Download pdf - SRI LANKA - Nielsen · 2019-05-29 · SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014 C 2014 T N Company 3 CONFIDENCE RISING On the heels of several landmark events over the past

1SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014 Copyright © 2014 The Nielsen Company

SRI L ANKA2013 REVIEW AND OPPORTUNITIES IN 2014

2 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014

2013 was a period of consolidation in Sri Lanka, marked by ripples from

a series of corrective measures in 2012 aimed to chill an overheated

economy. The indicators are that the worst could be over. As 2013 came

to a close, inflation was heading south and the Sri Lankan rupee was

relatively stable, leaving consumers and businesses wondering if 2014

will be the year when confidence begins to ascend—leading to a bounce-

back in consumption.

As a country, Sri Lanka boasts an impressive per-capita GDP—one that’s

bigger than India’s and steadily approaching Indonesia’s. Given the

country’s economic footprint, marketers and brands certainly have an

opportunity to increase their engagement with consumers—engagement

that hinges on understanding their needs and spending habits.

2013 PER CAPITA GDP (US$)

Source: International Monetary Fund.

1,414

3,127

5,878

3,498

SRI LANKA

INDIA

INDONESIA

THAILAND

SRI L ANKA2013 REVIEW AND OPPORTUNITIES IN 2014


CONFIDENCE RISINGOn the heels of several landmark events over the past five years, including

President Mahinda Rajapaksa winning a second, six-year term in 2010,

sentiment about the future is improving among Sri Lankan consumers

and businesses. Both consumer and business confidence are up

significantly from their low points, even though there was some vacillation

toward the end of 2013. At year-end, consumer confidence was at 68 (up

from a recent low of 57 in August 2012) and business confidence was at

130 (up from a recent low of 90 in July 2012).

CONSUMER AND BUSINESS CONFIDENCE

'JULY 11

'AUG 11

'SEP 11

'OCT 1

1

'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

JUL'13

AUG'13

SEP'13

OCT'13

NOV'13

DEC'13

77 77 73 7785 87 85

7772

6560 58 59 57 59 59 60 62

67 68 6459 60 63 65 62 59 59

67 68

160

173

162153

158149 151 154

135

105 107

90

108

121 122

135 134139

158

140147

140131

125

111

129119

130138

130

CCI BCI

BCI Base: 100 per monthCCI Base: Rolling Sample of 300 per month Respondents per Month

NIELSEN CONSUMER CONFIDENCE INDEX AND LMD-NIELSEN BUSINESS CONFIDENCE INDEX


THE FUTURE LOOKS BRIGHTER FOR CONSUMERSThe improving consumer sentiment, business confidence and growing

tourism suggests better times ahead. For consumers, stable rupee

growth, lower inflation than in mid-2013 and mild interest rates for

loans should be a welcome change and could be a positive for spending

trends—amount and frequency—in 2014. The downside risk on the

economic front includes a possible trade balance downturn. A trade

balance slip could affect the value of the rupee and cause the economy

to overheat.

BETTER TIMES FOR CONSUMERS IN 2014?

QUARTERWISE GDP GROWTH (%) INFLATION % (12 MONTH AVERAGE)

8.3 7.9 6.4

4.8 6.3 6.0 6.8 7.8

Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2102 Q1-2013 Q2-2013 Q3-2013

GDP GROWTH AGRICULTURE INDUSTRIAL SERVICES

JAN

'201

0

MAR

'201

0

MAY

'201

0

JUL

'2010

SEP

'2010

NO

V '20

10

JAN

'201

1

MAR

'201

1

MAY

'201

1

JUL

'2011

SEP

'2011

NO

V '20

11

JAN

'201

2

MAR

'201

2

MAY

-'201

2

JUL

-'201

2

SEP-

'2012

NO

V-'20

12

JAN

-'201

3

MAR

-'201

3

MAY

-'201

3

JUL-

'2013

SEP-

'2013

NO

V-'20

13

DEC 2013 6.9%

MAY 2013 8.9%

MAY 2012 5.6%

EXCHANGE RATE (LKR:USD)

