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F E AT U R E D I N S I G H T S

DELIVERING CONSUMER CL ARIT Y

ARE BRIGHTER TIMES A H E A D F O R I N D I A S FMCG INDUSTRY?


IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR
BY: SAMEER SHUKLA, DIRECTOR, NIELSEN INDIA

THE FMCG SECTOR IN INDIA HAS BEEN GROWING IN HIGH DOUBLE DIGITS UNTIL 2012, BUT GROWTH HAS SLOWED DOWN IN PAST THREE QUARTERS. FMCG CONSUMPTION HAS CONTRACTED BY 0.5% IN Q3-2013, OVER THE SAME QUARTER OF 2012. THOUGH THERE WAS A GROWTH OF 6% IN VALUE TERMS, ALL OF IT WAS DRIVEN BY UNIT VALUE INCREASES. THE WORST MAY BE OVER FOR INDIAS FMCG INDUSTRY, AS THE MACRO-ECONOMIC SITUATION IMPROVED IN Q3 OF CALENDAR YEAR 2013 LED BY A SHARP PICK-UP IN AGRICULTURE AND A MILD UPTURN IN INDUSTRIAL OUTPUT.
Five years after being entangled in an economic tsunami, the global economy remains fragile. Factors like the collapse of the residential subprime mortgage market in the U.S., the Eurozone crisis and recent anxiety over the U.S. Federal shutdown have plagued markets worldwide, leaving investors desperate for sustained relief.

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Despite the widespread effects of the great recession, Indian economy was resilient during the first half of the five-year meltdown, thanks to strong fundamentals and a healthy consumption appetite. In fact, the Indian economy boasted a 9 percent boost in GDP during its 2007-2011 fiscal years. The last two years, however, have been a different story. In fact, India has been staring down the barrel of a severe economic crunch, as key macroeconomic indicators have slipped perilously. GDP growth has slowed to its lowest pace in the past 10 years, touching 5 percent in 2012-13. It then slipped to 4.4 percent in Q2 of CY 2013. Foreign direct investments (FDI) from companies into the Indian economy have dried up, and Indias Index of Industrial Production (IIP) bottomed at 1.1 percent in 2012-13 - an indication that businessmen arent as confident as they used to be. Indias Current Account Deficit (CAD), which is a ratio of imports to exports, also ballooned in the first three quarters of CY 2013, making it one of the countrys top economic challenges.

MACROECONOMIC INDICATORS UNDER STRESS

14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 -6.0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2.3 -0.3 -1.2 -1 -1.3 8.1 3.8 7.0 3.9 4.2 45 44.3 9.5 9.6 40.2 6.8 9.3 6.2 46 47.4 9.1

13 45.6 48.1 9.5

54 9

54.5

60 50

40 30

8.6 6.7

9.3 6.2 5.0

20 10 -4.7 2009-10 2010-11 2011-12 -3.7 0 2012-13

-2.3

-2.8

-2.7

GDP GROWTH (FACTOR COST; %) CAD (TO GDP;%)


Source: CSO, MoSPI, RBI

CPI (AVG;%) USD TO INR (ABS;AVG)

FEATURED INSIGHTS | IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR

Of all of Indias economic indicators, stability of the countrys currency has been the biggest newsmaker, and not for the right reasons. The Indian rupee depreciated by 25-30 percent in the last two years. When the value of the rupee breached the 68 mark against the U.S. dollar in the first week of September 2013, it was an unprecedented event and further added to the prevailing negative economic sentiment. Indias shrinking GDP also had an effect on the countrys robust consumer and business confidence. Until 2012, India had the highest consumer confidence among the countries included in Nielsens quarterly Consumer Confidence Index. In the last three quarters, however, falling consumer sentiment has negatively affected Indias index level and its overall ranking with the other countries in the index. In Q3 2013, confidence in India plunged six points, pushing India to the third spot, behind Indonesia and Philippines. Compare this with Q4 2012, when India ruled the roost for 32 consecutive quarters.

THE DEPRECIATING RUPEE HAS BEEN THE BIGGEST NEWSMAKER AMONG THE COUNTRYS ECONOMIC INDICATORS, AS THE VALUATION TOUCHED THE 68 MARK AGAINST THE U.S. DOLL AR IN THE 1ST WEEK OF SEP 2013.

