Global conditions continued to improve for consumers as the year started, with the Confidence Board reporting that confidence hit an all-time high in the first quarter. Consumer sentiment didn’t rise unilaterally, however, as several countries saw dips in consumer confidence, with the largest drops coming from emerging market economies.
From a global perspective, conditions and prospects for the remainder of the year appear largely positive. In the first quarter of the year, confidence grew across Western Europe, the economic recovery in Latin America looks promising in a number of key markets, dollar sales of fast-moving consumer goods (FMCG) in North America performed well, and population growth and growing disposable incomes across Asia-Pacific are having an effect well beyond the immediate region.
The world isn’t without challenge, however. Myriad factors are affecting confidence and FMCG performance across Central and Eastern Europe, including political unrest, new laws and government policies, inflation—even the weather. And while the year looks promising for Africa and the Middle East, 2017 was rife with numerous economic, political and social challenges for the market, which are still fairly close in the rearview mirror.
And regardless of region or current economic conditions, one fact remains consistent for manufacturers and retailers globally: They need to engage with and satisfying young, urbanized and digitally primed consumers.
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.
RUSSIAN ECONOMY IMPROVES; CONSUMERS ARE FOCUSED ON DEBT PAYMENTS
The year started off on the right foot for Russia, as GDP grew 1.3% in the first quarter, according to preliminary figures from the government. Inflation remained stable at 2.2%, real wages increased 9%-10% and retail growth grew 2.2%.
Bank deposits across the market have not increased amid the positive economic conditions, leading economy watchers to conclude that consumers are using the salary growth to pay off debt incurred during the 2015/16 economic downturn.
FMCG volume in the quarter was 1.2% higher than in the same period of last year, stretching the consecutive quarter-on-quarter string of growth to four. Meanwhile, unit value growth was up 1.8%, indicating the emergence of a trend characterized by low volume sales movement and minimal price increases.
With the 2018 FIFA World Cup now underway in Russia, summer promises to be an exciting time in the country. Brands and retailers across the FMCG spectrum should benefit from the event, especially those with strategies in place to engage with the million-plus tourists that are expected to visit for the games.
In addition to soccer, this summer welcomes voluntary food labelling regulations that will be rolled out for packaging to indicate levels of salt, sugar, fatty acids, etc. Although this new labelling might not seem groundbreaking, it will help consumers to more easily assess food products and should lead to increased sales of healthier food choices. It’s also worth noting that Russian consumers are already very attentive to freshness and natural ingredients in food. Notably, 89% of shoppers say they read packaging information before buying products.
Finally, we expect the sales of seasonal categories like carbonated soft drinks, ice cream and iced tea to bounce back mid-year after slumping during last year’s especially cold summer. But to maximize growth, players in this space will still need to need to ensure they have the right combination of relevant product offerings, targeted distribution and informed pricing strategies.
CHILE’S GDP IS AT ITS HIGHEST LEVEL IN FIVE YEARS
Like that of Russia, Chile’s economy continued its impressive trajectory in the first quarter, as the country posted one of its highest GDP growth levels since 2013. The strong economic backdrop was predominantly driven by rising copper prices and increased domestic demand. These two factors have set the foundation for a very strong outlook moving forward.
Consumer optimism remained high in the opening quarter, largely due to recent presidential elections, but it did drop slightly from the end of 2017. Confidence in future job prospects remained strong by many, but job security is still the top concern cited by Chileans.
After four quarters of successive volume compression in Chile, FMCG sales showed signs of recovery: volume sales grew 1.1% in the first quarter, driven by supermarket promotions. Many companies, however, still have large trade inventories that they are working to reduce while concurrently focusing on total probability.
Like Russia, Chile is facing new labeling and ad laws. In Chile, these laws, which target non-healthy categories and aim to fight against obesity, commence in June. Touted as very ambitious, these new laws will certainly have an effect on sales of categories that are considered unhealthy.
The retail environment in Chile offers many opportunities for manufacturers and retailers to tailor their offering to meet the evolving needs of its consumers, and the openness in the market is evident. For example, we’ve been tracking a resurgence in “ferias,” or street markets, across Chile. These operations are broadening choice and creating new opportunities in informal channel sales.
There are many avenues across Chile for companies to pursue growth and stay ahead of the curve:
- Vary pack sizes to cater to different shopping needs
- Leverage data to create innovative in-store promotions
- Develop omnichannel commerce strategies
- Revisit pricing to lure consumers back to traditional trade
Companies need to stay abreast of the changing environment and what the future landscape will look like to ensure their offerings fit the evolving consumer base.
