME

TRANSACTION

TRANSACTION

TRANSACTION

TRANSACTION

TRANSACTION

TRANSACTION


DOWNSIZING TO SMALLER SIZES IN FOOD EVIDENT

BISCUITS OILSALTY SNACKS


3%

24% 17%

10%

17%

22%16%

6%

2%

-6%

-0.8%

-6.2%-2% -4%

FOODS

NONFOODS

When it came to discretionary items like Non-foods, specially personal

care, she curtailed her spends by:

• reducing consumption by postponing purchases

• buying large packs with an eye on prolonged usage and better

value

• downgrading to cheaper products.

In fact, consumers bought less volume of Small packs in Washing

Powders, Shampoos and Toilet Soaps, causing a deeper decline in

volume than in the overall category.

TOTAL SMALL PACKS*

2013 VOLGROWTH

*Small Packs exclude Sachets

Source: Nielsen


GOING PREMIUMPremiumization, the sale of products and services that cost more

than 120 percent of the average category price, has been a strong

theme in several FMCG categories for a few years now. It has even

enabled manufacturers to appeal to consumers with lower price

sensitivities who ultimately help drive value growth. In the last two

years, the industry has seen some very successful launches in the

premium segment. Biscuits particularly saw several high profile

launches, including ITC’s Sunfeast Dark Fantasy and Mondelez’s

Oreo. Chocolates too saw products like Dairy Milk Silk that grew

rapidly since launch. In fact, a Nielsen study on innovation discovered

that breakthrough innovations in FMCG between 2011 and 2012 were

priced significantly higher than the category average and still drew

consumers and achieved success.

During the slowdown, consumers appear to have cut back and down

traded to cheaper options within many popular or mass product

segments. In Salty Snacks, the premium segment grew at only two

percent, while the mass and popular segments stole the show with 24

percent and 17 percent growth, respectively. In Refined Oils, premium

segment declined at -5 percent, while the mass segment gained

momentum, growing at 18 percent. Shampoo and Toilet Soaps saw

premium products lose ground as well.

DOWN TRADING INTO POPULAR/MASS

OILSALTY SNACKS


32%

8%4%

9%

2%

-4%

-6%

-4%

12%1% 1%-8%-10%

-14%

15% 6%11% 14%

7% 5%

-5%

-2%

0%

-18%

18%13%24%

14%

12% 11%

20%16% 71%

17%23%

2%FOODS

NONFOODS

MASS

MASS

2012 2013

MASS

MASS

MASS

MASS

POPULAR

POPULAR

POPULAR

POPULAR

POPULAR

POPULAR

PREMIUM

PREMIUM

PREMIUM

PREMIUM

PREMIUM

PREMIUM

PREMIUMIZATION

HAS ENABLED

MANUFACTURERS TO

FIND CONSUMERS

WITH LOWER PRICE

SENSITIVITIES THAT

ULTIMATELY HELP DRIVE

VALUE GROWTH.

BISCUITS

VOL GROWTH


MODERN TRADE LOSING SHEEN?Modern trade also seems to have felt the impact of the slowdown. The

channel had experienced high growth for several years in the years

leading up to the slowdown, as the urban consumer readily took to

the shopping experience it offered. Even as major retail chains opened

outlets across several key cities, smaller traditional stores upgraded

into stand-alone stores that featured a self-service model and planned

shelves. This inorganic growth, along with increased foot traffic,

enabled modern trade to grow 32 percent in 2012.

With a sense of uncertainty in the retail sector where regulations are

concerned, many major operators have put expansion plans on hold.

Simultaneously, shoppers have pulled back on the number of visits

they are making to modern retail stores, downgrading from 2.5 trips

per month to about 1.5 in 2013 (as per Nielsen Shopper dipstick mid

2013). With consumers deciding to go local for daily needs and reduce

experimentation, modern trade sales declined by 2 percent in 2013,

while overall FMCG growth came in at about 8 percent. Here again,

Food products held the fort by posting growth of 11 percent in 2013.

MODERN TRADE: FOOT OFF THE PEDAL?

PDOGROWTHSDOWN

STOREEXPANSION ON HOLD

20.89.1

0.47.9

PDO GROWTH MT UNIVERSE GROWTH

2013 20132012 2012

VOLUME GROWTH: -2.2%

(PDO = Per Dealer Offtake / Throughput)


RURAL MATTERSRural is not a new story in India, as marketers have long-since eyed

the opportunity in the country’s 600,000+ villages. And it’s not

that desire is one-sided. Even as manufacturers strive to effectively

reach the rural market, rural consumers themselves have expressed

aspirations equal to those of their urban counterparts. And despite

any weather-related challenges in 2013, rural consumers displayed a

great deal of resilience as the rural FMCG market grew a strong 12

percent over 2012.

A look at the fastest-growing 20 categories for all of India reveals that

14, which include Hair Conditioners, Diapers and Olive Oils, were also

the fastest growing in rural. In fact, nowhere is the rural consumer’s

high aspirational level more evident than it is with respect to the

premium segment. In fact, growth in several premium categories was

stronger in rural than urban. Toilet Soaps, for example, grew at 18

percent in rural but only 8 percent in urban.

MASSPOPULARPREMIUM

13.5

82.3

37.1

50.3

12.6

18.8

55.4

25.8

36.1

55.0

8.9

31.6

47.2

21.2

24.2

71.6

4.2 4.2

SALTY SNACKS BEVERAGESTOILET SOAPS

8%

5%

2% 1%

7%

18% 19% 44% 1% 2%

2%

11%6%44%

26% 16%

24%

14%

12 STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company

GROWING 1.5X URBAN

GROWING 2.5X FMCG

GROWING 2.7X FMCG

71% CATEGORIES GROWING FASTER IN RURAL

GROWING AT 32% IN RURAL AND 20% IN URBAN

GROWING AT 34% IN RURAL AND 10% IN URBAN

LED BY FOOD (GROWING AT 23%)

LED BY SNACKS/CHOCOLATES (GROWING >20%)

LED BY DIAPERS/OLIVE OIL (GROWING >25%)

IMPULSE

BABY CARE

RURAL

THE ‘RIB’ CAGE EFFECTCertain pockets of growth have insulated manufacturers during the

slowdown, what we’re terming the FMCG RIB Cage—contribution

from the Rural, Impulse and Baby-oriented categories. Companies

with a focus on these three areas were in fact able to derive

incremental growth in 2013 just as they have in the medium term.

FMCG PROTECTED BY ‘RIB’ CAGE IN THE SLOWDOWN

Source: Nielsen


WINNING STRATEGIES


NOT ONLY DID THE TOP 10 COMPANIES

ADD OUTLETS, THEY ALSO ENSURED THAT

THEY RECRUITED KEY OUTLETS THAT

ENHANCED OVERALL THROUGHPUTS.

WHAT THE TOP 10 COMPANIES DID TO STAND OUTDespite the slowdown, some companies were still able to achieve

stellar growth. These companies outperformed the overall FMCG

sector by playing on their strengths and pulling certain tactical levers

at the right time. We analyse the actions of these winners (Top 10

companies by growth rate) by contrasting them with another set of

large companies that did not grow as fast (the Bottom 10) among the

top 50 FMCG companies by size.

PROFILING THE TOP & THE BOTTOM 10The Top 10 companies had growth rates in excess of 16 percent

(compared to 9% for total FMCG) and contributed about 10 percent to

the FMCG market. Meanwhile, the Bottom 10 companies had growths

ranging from roughly 3 percent to as low as -10 percent. This segment

accounted for about 5 percent of the total FMCG market. While most

of these companies focused on Foods, a few were also active in the

Non-Food space.

The Top 10 companies derived growth from both urban and rural

markets, but they grew by 36 percent in rural markets. The Bottom

10 however, were not able to capitalize on the rural momentum and

witnessed volume declines there.


HOW THE TOP 10 WONThe Top 10 companies are unique in the sense that they derived both

value and volume growth in a difficult environment and capitalized on

opportunity in both urban and rural markets.

PREMIUM RUSH: Even as the popular segment constituted about

three-fourths of business for the Top 10, these companies were able to

sustain contribution from their premium offerings that enabled value

growth. They also saw their mass segment growing at 32 percent. The

Bottom 10 companies started out with a heavy mass segment in their

portfolio that grew significantly, however their premium segment fell

10 percent.

DISTRIBUTING RIGHT: Distribution was another key lever utilised

by the Top 10 companies wherein, they expanded distribution in both

urban and rural centres – in rural they added about 1.8 lac outlets

collectively. While the Bottom 10 managed to add about 60,000

outlets in rural to their reach, they actually lost almost the same extent

in urban. Another characteristic that differentiated the Top 10 was

how they expanded distribution in rural. Not only did they add outlets,

but they ensured that they recruited key outlets that enhanced overall

throughputs.

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

-5.0%

-10.0%

-10%-20% 10% 20% 30% 40%

-15.0%

PER DEALER OFFTAKE GROWTH

RURAL DISTRIBUTION GROWTH

T10

B10

WINNERS ACHIEVED RURAL DISTRIBUTION EFFICIENCY FOR GROWTH


THE PRICING GAME: In the difficult economic scenario of 2013,

many manufacturers had to pass on high costs to consumers by

raising prices or reducing product sizes. A look at 300 FMCG brands

reveals that brands that increased prices within the overall inflation

rate of about 9 percent still managed to grow volumes, while others

that raised their prices saw their sales volumes decline. However,

between the Top 10 and Bottom 10, the former had very marginal price

increases in 2013, which appears to have translated into greater gains

in the form of volume growth.

Increasing price is a risky proposition in difficult times, and as we

see here, the Top 10 only increased prices across their categories by

1.6 percent in 2013. The Bottom 10, however, increased their rates by

4.3 percent (on the back of a 9% increase in 2012). Consequently, the

Bottom 10 saw a greater impact on their volumes. In fact, the Top 10

rapidly increased volume growths in Rural from 23 percent in 2012 to

36 percent in 2013.

DON’T STOP INNOVATING: Innovating is by no means a simple

task at any time. And innovating in a challenging macroeconomic

environment means staying focused on R&D and on Go-to market

efforts needed to support product launches. Though 2013 was a

difficult year, innovation in the FMCG space was alive and thriving.

Looking at 48 categories from the Nielsen retail audit, we observed

that there were more new brand launches in 2013 than in 2012. For

example, the Salty Snacks category thrived on new launches as several

new players entered the category and launched more than 1,800

brands (this category also saw a high exit rate for brands at more than

300 brands dying out in 2013.).

% INCREASE IN AVG PRICE IN RURAL RURAL VOLUME GROWTH %

20122012 20132013

238.9

6.7

1.6 -3.0

36

T10

B10

INNOVATION IS ALIVE & THRIVING IN THE FMCG SPACE

# OF NEW BRAND LAUNCHES

SALTY SNACKS

NON REFINED OIL

SKIN CREAMS

1449 1852

609 622

699 716

2012

11,004 11,115

2013

54.3


The Top 10 also pressed the accelerator on innovation. In fact, the Top

10 grew their new brands launched in 2012 by 242 percent. For the

Bottom 10, it was a bit lower than the Top 50 average at 194 percent.

The Top 10 also derived greater contribution (4.1%) in 2013 from their

new launches in 2012/13 than the other groups.

IN SUMMARY2013 was a challenging year for the Indian market and the FMCG

sector came to terms with it as well. Volume growth slowed and

marketers faced numerous challenges in retaining consumers while

protecting value. Several key themes, such as Premiumization, were

affected as consumers sought to manage their budgets. However,

even as silver linings appear on the horizon, there is little doubt that

India’s long-term growth drivers – urbanization, young demographics,

a vibrant industry and rural – remain as strong as ever.

In this challenging environment, a few companies outperformed the

rest by playing to their strengths. These winners invested in expanding

distribution and drove further into the hinterland. They also played

their premium portfolio to grow value while retaining consumers

with their mass offerings. These companies also didn’t slow down

on innovation. Not only did they launch more new products, but they

supported the launches with distribution and execution activities

that ultimately helped them gain good incremental value from the

innovations.

WINNERS KEPT THE INNOVATION AGENDA BURNING

242% T10

T10

TOP50

TOP50B10 B10ALL NEW

LAUNCHES

199%194%

168%

T10 2012 LAUNCHESOUTPACED OTHERS IN ‘13

Growths 2013v 2012 of NewBrands launched in 2012

2012/13 Brand launch’s contributions to 2013 revenue

T10 NEW BRANDS CONTRIBUTED SIGNIFICANTLY TOO

0.9%4.1% 2.4%


VIJAY UDASI

EXECUTIVE DIRECTOR

NIELSEN INDIA

VIKRAM DHUNTA

DIRECTOR

NIELSEN INDIA

ABOUT THE AUTHORS

The authors would like to thank Raj Hosahalli, Arushi Sachdeva, Swati

Jain and Kshama Sinha for their contributions to this report.

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.

Documents

STANDING OUT DURING A SLOWDOWN - Nielsen · launches, including ITC’s Sunfeast Dark Fantasy and Mondelez’s Oreo. Chocolates too saw products like Dairy Milk Silk that grew rapidly