CONSUMER CONFIDENCE INDEX TOP 10


%
117 122 124 120 121 118 119 118 121 120 118 112 115 115 114 112 113 108 107 111 108 108 110 110 111 112 110

109

108 107 106

ID

PH

IN

TH

AE

CN

BR

85

HK

89

96 97 103

DK

Q4 2012

Q1 2013

Q2 2013

Q3 2013

Base: All respondents n=33055 Source: Nielsen Global Survey of Consumer Confidence and Spending Intentions, Q3 2013

Declining consumer and business sentiment has not been isolated in Nielsens Consumer Confidence Index. Indices maintained by the National Council of Applied Economic Research (NCAER), Federation of Indian Chambers of Commerce and Industry (FICCI), Dun & Bradstreet and the Confederation of Indian Industry (CII) have also highlighted the declining business confidence in India.

103 107 103 101

MY

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BUSINESS CONFIDENCE INDICES CURRENT LEVEL OF THE INDEX INDEX AS PER PREVIOUS SURVEY INDEX LEVEL ONE YEAR BACK

NCAER - Business Confidence Index Jun 13 114.1 119.7 126.6

FICCI Business Confidence Index J-M 2013 57.4 61.2 60.3

Dun & Bradstreet Business Optimism Index Q1:13 141.6 145.1 147.2

CII Business Confidence Index June13 51.2 51.3 55.0

Source: Various Business Confidence/ Optimism Surveys

IS THE CONSUMER STILL BUYING?


The impact of the macroeconomic stress on the Indian consumer has been significant with the adverse climate affecting discretionary spending on fuel, apparel, holidays and out-of-home entertainment. However, spending on categories like food, at-home entertainment and cigarettes has been largely unaffected, according to Nielsen Global Omnibus Consumer Confidence Survey Q1 2013, India. The downturn has had a significant impact on the automobile, insurance and consumer durable sectors. While spending on life insurance premiums in Q3 2013 was the lowest its been in three years, car sales have been slowing for eight consecutive months. Sales in May 2013 and July 2013 slid 1.9 percent and 2.1 percent respectively, on a year-over-year basis.

CATEGORY SPENDS IN INR L ACS FOR LIFE INSURANCE

26297

24238 19042 14114 10854 7648 6811 11232 8924 3950

13202 8697 8065

AMJ10

JAS10

OND10

JFM11

AMJ11

JAS11

OND11

JFM12

AMJ12

JAS12

OND12

JFM13

AMJ13

Source: moneycontrol.com

SPENDING ON LIFE INSURANCE PREMIUMS IN Q3 2013 WAS THE LOWEST ITS BEEN IN THREE YEARS

FEATURED INSIGHTS | IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR

THE GOING GETS TOUGH


While Indias fast-moving consumer goods (FMCG) industry has been generally immune to the macroeconomic stresses over the past few years, it has started to show signs of giving in. Largely unaffected until October-November 2012, the industrys growth trajectory has dwindled since December 2012. Nielsen retail measurement data suggests that Indias FMCG sector in the first three quarters of 2013 did experience stress, as the FMCG value growth (vs. same quarter of previous year) dipped to a single digit in the third quarter.

FMCG VALUE AND GROWTH TRENDS


600 500 400 300 200 100 0

429

449

466 18

486 17

515 20

528

523

538

552

25 20

18 12 11 6

15 10 5 0

Q311

Q411

Q112

Q212

Q312 Q412

Q113

Q213 Q313

Bars denote FMCG Industry Value (in Bn) and the line depicts the growth rate over same qtr of last year Source: Nielsen

Significantly, Indias volume-based growth, which hovered around 10 percent throughout 2012, has fell in the first three quarters of 2013. So whatever nominal (value) growth that Indias FMCG industry experiences in 2013 is largely due to unit value changea combination of price hike, reduction in unit pack size (viz. 100g to 95g) and consumers shifting to more premium brands.
25 20 15 10 5 0 -5
3.1 16.5 7.5 19.5 15.9 20.2 18.5 18.5 16 9.3 18.2 9.2 8.5 1.9 3.2 4.8 5 6.5 8.5 11.1 9.2 15.3 16 10.9 10.9 9.4 0.3

