Middle India, a region made up of approximately 400 towns each with a population of 1-10 Lac, are home to 100 million Indians and today constitute up to 20 percent of the country’s FMCG consumption. In fact, only the metros and Middle India have outpaced the all-India growth story in the last eight years. Even today, Middle India leads the pack across urban and rural segments for FMCG value growth rates.

Although some companies have partially penetrated the Middle India market, many tend to overlook smaller towns, ignoring the fact that these markets are perhaps easier to penetrate due to relatively sparse competition. Considering the expected growth of population in this area, rise in incomes and aspirations and the expected influx of people from even smaller towns to Middle India, this market is expected to create huge opportunities for marketers in the coming few years.

Why do Middle India cities matter?
These cities are ready to behave like the metros of tomorrow. Of the total INR 1.4 Trillion (280 Billion USD) in FMCG sales in 2010, goods worth about INR 287 Billion (5.74 Billion USD) were consumed by the Middle India population. This number makes up more than 20 percent of the overall FMCG sales, and 30 percent of the urban FMCG sales.

Middle India is also home to 30 percent of all urban stores, comprising over 900,000 million stores today. In addition to this, the annual per capita FMCG consumption of Middle India towns touched INR 2,800 (56 USD), which exceeded the national average by INR 1,600 (32 USD). This is a significant achievement for these smaller towns, considering the fact that the metros breached the INR 2,800 (56 USD) mark as recently as 2009.

Strong and vast market market potential
Out of 81 FMCG categories tracked by Nielsen, 49 product categories across personal care, over-the-counter drugs, household care, and food outgrew the all-India rate. Over 30 categories saw growth rates faster than 1.15 times the all-India rate. The top five fastest growing categories like diapers, scourers, liquid toilet soaps, acne preparations and air fresheners, which fared strongly in the past year, performed even better in 2011, indicating continued possibility of robust growth in the near future.

Interestingly, the focus on hygiene, health, personal grooming and convenience seems to be driving the rapid growth in these towns. Middle India is also accepting evolved categories like breakfast cereals, air fresheners, acne preparations, and liquid toilet soaps. The metros took on to many of these categories in a big way just a few years ago and Middle India does not want to be left out.

These developments bode well for FMCG companies, especially in light of the fact that this market is still in a nascent stage, and is expected to grow substantially in the next five years. The rise in demand for consumer products and relatively lower penetration of FMCG companies in these towns means that competition is not as fierce in these towns as would be in larger metros. A few major players with adequate capital and wide distribution networks are already cashing in on the opportunity. The annual turnover of the top ten FMCG players from the Middle India segment rose more than 42 percent by INR 35.8 Billion (716 Million USD) in just two years between 2009 and 2011.

For more detail and insight, download Nielsen’s Managing the Middle India Gold Rush report.

The strong growth in FMCG sales value in 2010 has continued into the first half of 2011, but this is increasingly being driven by inflation as volume growth has slowed down.

This slowdown has occurred despite the fact that the number of stores available to consumers has expanded. Modern trade stores expanded by some 13 percent in 2010, particularly in the smaller store formats, such as mini-markets and convenience stores. Convenience stores gained significantly in Thailand, Taiwan and Korea while mini-markets/small supermarkets grew strongly in Indonesia and Malaysia as shoppers embraced them as more convenient shopping destinations.  Traditional trade stores held their ground and are still a significant presence in many Asian countries, particularly in rural areas, and will remain so for the foreseeable future.

If inflation continues to remain an issue and the global economic situation deteriorates further, we are likely to see shopper behavior revert back to what it was in 2009.  This could be relatively good news for grocery retailers in developed Asian markets where consumers may cut back on out-of-home expenditures and spend more on eating at home. In these markets we actually saw the strongest volume growth of the decade for groceries in 2009.  In the developing markets, the impact is more likely to be negative as mid and lower income shoppers are forced to cut back spending on non-necessity products.

Whatever happens with the economy in the next 12 months, shoppers’ increased focus on finding a good deal is unlikely to change, as retailers continue to try and win the battle for shopper loyalty by offering them better value. Other trends to watch include:

• The developing markets of Vietnam, Indonesia, China and India will continue to show good growth and will be the primary focus for retailer investment in new operations and store development.