135

130

125

120

115

110

135

130

125

120

115

110

JAN/12 JUL/12 JAN/13 JUL/13 JAN/14

COMMERCIAL BANKS AVERAGE INTEREST RATES (%)

AVGE WEIGHTED LENDING RATE AVGE WEIGHTED DEPOSIT RATE

DEC '13

OCT '13

AUG '13

JUN '13

APR ;13

FEB '13

DEC '12

OCT '12

AUG '12

JUN '12

APR ;12

FEB '12

DEC '11

OCT '11

6

8

10

12

14

16

18


When we take a look at what’s driving the GDP growth, we

don’t see any surprises. The sources behind the uptick are

similar to those we saw in 2012 and last year. Agriculture is

still stifled, offering very little in terms of growth, mainly due

to poor weather. Consequently, agriculture contributed only

marginally to overall GDP growth in the last two years. The

positive, however, is that in aggregate, agriculture represents

a very small part of the larger GDP picture. The larger

contributors, the industrial and services sectors, is where the

picture is more optimistic.

SOURCES OF GDP GROWTH SIMILAR IN ‘12 & ‘13

HOW ECONOMIC TRENDS COULD AFFECT CONSUMER BEHAVIORAt a granular level, construction delivered more than half of the GDP

growth in the last two years, fueled by surges in domestic trade and

transport—a trend that should continue. On the flipside, import trade has

contributed very little to the equation.

For consumers, lower borrowing costs could lead to higher spending on

housing and consumer durables. Older consumers who are reliant on

fixed incomes, however, will likely trim back on spending as interest rates

on their savings and deposits come down. Inflation had dipped below 7

percent at the end of 2013, another level of breathing room for consumers,

but fuel hikes and related increases in electricity and transport costs did

cause a rise in non-food costs last year.

Non-food costs aren’t the top concern for Sri Lankans, however.

On average, consumers in the region spent about 40 percent of their

household expenditure on food, well above the average of less than 15

percent for developed countries. Comparatively, food expenditures are 25

percent in Thailand, 35 percent in India, and 11 percent in Australia.

6.3% 6.9%2012: Q1-Q3

AGRICULTURE

INDUSTRY

SERVICES

2013: Q1-Q3

0.8%

2.7%

2.9%

0.3%

2.9%

3.7%

FOOD EXPENDITURES

THAILAND25%

INDIA35%

AUSTRALIA11%


RURAL & ESTATE CONSUMERS > HIGH FOOD COSTS

Sources: Sri Lanka; DC&S, Housing Income & Expenditure Survey 2013

Other Countries: Economic Research Service, US Department of Agriculture / Euromonitor (2010)

2010: GLOBAL COMPARISONSON % OF EXPENDITURE ON FOOD

% OF HOUSEHOLD SPEND ON FOOD

TOTAL SRI LANKA

URBAN

RURAL

ESTATE

2013 37

31

39

50

2010 40

34

41

50

7%

25%

9%

45%

46%

40%

25%

43%

37%

14%

35%

34%

11%


WHEELS, RICE COOKERS AND TECHNOLOGYAgainst a backdrop of relative optimism, there are a few areas where

consumers in Sri Lanka could direct their disposable income as futures

brighten. The first is transportation. Sri Lanka is home to 5 million

households that have 4 million vehicles—and climbing. While sales of

car, three-wheeler and dual-purpose vehicles (vans) have tapered off in

recent years, motorcycles are becoming the transportation of choice. At

year-end 2013, there were 2.7 million motorbikes in the region—steadily

making them the family vehicle of choice.

OVER 4 MILLION VEHICLES FOR 5 MILLION HOUSEHOLDS

5,00,000

10,00,000

15,00,000

20,00,000

25,00,000

30,00,000

35,00,000

40,00,000

45,00,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 JUL-13

UNITS

TOTAL NO. OF REGISTERED VEHICLES

DUAL PURPOSE MOTORBIKES 3 WHEELERS MOTOR CARS

Source: Registration of Motor Vehicles


Consumers are also spending more on durables and technology.

Sri Lankans are no longer content with outdated items, as many are

opting to replace their old televisions and refrigerators with new,

efficient models.

Technology is also playing a bigger role for consumers these days.

In 2013, Sri Lankan households purchased 250,000 new computers and

550,000 new rice cookers.

