Turnaround In Sight!
2012 February marked a turning point for 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 fast-moving 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.
Achieving Outstanding Growth
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.
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.
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.
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.