• From a channel perspective, the growth of smaller formats is likely to continue to meet shopper’s needs for convenience although any significant downturn in the economic situation is likely to put pressure on convenience stores with their focus on impulse/non-necessity categories.

• While online sales remain low in most Asian countries, we will continue to see grocery retailers in the region investing in developing their Internet presences, both in terms of selling products and actively communicating and building relationships with their shoppers via social media.

• Strong smart phone growth will also increase the opportunity for retailers to actively interact with a wider shopper audience, and new apps are sure to be an area of innovation over the next few years.

These trends are part of Nielsen’s latest Retail and Shopper Trends Report (Asia Pacific, 2011) which is available upon request.

Nielsen recently did a comparative study across the key countries participating in the CWC using econometric modeling techniques to measure advertising’s impact on sales in select impulse categories (return-on-investment, or ROI). In the analysis, which was conducted in South Africa, India (which co-hosted this year’s tournament), New Zealand, Australia and the U.K., Nielsen found that there was an average sales boost of 3.5 percent, with Indians being the most reactive.

Carbonated soft drinks and potato chips were the biggest gainers overall, although some categories were more popular than others based on locale. India and New Zealand were the two markets with the most reaction to the CWC 2011: in India, there was an average uplift of 25 percent and in New Zealand, 12 percent, in the categories under consideration during the tournament. A large portion of these sales can be attributed to increased media investment and improved efficiency (ROI).

• Soft drinks: Thanks to a 66 percent increase in media spend during the CWC quarter compared to the same period a year prior, sales of sodas grew 10 percent in India, with media contributing 5 percent of total sales. In South Africa, sales rose 6 percent during the CWC.
• Potato chips and salty snacks: New Zealand saw the biggest growth in this category with sales up 11 percent; ROI increased by 8 percent. Indians also ate more crisps, with the category posting a 3 percent sales increase and an ROI rise of 3 points. Indians gobbled up other salty snacks, with the category posting a 38 percent sales increase and the ROI was up 4 points versus the previous year.
• Beer: Denizens down under quaffed more beer during the tournament. In New Zealand, sales rose 8 percent, driven by a 43 percent increase in media spend. Media contributed about 3 percent to sales during this period. Australians bought roughly 6 percent more beer, with ad spending rising 13 percent. In South Africa, media spending rose 65 percent while sales grew 2 percent.
• Chocolate: Sales grew most in New Zealand and India, 24 percent and 22 percent, respectively. In the former, much of this growth can be linked to a surge in ad spending, with some chocolate brands relating themselves to cricket. In India, media had less of an impact, contributing to just 1 percent to sales.

“This research provides clear evidence of the power of advertising during the CWC. With such a huge audience, advertisers can not only reach millions of people around the world and boost brand awareness, but also drive real sales growth. Media proved twice as effective during the event compared to normal advertising. The brands that did the best were those that linked themselves to the game and the event,” said Tom Hall, Marketing ROI Solutions Leader, APMEA & India, Nielsen. “These lessons can help companies determine budgets and identify which categories might see the greatest sales uplift during future global sporting events such as the upcoming Rugby World Cup and the 2012 Olympics.”

Grocery spending is slowing down

More than 70 percent of Russians say the state of their personal finances is bad or not so good, according to Nielsen’s second quarter global online consumer confidence survey. As a result, consumers’ average monthly spend on groceries has slowed. In Moscow, consumers’ average grocery basket spend has slightly decreased, bringing the cash outlay for grocery goods equal to the amount spent St-Petersburg for the first time (~16 thousand Rubles). Consumers dealing with rising costs typically turn to retail channels that can offer better prices, like discounters. But in markets with a high level of competition, such as Moscow and St-Petersburg, discounters have actually started to lose consumer loyalty.

Hypermarkets are gaining back their positions

In 2010, discounters in Russia gained favor with shoppers because of their low price positioning. But today the situation is reversed. According to the Nielsen ShopperTrends 2011 study, hypermarkets are gaining back their positions – both in terms of brand equity, shopper loyalty, and basket size. Shoppers did not perceive discounters’ as providing their key communicated value – best prices for all goods – and started to switch back to hypermarkets where they spend the majority of their monthly grocery budget. Consumer loyalty must be built on trust.