FOR THE FIRST TIME, VOLUME GROWTH OF INDIAN FMCG INDUSTRY HAS BECOME NEGATIVE IN Q3 13.
20.4

%
20.9 17.5 17.9 11.4 18.3 17 11.5 18.2

9.1

8.2

9.1

12.5 10.5 3.6 2.4 8 5.9 6.4 -5

8.9

8.9

9.1

8.9

10

12

11

-Q

-Q

-Q

-Q

-Q 13

-Q

-Q

-Q

20

20

11-

11-

11-

11-

12

-Q

20

10

12

13

10

10

20

20

20

20

12

20

20

20

20

20

20

20

UNIT VALUE CHANGE


Source: Nielsen

20

VOLUME CHANGE

NOMINAL GROWTH

20

20

13

12

-Q

Copyright 2013 The Nielsen Company

DEEP IMPACT
The 2013 slowdown in Indias FMCG industry has been most severe in South India and in modern trade among channels. The slowdown has affected all population tiers; however, Middle India (Towns with a population of 1-10 lakh) has been hit the worst. The rural market, in spite of its promise, has witnessed a steady decline in FMCG since Q4 2012.

CHANNELS
40 35 30 25 20 15 10 5 0 GROCER/GEN STORE CHEMIST OTHERS MODERN TRADE

Q12 Q212 Q312 Q412 Q113

Q213 Q313

ZONES
40 35 30 25 20 15 10 5 0 NORTH EAST WEST SOUTH

Q12 Q212 Q312 Q412 Q113 Q213 Q313

TOWN CL ASS
40 METRO TC1 30 ROU RURAL 20

10

Q12
Source: Nielsen

Q212 Q312 Q412 Q113 Q213 Q313

FEATURED INSIGHTS | IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR

FOOD FOR THOUGHT


The foods, household and personal care segments have largely driven the slowdown this year. That said, the period of sluggish growth highlighted how some categories were able to fare better than others. For example, demand for impulse categories like salty snacks and chocolates improved, thanks to growing distribution that helped boost 20 percent growth. On the flipside, categories such as biscuits, tea and hot beverages didnt fare as well. The non-food categories have experienced a higher degree of slowdown, and its worth noting that distribution growth in this segment has been almost stagnant. In fact, most of the big overthe-counter (OTC) categories, barring antacids, witnessed shrinkage in distribution, leading to significant softness in growth over the previous year.

SILVER LINING
In spite of the slowdown in Indian FMCG industry in 2013, there are a number of positive factors that FMCG marketers and manufacturers can look forward to. The new Governor of Reserve Bank of India initiated some measures recently that have had a comforting effect on the rupee and equity markets. Also, results of Q3 2013 (CY) indicate an upturn in the overall economic scenario, which was termed to have already touched the nadir. The Indian economy grew at 4.8 percent in the Q3 CY 2013 as compared to 4.4 percent in the previous quarter. An above-normal monsoon this year has lifted agricultural growth to 4.6 per cent in Q3. It is expected that agricultural growth will get a further boost in Q4 as impact of monsoons fully materialises. Higher farm incomes will raise rural incomes and help drive a recovery in private consumption growth, which has already started showing signs of improvements (2.2 percent growth in Q3 as compared to 1.6 percent in the previous quarter). Industry growth has picked up in Q3 to 2.4 percent from a mere 0.2 percent in Q2 13. In Q3, exports grew by a staggering 16.3 percent, benefitting from improving global demand and a weak rupee. At the same time, import growth slowed down to 0.4 percent due to restrictions on gold imports and weak domestic demand. Consequently, CAD situation has improved significantly.

THE SALT Y SNACKS AND CHOCOL ATE CATEGORIES CONTINUED TO GROW SIGNIFICANTLY IN 2013, ON THE BACK OF RAPID DISTRIBUTION EXPANSION.

A 9% INCREASE IN TOTAL FARMED AREA AND A 20%-30% ABOVE-NORMAL MONSOON ARE POSITIVES FOR THE FARMING COMMUNIT Y.

Looking forward, the resilience of Indias economic fundamentals coupled with increasing consumerism displayed by our surging population indeed shows brighter times ahead for FMCG sector.

Copyright 2013 The Nielsen Company

ABOUT THE AUTHOR

SAMEER SHUKLA DIRECTOR, NIELSEN INDIA

Sonika Gupta and Amar Saxena from Nielsen Retail Measurement Services team contributed to this issue of Featured Insights.

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, visit www.nielsen.com. Copyright 2013 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies.

FEATURED INSIGHTS | IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR