Malaysia is now in what we call the reboot stage of the COVID-19 pandemic. As restrictions have eased and a new post-lockdown normal emerges, we still see changes in consumer/shopper behaviour, as the ripple effect of the pandemic on the economy and consumers continue.
These changing market dynamics present new challenges for retailers and manufacturers. One the one hand, the rise in proximity stores has decreased shelf space. On the other, we find that, despite the large variety of products available in the market, Malaysians tend to buy what they know, especially in food categories. This means that retailers and manufacturers need to be cognizant of their assortment and ensure that the right products are being placed at the right stores, or risk losing sales.
Decreasing store sizes limit assortment
Over the past few years, Malaysia has seen an increase in the number of small format stores, such as convenience stores and minimarkets. At the same time, a number of hypermarkets and supermarkets are reducing the number of stores they have in the market.
But while retail and shelf space is getting smaller, the number of available products in the market continues to grow. And in such a crowded space, more SKUs don’t equal more share. In fact, our data shows that for categories such as infant milk and health food drinks, category sales declined while the number of SKUs increased.
Because manufacturers will continue to innovate in order to satisfy Malaysians’ need for new products and flavours and variants, this overcrowding will continue. Looking at the moving annual total (MAT) in May 2020, 12% of all active SKUs were new products, a slight increase from 10% last year. Unfortunately, close to half of the product innovations launched in 2019 did not see sustained growth, as their sales are declining in the year after launch.
When we deep dive into our retail data, we find that often a minimal number of SKUs contribute to a majority of category sales. In the top five food categories, for example, only 6% of SKUs contribute to 80% of total sales. This tells us that while customers do play the field, they inevitably go back to some of their favourite SKUs when they’re at the shelf.
For non-food categories, variety is more important because shoppers consider more attributes, such as functionality, effectiveness and quality. Just over one in 10 SKUs contribute to 80% of category sales, particularly for self-grooming categories, which tells us that consumers may put in a bit more time and effort when choosing non-food products.
The bottom line is that there is an opportunity for manufacturers and retailers to not only reassess, but simplify their assortment by ensuring that the right product assortment is being implemented in the right stores in order to enjoy incremental sales and achieve profitability.
COVID-19 has rebalanced the FMCG basket
COVID-19 has shifted shopper priorities, which has generated huge demand for products such as hand sanitizer, canned food, frozen food and antibacterial laundry detergent. With health and safety high on shoppers’ priorities, they were also seeking products that emphasised safety and immunity, as well as those that had high nutritional value.
However, the sudden surge in demand for these products during the pandemic resulted in out-of-stocks during the lockdown period, and this led to an increase in brand switching as disloyal Malaysian shoppers were buying whatever was available on the shelf. A study we fielded in May 2020 revealed that 32% of shoppers would not purchase a particular product at all if their desired SKU wasn’t on the shelf. However, 26% said they would go to a different store or buy online, while 30% were willing to switch brands. Only 12% were willing to compromise by purchasing a different size or variant of the same brand.
And in the early days of the lockdown, when out-of-stocks were at its peak, local brands, retailers and e-tailers jumped at the opportunity to meet shoppers’ needs—embracing the rallying cry of kita jaga kita (we take care of us)—and their agility and ingenuity enabled them to rise during this period.
As shoppers’ priorities and spending power continue to change over the course of the next few months, manufacturers and retailers must be cognizant of their needs and adjust assortment accordingly. If the economy continues to contract and unemployment rises, retailers and manufacturers may want to prioritise variants that are value-for-money.
Assess, adjust, measure, repeat
Assortment and price will grow increasingly important in the coming months as consumers adapt to life in the new normal. As such, retailers and manufacturers need to place the shopper at the heart of their assortment strategy.
Retailers should reset shelf space allocated for each category/segment to respond to increased demand for certain products. And as shelf space is limited, some categories will naturally have less allocated shelf space. Manufacturers playing in categories with decreased shelf space will have some tough decisions to make. Listing only high-selling SKUs is not always the winning strategy, as some SKUs are responding to the same shopper demand, and niche SKUs that generate incremental revenue can be left out. It’s not about having the best individual SKUs, but the best team of SKUs.
And while new product launches play a role in keeping a brand fresh, not all new products are successful. It is therefore critical to understand which segment brings incremental growth for the category, and focusing on new launches in those segments.
By constantly reviewing your category performance, you will be able to unearth growth opportunities which will in turn help you make the best assortment decisions to improve the sales and efficiency of your brand and products.