Value – not price – is driving shoppers

Notwithstanding the price sensitivity of cash-strapped consumers, Nielsen’s study shows that low prices are not really the main store choice driver today. Value for money is. Assortment is the second most important driver for store choice. This is especially true in Moscow where getting good quality fresh food in modern trade is more difficult than in the port city of St-Petersburg where fresh-food delivery is not an issue. In St-Petersburg, where the modern trade development, retail concentration and competition is very similar to the European shopping experience, good service and a nice shopping environment are also key store choice drivers.

Shoppers want wider choices and a better experience

The rising number of specialty or niche stores that build assortment on one or two basic product categories, such as bakeries, meat stores, fruit and vegetable stores, and dairy stores are gaining popularity with consumers. The importance of these specialty niche stores will grow as consumers turn to them for better quality, freshness and wider choice. These specialty stores can also turn into an opportunity for the small retailer and owner of impulse kiosks and pavilions who will be affected by the new law banning beer from kiosks after 2012.

War on the shelves

As shoppers make more decisions based on the importance of ‘value for money’ and make decisions more often in-store, competition for consumers’ choice will move to the shelves. Correct price and assortment decisions and effective in-store communications will be vital for retailer and manufacturer success, which is especially true for products where brand power is low.

Promotion pressure is growing

The number of items sold on promotion is growing in each product category and is an effective means to drive basket size. Nielsen reports that 43 percent of survey respondents in Moscow and 54 percent of respondents in St-Petersburg say they seldom change stores based on promotions, but actively look for promotions in stores where they usually shop. Promotions will become an even more important means to drive consumption and market share. Manufacturers and retailers need to make smart promotion decisions and be careful to not over-promote the product category or take too many temporary price reductions. This could lead to devaluation of the brand power in the category, open the gates for private label expansion and potentially decrease the sales potential of the category in the long-run.

Now is the time to drive brand equity

The new wave of consumer pessimism will be a good test for manufacturers’ brand power. This is the time when leaders can get the best of the situation by investing in shopper marketing. At the same time, it is also an opportunity for new brands, including store brands or private labels, which will be able to offer shoppers the value for money they desire.

While South Africans were the most pessimistic in Nielsen’s Middle East, Africa and Pakistan region, the decline in confidence was hardly unique. Global online confidence declined for the first time in six quarters as economic recovery hit a stumbling block and recessionary jitters again reverberated around the world. Consumer confidence in the U.S. fell to its lowest level on record in the second quarter

Roughly two-thirds (66%) of South African survey respondents said that they believed that their country was in a recession. They are also no longer as upbeat about their job prospects; with half believing that employment opportunities were not good – a 3 percent rise from the same period a year ago. Almost half (46%) felt negatively about the state of their personal finances, a 2 point rise from Q1, and 83 percent said that they had adjusted their spending habits to save on household expenses, an 18 percent increase from the previous quarter. Almost a quarter (24%) said they have no spare cash.

The major concerns for South Africans in Q2 2011 are no different from the previous two quarters: increasing food and fuel prices, rising cost of utility bills, job security, debt, the economy and crime. “Rising food prices are taking its toll on consumers worldwide as more and more households are spending a higher proportion of their disposable income to put food on the table, and South Africa is not exempt from this trend,” said Diane Johnstone, Managing Director, Nielsen Southern Africa. “South Africans may have weathered the worst of the storm, but the frugal behavior prevalent in 2010 will continue into 2011 as headwinds to growth persist. As disposable income continues to shrink, consumers are constantly re-adjusting their spending patterns to save on household expenses by cutting-back on non-essential, luxury items and activities.

Retail Landscape
The retail sector was affected by these changing consumer patterns, posting slowing growth in 2010 with majors outgrowing non-majors. Overall sales of fast-moving consumer goods (FMCG) grew 3.3 percent in 2010 compared to last year. By contrast, growth in 2009 was up 14.6 percent from 2008. Price increases accounted for about half of the growth in 2010 compared to almost 82 percent in 2009.

