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.

Inflation is becoming a critical issue in many parts of the world, but, especially in emerging markets such as Indonesia.  But while prices rose 7.9 percent in 2010, household spending increased at an even faster rate – up 19.3 percent in major cities and 18.5 percent in rural Java – making the year a good one for manufacturers of Fast-Moving Consumer Goods (FMCG) in the country.

In major cities such as Jakarta, Bandung, Surabaya, Semarang and Medan, household spending was more than Rp. 3.7 million, up 33 percent from 2007, while in rural Java, spending was more than Rp. 2 million, an increase of 36 percent from 2007.

More Variety = More Spending
Manufacturers have spoiled consumers by offering new products and variants so that consumers can choose different products that are most suited to their needs. This, and intensified marketing activities from manufacturers have driven consumers to try new variants or products and in some cases increased their consumption. Despite spending more overall, shoppers were actually making fewer trips. In the cities, the average shopper made 239 trips in 2010 (-9% from 2007) and spent approximately Rp. 15,800 each trip, an increase of 46 percent from 2007. Meanwhile, consumers in rural Java made 255 visits (-5% from 2007), but spending less than Rp. 10,000. While still low, that figure represents an increase of 41 percent compared to just Rp. 6,300 in 2007.

Instant Shopping Gratification
Consumers in rural Java visited the store 7.5 percent more than the consumers in urban cities because traditional trade channels such as warungs and tokos are usually just next door to their homes. It’s almost effortless to shop. Due to the convenience and proximity of the stories, consumers’ shopping trips happens almost immediately as soon as they need something, so it’s not surprising that spending per trip is only around Rp. 9000. ‘Top-up shopping’ is definitely an emerging trend to watch.

These traditional retail channels remain prominent in Indonesia: 81 percent of rural household spending occurs there, while even in the cities, 52 percent of trade continues to occur there.  The remaining urban households are spending at modern channels such as mini-marts, hypermarkets and supermarkets.

So what are Indonesians buying? In the cities, households are spending on powdered milk while in rural Java, essentials such as cooking oil and instant noodles are key items. Personal care posted the highest growth for 2010 at 20 percent, followed by beverages (18%) and foods (17%).

Jean-Jacques Vandenheede, European Business Insight Director

SUMMARY: Following the positive trends exhibited in the first quarter of 2010, the second quarter was a disappointment. Contributing to the poor results was a technicality: this year, the traditionally busy Easter weekend was part of the first quarter whereas last year it was part of the second. As a result, Q2 growth rates suffered. But beyond this simple calendar issue, economic fundamentals were weak as the Euro debt/Greek crisis dominated the news and reminded shoppers of the need for cautiousness.

This quarter marked the first time that value growth has fallen short of +1% since Nielsen debuted the European Growth Reporter in 2007. Volume growth rates were lower in Q2 than in Q1 in 15 of the 21 markets we monitor, with Hungary, the Czech Republic and Switzerland being the key exceptions.

Despite having the highest consumer confidence in Europe, Norway saw a sharp decline on a quarter-by-quarter basis (from +8.7% nominal value growth in Q1 to -0.9 in Q2). Germany and Italy also played roles in holding down the overall European number, with Germany falling from +1.7% in Q1 to -2.1% in Q2 and Italy dropping from +1.0% to -1.7%.

The East-West divide we saw in Q1 remained in place in Q2. Western Europe, while still posting disappointing results, was fundamentally stronger than Eastern Europe. Rampant inflation persisted in Albania, Bosnia and Ukraine, while volumes continued to decline in Bulgaria, the Baltics, Romania and Russia.

Improvements in the economy have prompted some consumers to make the “large item” purchases such as buying a house or renovating an existing home or buying a car that they may have delayed during the depths of the economic crisis. While they may be slowly opening their wallets for these purchases, they remain skittish about spending on grocery items, continuing to seek out promotions, private label goods and other strategies that increase value for money. We expect this trend to continue until the European consumer is convinced that recovery has firmly taken hold.

Total European View – Q2 2010

Negative Growth Trends

Nominal value growth dropped sharply, decreasing to 0.9% in the second quarter of 2010, a 1.6 percentage point fall from the first quarter of 2010 and a decline of three percentage points from the same period in 2009. Overall, unit value increased 0.8% while volume growth came to a standstill, up 0.1%

Country Analysis – A Europe United by Uncertainty

Turkey continued to show the most significant growth in unit value, increasing 3% since last year and volume grew by 4% here. Slovakia saw solid growth in volume (+4%) although unit value showed no increase whatsoever. Finland showed 2% volume growth, although the country posted the largest unit value decline as a result of significant deflation (a factor that also affected unit values in Ireland, Portugal and Switzerland). Unsurprisingly, Greece showed declines in unit value (-1%) and volume (-4%) as the country’s shaky finances hurt consumer confidence.