TV

RADIO

REFRIGERATOR

COMPUTER

RICE COOKER

WASHING MACHINE

96%97%

89%88%

57%57%

27%32%

48%59%

13%14%

2012

2013

Source: Nielsen Consumer Surveys, 2012, 2013 in 9 Provinces, 23 (out of 24 districts)

% O

F H

HS

OW

NIN

GPERCENT OF HOUSEHOLDS OWNING SPECIFIED DURABLES

TV & REFRIGERATORS > UPGRADING TO NEW MODELS COMPUTERS, RICE COOKERS > INCREASING PENETRATION


The other area where technology is affecting consumer spending is in

the digital space. While fixed and mobile voice connectivity is declining

or flat, mobile broadband connectivity is growing. As of September 2013,

there were 1.2 million mobile broadband connections in Sri Lanka, and

the number of accounts is steadily increasing.

And where there’s digital growth, there’s increasing Internet penetration.

In Sri Lanka, the availability of technology is having a huge impact

on Internet use. Between 2012 and 2013, the country’s population of

Internet users, aged 15 to 60 years, grew from 2.5 million to 2.8 million,

and 2.4 million of them are connecting either daily or weekly.

Source: Nielsen Consumer Surveys, 2012, 2013 in 9 Provinces, 23 (out of 24 districts)

FREQUENCY OF INTERNET USAGE (AMONG ALL 15-60 YEAR OLDS)

2.8 M INTERNET USERS (2.4 M DAILY/WEEKLY USERS)

FREQUENCY OF INTERNET USAGE 2013 (% BY AGE GROUP)

AGE ALL 15-25 26-35 36-45 46-60

24 47 18 15 7DAILY/WEEKLY/LESS OFTEN

SOME USE MULTIPLE MEANS OF ACCESS

HOW INTERNET USUALLY ACCESSED 52%

DONGLE57%

MOBILE15%ADSL

2.5MINTERNET USERS

(22% of 15-60 yr olds)17% Daily / Weekly users; 5% occasional users

2.8MINTERNET USERS

(24% of 15-60 yr olds)21% Daily / Weekly users; 3% occasional users

2012 20132.5M

2012

2.8M

2013

TV & REFRIGERATORS > UPGRADING TO NEW MODELS COMPUTERS, RICE COOKERS > INCREASING PENETRATION


CONSUMPTION OUTLOOK—A REVERSAL OF RECENT TRENDSGiven the various factors affecting businesses and consumers in Sri

Lanka over the past couple of years, it’s not surprising that fast-moving

consumer goods (FMCG) volume was down in 2012. That was a year

ago, however, and that downtrend reversed its course in the last two

quarters of 2013.

So where are the biggest areas of opportunity? The personal care and

emerging lifestyle sectors.

Despite negative growth in the household care (cleaning products and

detergents) area, double-digit growth in personal care item sales has

been an offsetting positive.


MONTHLY AVERAGE GROWTH

FMCG MARKET VALUE (RS. MN.) - MONTHLY TRENDS IN TRADITIONAL TRADE

QUARTERLY FMCG VALUE GROWTH & SOURCE OF GROWTH (COMPARED TO SAME QUARTER A YEAR AGO)

Source: Nielsen Retail Audit (excl. N&E)

F&BPERSONAL CARE HOUSEHOLD CARE

5,000

0

10,000

15,000

D-10 M-11 J-11 S-11 D-11 M-12 'J-12 S-12 D-12 M-13 J-13 S-13 D-13

UNIT VALUE GROWTH (%) VOLUME GROWTH (%) NOMINAL GROWTH (%)

Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13

11 10 10 14 15 16

14 8 7

3 4

-9 -12

-16 -21

-6 -2 -3

14 14

-5

8 6 4

% G

ROW

TH

1 2

-1


From a retail perspective, package size is once again a primary

consideration. When times were tougher, retailers and companies began

offering products in medium-sized packs to provide a price-conscious

option when consumers didn’t have the economic bandwidth to spend

for larger, higher-cost packages. Over the past year, however, consumers

are noticing these options less. From a trend perspective, more and more

consumers are gradually shifting to either larger or smaller sizes—even

when prices for smaller packs are going up.