Inflation has been on the rise since the start of the 2010, but while many countries are experiencing skyrocketing prices for basic goods, South Africa has seen some deflation among several staples categories such as rice, corn meal, flour, margarine and tuna. All of this is good news for consumers, who are highly price-driven. Meanwhile, prices for fresh milk, ready-to-eat meals, instant coffee, carbonated soft drinks and sugar all rose. Nonetheless, retailers are increasingly optimistic that volume growth will be promising in 2011.

So where are consumers spending their money if not on food? A review of consumer spending trends over the period 2000 to 2010 shows that of discretionary disposable income, the average consumer spent three percent more on out-of-home entertainment (from 35% in 2000 to 38% in 2010). Meanwhile, communications, which encompasses cellphones, Internet and cable/satellite TV, almost doubled during the decade, from 11 percent of spending in 2000 to 21 percent in 2010.

Modern trade has continued to expand, and now accounts for more than 62 percent of all FMCG trade in South Africa. Nielsen has noted a consistent annual shift of one to two percent of trade moving from traditional channels to modern trade. Branded retailers, such as Shoprite and Pick n Pay, continued to grow at the expense of smaller, independent retailers, which are also being squeezed by wholesalers. Shoppers at branded outlets not only visit them more, but also spend more per trip. Nonetheless,independent retailers continue to have the highest level of market penetration.

While most categories saw overall value and volume declines in the first quarter compared to a year ago, one category stood out for growth on both measures: dry groceries. Comparing trends from Q1 2010 to Q1 2011 tells a slightly different story, however, with several categories (toiletries, dry groceries, perishables and household goods) recording solid growth in both value and volume. Key gainers over the past year include ready-to-eat meals, canned pilchards, instant coffee and toilet tissue. Much of the growth was driven from middle income consumers.

South African retail brands, or private label, currently make up about 11 percent of the market (excluding fresh food), the highest among developing markets, but still below developed markets. Overall share has remained stable, but value-oriented South Africans have taken to retail brands in a number of categories including chicken (38% of category) and dishwashing liquid (36% of category). Most notably, consumers from the higher income levels have turned to retail brands with some enthusiasm, and 60 percent of the retail brand market value comes from these shoppers. Nevertheless, there remains room for significant growth with middle income consumers, provided retailers know what drives the performance of private label brands.

Aside from brick-and-mortar shops, online commerce has taken off in South Africa. Fully 71 percent of the six million Internet users in the country are online shoppers.

Challenges for Retailers
Promotions are a boon to budget-conscious consumers, but present a number of challenges for retailers to overcome. For instance, reaching the consumer is difficult, particularly in a country as diverse as South Africa, where profiles can vary by a few kilometers. National retailers need to manage overall shopper engagement while remaining locally relevant and focused. Meanwhile, competition in the food category is intense, as grocers – branded and independent – are fighting for a larger share of sales. Ready-to-eat meals and in-store solutions are gaining popularity, while liquor, pharmacy, food courts and hardware all continue to grow at a faster pace than the center store.

Executing the ‘growth’ agenda is priority number one for marketers in growth economies like India. Prime amongst the list of charting the roadmap for growth is usually the identification of growth opportunities that are 1) linked to a marketer’s core competency 2) based on a thorough understanding of a consumer segment 3) sustainable enough to generate a return on investment and ensure future earnings.

This is far easier when the ‘points of origin’ are fixed. For instance, companies present in established categories and geographies are usually able to get a fix on the first few steps. The exercise gets much harder when trying to predict which categories and geographies to enter anew or, even with an existing focus, understand where competitive threats might emerge from.

Observing categories that are well developed across market types (urban and rural) but are still growing a healthy clip can offer an early view of what a viable opportunity can look like. More importantly, evaluating their growth rates across existing and emerging areas of consumer demand add greater clarity and comprehensiveness to strategic planning.

A comparative study of categories that are growing in urban and in rural India despite their large and established size reveals a tempting list of opportunities. Not only are these categories well penetrated and therefore ‘here to stay’, they are also gaining greater ground in the Indian hinterland even as they grow in urban India. This mix of maturity and momentum hint that the next surge of growth will most likely reside within these categories and similar counterparts.

Signals of sustainability
As markets expand in terms of breadth and depth, it is not uncommon to see this abetted by a greater distribution push. The search for growth is ably propelled forward by manufacturers and marketers racing to place their brand on shelves in a greater span of geographies and store types to cater to emerging demand and even create it through sheer availability. However, a mere presence of a phase of ‘trial’ by new consumers with easier access to these brands can sometimes be misleading and not always sustainable. A more robust indicator tends to be the rise in ‘per dealer offtake’ or the rise in sales for these products in stores where they were available earlier. Such a rise has been occurring for some categories and this indicates a stronger ‘consumer pull’ with these categories occupying a genuine permanence in the rural shopping basket.

Catalytic causes
A few factors are catalyzing this growth. Nearly a decade ago, Nielsenhad identified the trend of ‘commodity to branding’. This phenomenon appears to have taken root and continues to drive category and market expansion. In addition, consumer trial through “Low Unit Packs” is widening the ambit of these categories and bringing into their fold large numbers of consumers who are increasingly exercising their desire for packaged branded goods as markers of a better, healthier lifestyle. For the “value-vaulters”, the LUP represents value for money, as they are able to flirt with premium or impulse products without a huge outlay. Lastly, geographic presence and the availability of these products in proximal markets now mean faster replenishment cycles that is likely to translate into greater per capita consumption.

Implications for marketing
These paradigm shifts will mean that rural marketing practiceswill no longer be restricted to a specialization – they will become part of mainstream marketing and a necessary criterion for marketing knowledge amongst India’s marketing community.

Today, most FMCG categories (80%) are growing faster in rural as compared to urban India. This growing importance of rural India will also mean that competitors (both regional players and categories with a strong regional franchise) will influence marketing plans. As these categories expand, they will influence the way adjacent categories and emerging alternatives will seek to market themselves.

More importantly perhaps, marketing must undergo a change. Whether it is creating products especially for rural markets; the ascendancy of the shopkeeper as the advocate for brands; or a hectic pace of brand switching as consumers experiment with a widely available and accessible array of choices – every aspect of rural marketing will have to align with the oncoming wave of consumer demand in rural India.

After a year of solid economic growth, Filipino consumers entered 2011 on a high note: GDP in 2010 grew at the fastest rate in 34 years, unemployment declined and inflation rates were under control. But that optimism was dampened by higher prices for fuel and food during the first quarter of the year. While consumer sentiment has started looking up again, consumers in the country are likely to take a closer look at how they spend their money.

With 85 percent of the Philippines’ households falling into the lower income bracket, rising costs for life’s basic necessities have hit hard. Meanwhile, external shocks such as the natural disasters in Japan also dented consumer confidence at the beginning of the year. Despite these concerns, Filipino consumers continued to spend, with sales of fast-moving consumer goods (FMCGs) posting a nine percent increase during the first two months of 2011 compared to the same period last year. While this growth is tempered compared to 2010, these figures are good news for the country as private consumption accounts for 70-80 percent of GDP.

Three Trends Driving Purchasing Behavior

Three emerging trends are playing a role in driving category growth:

• Consumers are gravitating toward “healthy” products
  Filipinos are increasingly trying to stay healthy. As part of this trend they are consuming products that are perceived to be good for you. Products perceived to be healthy are seeing sales grow because they have successfully created “need” states that help protect against such conditions as colon cancer or osteoporosis. High-quality, healthy products will appeal to a clear segment of the market.

• Sachets equal success
  With consumers increasingly focused on value, some FMCG makers have taken to packaging their products in low unit packs and sachets that require a lower cash outlay. The success of powdered beverages and fabric conditioners packaged in such sizes are testament to the popularity of products in sachet-sizes. Innovations in sachets such as multi-chamber sachets and upsized versions are likely to continue to drive the market as these enable cash-strapped consumers to continue enjoying their favorite brands at lower price points. Manufacturers should take caution, though, as offering sachets and low unit packs may result in a “downsize” in the value of the transactions. Manufacturers must also remember that consumers still expect the product to deliver on its brand promise, even at lower price points.

• Convenience is king: Workers, particularly those in the business process outsourcing industry in Philippines, can work odd hours and often have very little time to rest. As a result, ready-to-drink, all-in-one and multi-benefit products that are “instant” and “quick” continue to stir the market. All-in-one products make cooking easier for the time-stressed homemaker and these products have enjoyed solid growth. The strong sales of microwave and instant meals, as well as ready to eat/drink products, are also indications that the convenience trend is here to stay.

