MARKETERS EMPLOY THE ‘TRIPLE-PLAY’ OF PROMOS, PRICES, AND PACK SIZES TO TACKLE INFLATION

By: Roosevelt D'Souza, ED, RMS - Client Solutions, Nielsen

Non-essential food items hit harder than others, as demand for impulse categories stays invigorated

Non-food categories manage to hold their ground as innovation holds the key to combating inflation

India’s rapid economic growth is not without its perils. Rising fuel prices, heated commodity prices and an upward revision of MSP (minimum support price) by the government for agricultural products and other supply-side structural barriers fuelled inflationary pressures in 2010 and have rippled into 2011 as well.

Inflation inches higher

The Consumer Price  Index (CPI) which crossed the double digit mark in Jan of 2010 came down to single digit in August and ended the year on a resurgent note in high single digits attributed mainly to food Inflation.

Thankfully for a portion of Indian consumers wage inflation moved in lockstep with salary hikes in India for 2010 projected to be the highest in the Asia Pacific region. But this annual phenomenon was a temporary respite. In contrast, petrol prices rose thrice last year adding to private and commercial fuel costs. Prices of daily staples like rice, wheat and pulses climbed by 30-50% relative to 2008 prices and sugar prices increased between 76%-125%. Milk prices too increased by 37%, cooking oil became dearer by 10% and fruit and vegetable prices surged in dramatic episodes. That the Indian Consumer felt this was borne out by Nielsen’s Global Consumer Confidence Index in the last quarter of 2010 with Indian Consumers stating increasing food prices as one of their biggest concerns.

Similarly, this echo was also heard at shop counters across India. The annual Shopper Survey conducted by The Nielsen Company indicated that 99% of Modern Trade shoppers acknowledging a rise in prices in 2010 compared to only 54% in 2009.

Despite an inflationary environment, India’s consumer spending on Fast Moving Consumer Goods has been stimulated with the triple-play of aggressive promotional offers, smaller pack sizes and price discounts across categories. The organized FMCG market’s resultant value growth of 13% is attributed to this and has outpaced the underlying volume growth of 8.2%. This indicates a steady and stable demand for branded, packaged fast moving goods.

Table 1: Overview of India’s FMCG Market

Source: The Nielsen Company

Impact on branded, packaged Foods – Essentials vs Impulse

Rising commodity prices have however impacted food categories much more than non-food categories. This is evident from the fact that food categories have grown faster in value terms while volume growth has been relatively slower. In non-food categories however, both value and volume growth has moved in lockstep at around 8% over the last year.

Within Foods, two types of categories were more affected by price increases than others. Non-essential categories like Jam/Jellies, Squash/Cordials saw high value but low volume growth and a slowdown in consumption during 2010 due to steady price increases. They were accompanied by Milk based categories like Butter/Margarine, Milk Powder which saw manufacturers step up prices to protect margins against rising input costs. These early signs indicate that if inflationary pressures don’t ease, discretionary spending on these categories is likely to shrink further. 

Surprisingly, even essential milk-based categories like Baby Cereals and Infant Formula saw volumes stagnate as prices gained momentum. An increased reliance on solid foods and an earlier shift to liquid milk from specially formulated milk/cereals are typical substitutes to combat inflationary pressures.

Other essential categories were not entirely immune to inflation either. Categories like packaged atta (wheat flour) and packaged rice etc also saw volumes grow sluggishly with consumers likely to have temporarily resorted to unbranded alternatives.

Table 2: Performance of essential food categories

Source: The Nielsen Company

Impulse takes on Inflation

Small treats continued to be important to the Indian consumer at a time when inflation cut into bigger items of discretionary expenditure like eating out, out of home entertainment etc. Impulse categories like biscuits, namkeens (salty snacks) chocolates continued to attract consumer purchases. Manufacturer initiatives for these categories drove growth via small packs (small per transaction cost), product innovations (baked alternatives, new consumption occasions and attractive promotions) and increased availability. This bodes well at a time when economic optimism and inflationary pressures appear to be colliding.

Table 3: Performance of Impulse Food categories

Source: The Nielsen Company

Non –Food categories hold their ground – Innovation holds the key to combating inflation

Amongst the top non-food categories like washing powder, shampoo, toilet soap there seems to be no evidence of inflation’s adverse affect as robust topline growth continued unabated. These items have long become a part of the ‘must-buys’ in the consumer basket and remained unaffected overall with possible selective purchase of more cost-effective branded alternatives as well as greater responsiveness to promo offers. The lead players in these categories have also stepped up price activation by using value promotions and re-launching at new price points.

Interestingly, lifestyle/personal grooming categories like hair conditioners, hair dyes, hair remover, liquid soap etc. don’t seem to have been as affected by inflation. Like impulse foods these too serve as a cost-effective indulgence. Baby diapers and sanitary napkins too stayed unaffected with help from the increased availability of small pack sizes and cheaper brand variants for consumers unwilling to compromise their health and well-being.

Interestingly, more ‘external’ manifestations of indulgence and aesthetic expenditure like nail enamels, lipsticks etc. slowed down indicating a temporary adjustment in the purchase basket to accommodate items that have witnessed stronger price growth. Clearly, consumers seem to be differentiating between products that represent ‘caring’ such as conditioners etc and those that are purely cosmetic.

In 2011 we will see a surge in the number of new launches and the brands that innovate in terms of price, pack size and promotional efficacy will garner a greater share of the growth opportunity that India’s consumer market presents.

Table 4: Performance of non-food categories

Source: The Nielsen Company

About Nielsen

Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related properties. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information,please visit www.nielsen.com.

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