As 2018 starts to wind down, economic and consumer spending trends for a majority of markets around the world are in better standing than they were earlier in the year. Confidence on a global scale ended the third quarter two points higher than in the previous period and fast-moving consumer goods (FMCG) sales in many countries are trending upward as a result.
While an array of factors can contribute to economic and spending conditions from market to market, inflation remains a relative constant across many markets—and was behind the modest FMCG sales upticks that some countries reported in the period.
Across Europe, volume sales dipped in just five countries. In North America, both the U.S. and Canada saw a return to modest dollars sales growth, but inflation continues to keep volume sales relatively flat. In Latin America, the economy remains the top concern among consumers, which we see reflected in their spending, as dollar sales dipped quarter-over-quarter. Nevertheless, the region’s economic conditions are better than they were at the start of the year, with nominal FMCG growth in the third quarter of just under 4%. From an economic standpoint, Asia-Pacific stands out globally, as six of the 10 countries in the region boast the highest GDP growth globally. And across Africa-Middle East, the region’s mild economic rebound grew in the recent quarter, suggesting a favorable FMCG outlook for the fourth quarter.
Economic conditions aside, consumers should be the focal point for all consumer product companies. They’re the engines shaping the path to growth, and with much of today’s FMCG growth the result of rising inflation, it’s important for brands and marketers to understand true consumer needs—and meet them across channels and platforms.
Looking for regional- and country-specific insights? Our global Quarter by Numbers series has you covered. These quarterly reports combine macroeconomic data, consumption trends, spending patterns and market commentary to provide brands, manufacturers, businesses, marketers and retailers the insights they need to drive organizational growth.
Here, we look at overarching trends in select countries across our five regions.
FMCG Growth Rebounds in Vietnam Amid a Promising Economic Outlook
Vietnam continues to boast a promising economic outlook, backed by high GDP growth of 6.9% in third-quarter 2018. Consumer confidence is also on the rise across the market, jumping 9 points to an index value of 129, which is 13 points higher than in third-quarter 2017. While sentiment around the U.S.-China trade dispute and what impact it might have on Vietnam’s economy is mixed, optimism is currently quite dominant. And according to a recent CEO survey conducted by KPMG, Vietnam is one of the top places that CEOs in Asia-Pacific look for investment.
From an FMCG perspective, growth rebounded 4.2% in the urban market during the recent quarter, which benefited most super categories. Modern trade continues to post double-digit growth (11.8% in Q3) due to aggressive store expansion, particularly for the convenience and minimart formats. These expansions are being driven largely by local retailers.
Most retailers and suppliers are expecting a good 2019 Tet holiday (Vietnamese New Year), but recent Nielsen research has found that the way Vietnamese consumers shop and during this festive period has changed dramatically in recent years, which could have an impact on businesses that rely heavily on sales during the holiday. On the flipside, it also opens up new opportunities for businesses that understand the shifts and adapt to meet evolving consumer needs.
The rise of modern trade in Vietnam is just one element to the market’s rapidly evolving retail landscape. Market dynamics are growing increasingly complex and new technologies are emerging seemingly overnight. These circumstances present notable challengers for all players, as they need to ensure their business models stay efficient and agile.
The shifting dynamics are creating fragmentation, resulting in changes beyond the conventional formats of traditional and modern trade. E-commerce is growing its presence, as are social commerce and emerging channels like premium and semi-retailers (also known as semi-wholesalers). The resulting landscape presents manufacturers with both challenge and opportunity with respect to managing their distribution systems and trade activities.
In Vietnam’s big cities, the rapid expansion of modern trade is having an impact on consumer behavior. It’s also creating more demand both for new products and new shopping experiences. The traditional trade landscape has not been affected as a whole to date, but there is evidence that the tides are starting to shift and could begin to have an impact if modern trade growth stays on its current trajectory.
In this environment, it’s critical for manufacturers to review the “cost to serve” across the traditional trade channels while identifying the right stores to serve instead of trying to serve them all. E-commerce, including social commerce, is starting to grow, particularly as it grew 100% year-over-year, highlighting that businesses will need to ensure that they are engaging with consumers both on and offline to mirror the consumer’s omnichannel journey.
2019 will bring more excitement to the retail and FMCG markets as Vietnamese consumers become increasingly connected—demanding new shopping and consumption experiences. With that in mind, market participants should be focused on developing innovations and new categories, trading in the “right stores” and ensuring omnichannel strategies to enhance the customer experience.
Economic and FMCG Conditions in Peru Continue to Improve
The Peruvian economy decelerated in the third quarter of 2018, feeling the effect of slowed mining, lower public investment and re-construction projects needed as a result of “El Niño” weather. The slowed growth notwithstanding, Peru’s economic footing remains among the best in Latin America, with third-quarter GDP easily outpacing inflation (3% vs. 1.3%).