The Philippines continues to be a solid market for growth, although the path to success in 2011 may be slightly rockier as consumers take a closer look at where and how they spend their Pesos. Increasingly, marketers with a keen pulse on the evolving needs and innovations that deliver relevant benefits will increase their chances of success.

The first quarter of 2011 started off slowly, with nominal value rising 2.3 percent across Europe, a slight decrease from the fourth quarter of 2010. Volume contracted in several countries – most notably Greece, which saw a six percent decline, followed by Finland (-5%) and Germany (-4%). Switzerland posted the largest drop in unit value, declining five percent during the quarter. Turkey continued to lead Europe in nominal growth, with a 12.4 percent rise, followed by the Czech Republic (+3.5%) and Slovakia (+3.4%). Once again, inflation accounted for much of the growth in unit value sales. The results posted in Q1 were consistent with those from the past two quarters, and are in-line with consumer confidence levels in the region. Europeans continue to feel extremely tentative about the economies in their countries and are reluctant to spend their extra Euros, Kroners and Pounds.

Country Analysis
Twelve of the 21 nations Nielsen tracks recorded growth, although it ranged from 0.9 percent in Finland to 12.4 percent in Turkey. Among the big five economies, France topped the group with 2.7 percent nominal growth, followed by Spain (+2.4%) and the UK (+2.3%). Italy recoded zero growth, while Germany declined four percent.

The Czech Republic and Slovakia continued to recover after several challenging quarters. Ireland, however, which had shown new signs of life at the end of 2010, posted nominal growth of just 1.2 percent due primarily to rising value growth. Irish consumers continue to be quite pessimistic about the economy, the state of their personal finances and job prospects.

• For more detail, download: Nielsen European Growth Reporter Q1 2011

Since the end of 2009, margins have been increasingly squeezed due to a number of factors. First, the hypermarkets have been waging price wars to win shoppers, and three of the top six reasons for shoppers choosing hypermarkets and supermarkets are related to value and promotions. Second, a focus on value among Thai consumers has become a higher priority than before. Nielsen’s most recent Global Consumer Confidence Index found that almost half (47%) of Thai consumers said that they were concerned about their personal finances. More than one-third (37%) said that they were planning on switching to lower price grocery brands, and 87 percent said they react to promotion. Despite this, just 14 percent of Thais spend on promotion compared to the global average of 20 percent – interestingly upper and middle income families spend a higher proportion of their shopping budgets on promotions.

While margin tightening is affecting the overall FMCG sector, not all departments have been seen the same impact. Food, for example, has shown reasonable value growth over the past three quarters, and in Q1, was up 2.8 percent. Beverages have posted some of the highest overall growth over the past year, but in recent quarters, that growth has slowed, although slower volume growth has been accompanied with a value increase of 1.1 percent in Q1. Impulse goods recorded nominal growth of 17 percent in Q1, but value growth accounted for just 0.1 percent of that figure. Household goods showed no value growth at the start of the year and personal care recorded negative growth of 0.5 percent.

So how can FMCG companies counter these trends? There are number of ways above and below the line. In terms of advertising, recent Nielsen research has found that online advertising yields the highest return on investment. TV – while still important – is increasingly expensive and produces diminishing returns at some point. Below the line, tactics such as aisle end-cap displays can boost sales by 27 percent. They key for an FMCG marketer is to know the real financial impact of their promotional spending.

“The FMCG market in Thailand is undergoing a change. After several years of strong value and volume growth, the dynamics have shifted to a situation where volume growth continues to be solid in most categories, but corresponding growth in value is not as easy to find,” said Aaron Cross, Managing Director, Nielsen Thailand.

“Shoppers are the clear winners in the battle for customers, but for manufacturers and suppliers, this situation is not sustainable in the long-term. Suppliers are concerned about pressures on trading terms as well as increasing costs of raw materials and advertising. What’s more, private label goods have a tremendous opportunity to increase share, further complicating the matter for brand manufacturers.”

“It is critical that FMCG companies have an in-depth understanding of how their consumers respond to pricing strategies and as well as the impact promotional spending has. Further, new product launches can play a key role in boosting value and fighting margin erosion – provided they are done right,” said Cross.