FMCG GROWTH IN CANADA HITS 12-MONTH HIGH
In Canada, the year started off well as FMCG dollar and volume growth increased in the first quarter—actually the most growth we’ve seen in over a year.
Easter was a key contributor to the increase, as the holiday—and its sales—fell in the first quarter of the year, compared with last year, when the holiday benefit affected second-quarter sales. This year, consumers increased their spend an average of 7% during Easter week, making it the third-most-important holiday for FMCG sales, coming in behind Christmas and Thanksgiving.
Looking ahead, value remains a key motivator among shoppers, as private-label growth continues to outpace national brand. Additionally, discount retail formats continue to win over the consumers’ share of wallet.
At the store level, the need for health and wellness remains prevalent in consumers’ minds, offering tremendous opportunity for innovation and growth. We anticipate that the disruption in retail will continue to offer challenges to the industry. Consequently, manufacturers and retailers will need to embrace and understand consumer preferences to meet demands. That will lead to better product decision making and more targeted innovation.
PHILIPPINES REMAINS ONE OF ASIA-PACIFIC’S FASTEST-GROWING ECONOMIES
In the Asia-Pacific, The Philippines continues to maintain one of the fastest-growing economies, as it posted GDP growth of 6.8% in the first quarter of 2018—the 10th consecutive quarter in which the country has posted GDP growth above 6.5%.
Industry, services and government spending drove growth, easily offsetting sluggish performance from agriculture, growing inflation and a notable trade deficit. The buoyant economy and high consumer confidence bolstered FMCG performance, as total value growth increased 7.5% from the prior year. Additionally, the growth was almost entirely due to inflation-driven price increases.
New excise taxes under the Tax Reform for Acceleration and Inclusion (TRAIN) Act were applied to cigarettes, sugary drinks, oil products and vehicles on Jan. 1, 2018. The increased costs are already being passed onto the consumer. In the first quarter, local convenience stores raised their prices by an average of 13.8% for six sugar-based categories, according to Nielsen retail data. The impact was immediate, with sales volume for the six categories declining by an average of 7.8% in these stores.
Prices for these same six categories went up more in supermarkets, rising an average of 16.5%. As a result, channel sales fell by 8.1%. With the price hikes, it was no surprise that beverages recorded the slowest first-quarter growth (2.8%) of all FMCG categories. With more tax reforms to be implemented, FMCG players will need to closely monitor how consumers react and will need to test strategies to maximize growth in the evolving retail environment.
Across the retail landscape, small-store formats are now the fastest FMCG growth channel, posting growth of 9.5% in the first quarter. Within the broader channel, convenience stores lead the way, growing 24.6%. To stay competitive, supermarkets are expanding through small format stores. The rise of this channel is attributed to urbanization and evolving lifestyles where consumers are increasingly seeking convenience and ways to save time.
INDICATIONS IN SOUTH AFRICA POINT TO CONTINUED RECOVERY
Economic and consumer indications in South Africa point to continued recovery throughout 2018. Inflation levels are at a seven-year low, annualized GDP growth is at its highest level in two years, and the South African consumer is finally experiencing the benefits.
All three indicators of consumer confidence (job prospects, personal finances, and time to buy) posted significant recovery in the first quarter, culminating in the biggest quarterly increase in consumer confidence (+15 points), to reach the highest index level (95) in over 10 years. While this level may reflect much of the initial euphoria due to the leadership changes in first-quarter 2018, it signifies a shifting outlook for the South African consumer, who is finally feeling the injection of positive sentiment in the market.
The stronger confidence is translating into spend, as South African consumers are finally able to put more into their baskets. Spending on health products continues to grow as consumers remain focused on wellbeing (a global trend). That said, however, confectionery and beverage spend grew ahead of inflation, indicating consumers’ willingness to spend on more discretionary, feel good items.
While South African consumers are still likely to remain cautious, the recent signs point to a more optimistic outlook for the future. Additional taxes (VAT, beverages, sugar taxes) in the second quarter are likely to dampen spending in certain categories, as consumers will need to rebalance their allocation of spend.
For additional insights, download the lite, global version of our Q1 2018 Quarter By Numbers report.
Clients interested in the Q1 2018 Quarter by Numbers reports should contact their local Nielsen representative.
Non-clients interested in the Q1 2018 Quarter by Numbers reports can purchase them from our e-commerce site (direct links below):