While the overall results were poor, there were a few notable standouts. France saw nominal value growth rise by 2.1% compared to the same period last year, with very modest gains in unit value and volume growth (+1% each). The UK posted nominal value growth of 3.2% with gains in unit value (+3%) being seen as modest inflation creeps back into the food sector once again. Volume growth here was (+1%).

About the Nielsen European Growth Reporter
This report compares overall market dynamics (value and unit growth) in the fast moving consumer goods sector across Europe. It is based on the sales tracking Nielsen performs in every European market, and covers sales in grocery, hypermarket, supermarket, discount and convenience channels.

The report is based on the widest possible basket of product categories that are continuously tracked by Nielsen in each of these countries and channels, and this edition reports on week 15 of 2010 through to week 27 of 2010.

Glossary
Nominal value growth: Percentage change in value sales (expenditures) as measured by the total basket of reported product categories i.e., overall value growth.

Unit value growth (price change): Percentage change in the average retail price per unit in the total basket of reported product categories i.e., price inflation/ deflation.

The unit of volume in the basket varies by category (e.g., liters, kilograms, tons etc).

The change in average price per unit may result from:

• Price changes of individual products
• Change in the mix of purchased products; more or less expensive products, more or less promotions, etc.
• Channel switching; more or less purchases in discount stores, or hypermarkets, or convenience outlets, etc.
• Product or channel mix changes may be induced by price change or may just be the result of market dynamics.

The unit value growth reflects how consumers experience ‘cost of living’ in their actual grocery shopping behavior. The volume growth is the percentage change in purchased volume (quantity) of products.

Read the full report on European consumer uncertainty.

Across 114 categories representing more than 99 percent of all department sales Nielsen monitors, six categories had price increases of greater than 15 percent over a year ago.  38 categories had price increases of 0 percent to 4.9 percent, while 11 had price declines. The top five categories with the largest price increases over the course of the year:

• Dry vegetables & grains 25%
• Flour 23%
• Jams, jellies & spreads (including peanut butter) 19%
• Car accessories 19%
• Pet food 16%

Higher commodity prices played a role in all of the food categories, while higher crude oil prices drove increases for motor oil in the car accessory categories.  Meanwhile, the following categories decreased in price:

• Fresh eggs -12%
• Milk -8%
• Candles & Incense -5%
• Light bulbs and telephone accessories -3%
• Non-carbonated soft drinks -3%

In the four week period ended January 24, 2009, unit prices across the store were up 5.5 percent – exactly the same as the 2008 Consumer Price Index calculated by the U.S. government.

“U.S. consumers would certainly benefit from lower prices.  But retailers should be careful with how far they push their manufacturer partners to lower prices. If they simply push for lower prices without planning for the right lower prices, they may find it extremely difficult to grow same-store sales this year,” said Todd Hale, Senior Vice President, Consumer & Shopper Insights at Nielsen.

Read the entire article about pricing trends in the lastest edition of Facts, Figures & the Future here.

Consumer prices in Russia have risen by 10% so far this year, but Nielsen researchers found that most Russians are confident about the country’s job market and their personal finances. 

Of the 1,000 people in Russia surveyed by Nielsen, two-thirds said they were confident they could overcome any hardship in the second half of 2008.  Another 58% of respondents reported having good career opportunities, and 40% said they were confident about their purchasing power.

“Despite a difficult situation with prices, consumption volumes in Russia are not falling,” Ilona Lepp, Client Service Director, Nielsen Russia, told The Guardian.  ”People are not ready to renounce their habits in favor of saving.”

The Vietnam News Agency Bulletin reported Wednesday that the country ranked ninth in Nielsen’s recent survey of global consumer confidence.

The same study showed that Vietnam’s inflation rate climbed to 26.8% in June — compared with a rate of 8.3% a year ago.

“Although inflationary pressure will directly impact consumer behaviour within some product and service categories, mid-to long-term prospects in Vietnam are still very encouraging,” Aaron Cross, Managing Director of Nielsen Vietnam, told the Agency Bulletin.  “Most of our clients in Vietnam continue to enjoy very strong growth and are increasing their investments based on strong consumer demand.”

View Nielsen’s global consumer confidence report.