Nielsen has observed that successful premium launches exhibit eight key traits:

1. Communicate a clear message: consumers need to understand why the new product is worth a premium price
2. Introduce a genuinely innovative product: True innovations are more likely to be remembered by consumers
3. Strong advertising support: Premium products require more time to communicate their proposition, and significant marketing support is needed to convey their benefits
4. Ensure a premium product experience: It has to deliver on its claims
5. Create a premium product name: The name needs to convey uniqueness, exclusivity
6. Support with premium packaging: The product has to look good on the shelf
7. Gain first mover advantage: Being first and fast delivers real advantages
8. Avoid poor shelf/store location: the most premium product will fail if it is hidden in the corner of the store

It’s a new era in Indonesia: global capital markets have recovered significantly since the financial crisis of 2008, and in 2010 the GDP grew 6.1 percent and GDP per capita hit US$3,000, according to the IMF World Fact Book. If the experiences of China and South Korea are any indication, that income level marks the start of accelerated growth, with strong demand across a range of commercial sectors such as automotive, health, insurance and travel. Manufacturers of fast-moving consumer goods (FMCG) can also expect to experience stronger growth this year; a new retail audit conducted by The Nielsen Company found that industry to be growing at twice the pace of the economy in 2010.

As consumers saw economic conditions improve, they tended to adjust their purchasing habits, increasing their willingness to spend money or becoming more adventurous by buying in categories they had never before considered. Some consumers used products more frequently or “traded up” to more premium versions of products they use.

Upper class consumers seek premium products
Consuming “regular” products is no longer enough for upper-class shoppers, and they are now seeking products that provide them with greater benefit and added value. Nielsen’s home panel reported that household spending for health and lifestyle categories has increased since 2009. As time is also a concern for these consumers, products that provide them with convenience will see growth.

Nielsen observed three categories that experienced growth by answering the needs of the upper class: lifestyle, health and convenience.

1. Hair conditioners: By offering convenience with their leave-on product, manufacturers of hair conditioners saw value sales grow 68 percent in 2010. The “Leave On” variant offers practicality, though the price is more than twice of regular hair conditioner.
2. Liquid Milk: Sales grew 18 percent, with brands promoting health-related benefits such as low/non-fat, added calcium, probiotic qualities and kids nutrition.
3. Toothpaste: Although it is already purchased by nearly all households in Indonesia, the sales value for this category still recorded 10 percent growth, driven mainly by medicated segments which grew 17 percent in 2010. The new variants promise stronger teeth, sensitivity reduction, calcium, anti-bacterial, natural and herbal.

Middle and lower class consumers buy products that are considered premium
As the upper class is seeking more benefits, the middle and lower class consumers are starting to buy products that they used to consider premium. Nielsen observed three categories (Cheese, Frozen Meats and Baby Diapers) that experienced increases in the number of household purchases.

1. Smaller packages of cheese have opened to the mid-lower income segment. The category experienced 13 percent growth in sales value in 2010, with the annual sales value of smaller pack size doubling in 2010.
2. Household spending for frozen fish/meat experienced a 23 percent increase in 2010 among the middle class and 32 percent among the lower class.
3. Diaper single packs posted 93 percent growth in sales in 2010, with the variant providing affordability and convenience to middle-lower consumers.

The growth in these categories was also influenced by other factors, such as driving availability in more outlets and spending more in advertising to increase awareness and drive purchases. Nielsen’s retail audit found that both cheese and baby diapers have increased their availability by expanding the number of outlets in which they could be bought by 17 percent and 9 percent, respectively. Advertising spending in all six of these categories grew at rates higher than 2010 total advertising growth: Hair Conditioner (+22%), Liquid Milk (+52%), Toothpaste (+35%), Cheese (+32%), Frozen Food (+39%) and Diapers (+70%).

To grow in this new era, FMCG manufacturers need to adapt to these changes in consumer behavior by driving:

1. Innovation, by understanding the need-gaps of upper class consumers, especially in area of convenience, health and lifestyle.
2. Accessibility, by understanding purchase behavior of middle to lower class consumers and ensure availability of smaller pack sizes at the right price.
3. Portfolio management, by having the right product portfolio to meet different consumer purchase motivations and providing the right level of support.