Additionally, the Peruvian government has taken steps to increase the country’s political stability while addressing several corruption cases that negatively affected perceptions about the country in the past. These actions have improved optimism among consumers, and Peru reported a consumer confidence index of 102 in the third quarter, its highest point all year and well above the score of 90 for all of Latin America.
The positive sentiment and stable economic stance contributed to a progressive recovery of FMCG shopping baskets, particularly with respect to categories affected by a new tax on sugars that went into effect in May.
The development of new retail formats is also contributing to changes, as they are having an effect on shifting consumer shopping behaviors. This year saw the debut of more than 240 new hard discount stores and 460 convenience stores (versus 260 supermarkets/hypermarkets) that directly compete with traditional stores on affordability and proximity.
All told, manufacturers are facing a market transformation that’s being driven by stores boasting affordable prices, closeness and convenience. The challenge, as a result, is to determine the best assortment, the right price points and attractive value propositions in order to achieve efficiencies in their commercial efforts.
Strong Economic Fundamentals Bode Well for the Swiss FMCG Market
The Swiss economy has performed well in 2018: GDP has increased rapidly over several quarters, employment is on the rise, and consumer sentiment in Switzerland jumped seven points between the second and third quarters, now at an index level of 106.
Reflecting the positive macroeconomic conditions, the Swiss FMCG market continues to grow, rising 1.0% in total value over the last 12 months. Value growth was 1.5% in the third quarter due to price increases, while volume sales contracted -0.6%. The unusually warm weather in the third quarter was a driving force behind positive sales of various categories, notably non-alcoholic beverages and frozen food (ice cream).
Supermarkets, particularly small supermarkets and discounters, profited the most from this growth, while department stores continue to fall out of favor among consumers due to market positioning, strong competition and increased price pressure. The noticeable upturn in the Swiss franc in the wake of increasing international uncertainty over the summer months has further intensified price pressure on cosmetics and other personal and household care categories. This has further contributed to the pressure on department stores.
When looking for areas of growth, we see great growth opportunities for Swiss FMCG products both domestically and abroad. We expect the domestic economy to be strong in 2019, with private consumption likely to make gains. The job market is expected to strengthen further, with a moderate increase in real incomes, which will strengthen households’ purchasing power. Trends such as convenience, sustainability and digitalization are increasingly important and will continue to shape the behavior of today’s shoppers.
For manufacturers and retailers to win in this environment, investing in these trends is integral for future growth. We’re seeing quite a few retailers, particularly discounters, continuing to adapt to these needs, optimizing their assortment, modernizing their shops and investing in communication. Going forward, we see great growth potential for retailers that focus on enjoyable shopper experiences while providing a wide range of fresh food.
FMCG Sales Bounce Back in Canada
FMCG dollar sales in Canada bounced back, posting growth of +2% at the end of the third quarter. That said, however, Canadian shoppers are not increasing household consumption, making organic growth an industry-wide challenge.
Despite the evolving and fragmenting landscape, the various departments throughout the store posted increased dollar sales in the recent quarter.
In addition, consumers are expanding their shopping preferences to less-traditional channels. We’re also seeing more online retailers and subscription services coming to market, creating a more fragmented path to purchase. This translates to greater variety of choices for the consumer, which brings the need to examine growth from different avenues:
- Joint ventures and acquisitions have the potential to bring freshness to an already established company,
- It’s no longer enough to just have an online presence. A customized online experience will go a long way in current market conditions, and
- Innovate to compete with disruptors. Brands need to keep in mind evolving consumer needs, not product offerings.
This is a complex but ever intriguing and evolving marketplace that continues to push manufacturers and retailers forward. Resilience and adaptation to the new consumer will be key to stay relevant and win.
Consumers in Nigeria Maintain a Savings Mindset
Nigeria is experiencing a slow, but steady recovery. According to the latest Nielsen Africa Prospects report, Nigeria reached its best level in three years on the prospects ranking. In third-quarter 2018, however, consumer confidence was slightly dampened. The combined effects of low economic growth, the strain of continued, high inflation and the political climate ahead of the upcoming elections, have led to a drop in consumer confidence of four points to 118.
Wallets remain stretched, with consumers struggling to make ends meet. The opinion around minimum wages being too low has also taken its toll on confidence levels and is reflected in consumers’ spending habits. The waning sentiment means consumers are more cautious, reverting to a savings mindset.
At a total basket level, FMCG spend continues to show value growth, however, the annual growth has slowed from the previous year. Key drivers of this are the shift to smaller pack sizes, including single servings, and the emergence of local, value for money brands. This has bolstered volume growth in the latest two quarters. Evidence of this is clear in the carbonated soft drinks category, where local, value-based manufacturers have launched into the market and have gained share from well-established global giants.
Manufacturers will need to focus on meeting consumer demand through relevant innovation, to ensure that they are able to provide a portfolio of products that matches both the demand and price points that local consumers are looking for.
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