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.
3STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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
4 STANDING OUT DURING A SLOWDOWN
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%
5STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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%
6 STANDING OUT DURING A SLOWDOWN
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.
7STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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
8 STANDING OUT DURING A SLOWDOWN
DOWNSIZING TO SMALLER SIZES IN FOOD EVIDENT
BISCUITS OILSALTY SNACKS
SHAMPOO WASHING POWDERTOILET SOAPS
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
9STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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
SHAMPOO WASHING POWDERTOILET SOAPS
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
10 STANDING OUT DURING A SLOWDOWN
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)
11STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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
13STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
WINNING STRATEGIES
14 STANDING OUT DURING A SLOWDOWN
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.
15STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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
16 STANDING OUT DURING A SLOWDOWN
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
17STANDING OUT DURING A SLOWDOWN Copyright © 2014 The Nielsen Company
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%
18 STANDING OUT DURING A SLOWDOWN
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
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and consumer information, television and other media measurement,
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