The fastest-growing categories, even in general trade, are those in the

emerging lifestyle and personal care arena, albeit from a very small base.

The products and services that have seen the highest growth are those that

appeal to younger consumers.

And when it comes to pricing, consumers are very value conscious: the

magic numbers in these categories fall between Rs30 (food and beverage)

and Rs45 (personal care).

SALES VALUE CONTRIBUTION % - NOV ‘13

ALL F&B F&B EXCL. MILK POWDER

PERSONAL CARE HOUSEHOLD CARE

0 - 9

10 -19

20 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 59

60 - 69

70 - 79

80 - 89

90 - 99

100 - 1

24

125 - 149

150 - 174

175 - 199

200 - 224

225 - 249

250 - 274

275 -299

300 - 345

346 - 399

400 - 499

500 - 599

600 - 999

> =1000

0 - 9

10 -19

20 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 59

60 - 69

70 - 79

80 - 89

90 - 99

100 - 1

24

125 - 149

150 - 174

175 - 199

200 - 224

225 - 249

250 - 274

275 -299

300 - 345

346 - 399

400 - 499

500 - 599

600 - 999

> =1000


THE MILLENNIAL OPPORTUNITYWhen we look at demographics across Sri Lanka, as well as other

regions of the world, consumers born in the 1980s and 1990s are

becoming a steadily important group to engage with. These young

adults, born in the reality TV show era, are 3.5 million strong and

represent a portion of the consumer base that will become increasingly

more influential as they grow older.

In addition to being a group with growing spending power, Millennials

tend to be more optimistic than the average consumer. In fact,

consumer confidence in Sri Lanka is highest in this group. They’re also

more likely to spend on themselves when it comes to discretionary

purchases.

GEN Y MORE OPTIMISTIC AND MORE LIKELY TO SPEND ON THEMSELVES

CONSUMER CONFIDENCE INDEX, BY AGE GROUP

25-30 31-35 36-45 46+

80.5 71

75.5 77.5 65.5 67.5

75.5

63.5 65 74

60.5 59

2011 2012 2013


Engaging with Millennials requires different tactics than other

demographics. They are fun-loving, adventurous and usually want to be

want step ahead of their peers. So in that regard they’re always on the

lookout for the brands that are considered the most modern and trendy.

They also love to tell their peers, friends and families about their latest

purchases—whether they be clothing or the latest tech gadgets.

For Millennials, it’s all about lifestyle and convenience, so engaging with

them needs to keep these two prime motivators at the forefront.

SO WHERE ARE THEY SPENDING?

% RESPONSE JAN 2013 – DEC 2013 25-30 31-35 36-45 46+

PUT IT INTO S AVINGS 60 53 42 34

BUY NEW CLOTHES/SHOES 13 7 2 1

RESTAURANTS AND DINING OUT 10 2 1 1

PAYING OFF DEBTS/CREDIT CARDS/LOANS 6 6 4 3

LATEST TECHNOLOGY PRODUCTS 4 2 0 0

GROOMING 1 2 1 0

HAVE NO SPARE CASH 18 39 35 26


A BRIGHTER HORIZON AHEAD?2013 was a year of consolidation. The impact of the corrective measures

taken by the government in 2012 to calm the economic environment

weighed on consumer spending and prevented any meaningful forward

momentum. Now, however, consumers and businesses are cautiously

optimistic, particularly as inflation declines and interest rates for loans

recede. If these trends persist, barring any significant deterioration of

the Sri Lankan rupee, 2014 could open the door to a notable bounce-

back in consumption.

Mobility is a fast-evolving trend for consumers—both on wheels and

in the digital space. Motorbike ownership is on the rise, enhancing

consumer experiences in leisure and shopping, while mobile broadband

expansion is broadening the way consumers interact on the go.

And the robust growth of the branded FMCG market toward the latter

half of 2013 stands to continue improving against a backdrop of

consumer and business optimism. And much of the growth in FMCG

has come from Millennials, a sizable portion of the population that

holds the key to future growth across a number of key sectors that

will need to pace themselves in order to keep up with and engage this

vibrant, young audience.

SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014

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