NAVIGATING THE NEW NORMAL IN EGYPT - … · scaling back on quantities purchased due to the sky...

1 Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute.

Copyright © 2017 The Nielsen Company (US), LLC. Confidential and proprietary. Do not distribute.

WHAT’S AHEAD IN 2017 & BEYOND

NAVIGATING THE

NEW NORMAL IN

EGYPT


The potential of Egypt is undisputed. With one of

the largest North African economy, a substantial

and growing population, political, economic and

social advancement, and most importantly a rising

consuming class, Egypt is poised to offer

businesses opportunities for growth unparalleled in

Emerging Markets around the world.

More recent economic turmoil has adversely

affected Egypt’s outlook and consumer spending

potential, leaving businesses asking the crucial

questions of how to operate amidst the change,

what do consumers need and want, and how

manufacturers and retailers can collaborate to

sustain the diminishing demand.

The new Nielsen report ‘Navigating the New

Normal in Egypt’ provides key insights into how

manufacturers and retailers can prepare their

business for what’s next in Egypt.

Sincerely,

Tamer

WINNING IN

A TIME OF

DISRUPTION

TAMER ELARABY MANAGING DIRECTOR

EGYPT & LEVANT


The end of 2016 heralded a crucial economic overhaul in Egypt, necessitated to

stabilise the economy, encourage foreign direct investment, increase forex reserves,

boost competitiveness and drive more sustainable growth. The flotation of the Egyptian

Pound resulted in acutely felt turmoil and an inevitable surge in inflation which followed

the weaker exchange rate. The high inflationary environment looks set to persist

throughout the year, with minor relief predicted towards the end of the year.

The economic (GDP) growth of 3.4% and investment rating outlook remains steady for

the immediate future, and early indicators show that the economic reform is starting to

yield results, as the currency rebalances after the initial devaluation.

For consumers, however, soaring prices coupled with the three point increase in VAT

and rising fuel prices have exerted extreme pressure on wallets, evident in the weaker

consumer sentiment indicators, and necessitated austere spending measures to cope

with the altered reality.

BUSINESSES FACE THE CONSIDERABLE TASK OF SUSTAINING DIMINISHING

DEMAND WHILE MANAGING MARGIN PRESSURE, REQUIRING RELENTLESS

AGILITY AND ADJUSTMENT.

TURBULENT TIMES WITH PERSISTING HEADWINDS

MACRO ECONOMIC

RESETTLING

ASHRAF BAKRY, UNILEVER MASHREQ MANAGING DIRECTOR

Daily News Egypt July 3rd, 2017

“THE EGYPTIAN ECONOMY HAS

PASSED THROUGH THE MOST

DIFFICULT PHASE, REFORM

DANGERS ARE STARTING TO FADE”


STABLE GROWTH,

PRICE PRESSURE PERSISTS INFLATION WILL TAKE LONGER TO NORMALISE

3.4

5.1

5.6 5.2

3.3 3.3

5.1

4.1

3.6

4.5

3.4 3.4 3.4 3.4 3.6

4.0

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 (f)Q4'17 (f)

GDP GROWTH %

8 7

26

32 32 31

19

8

13

28

42 40

36

27

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17(f)

Q4'17(f)

INFLATION %

CORE FOOD

6.9

7

7.1

6

7.1

6

7.1

2

7.5

4

7.5

4

7.7

4

7.7

4

8.7

9

8.7

9

8.7

9

18.4

1

18.2

0

18.1

5

18.0

0

18.0

0

Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17(f)

Q3'17(f)

Q4'17(f)

EGP | US$ EXCHANGE RATE


IMPROVED OUTLOOK WILL TAKE TIME TO REBUILD

Unsurprisingly, the fiscal actions in quarter 4’2016 contributed to a drop in confidence

as consumers had to adapt their spending habits to cope with the adjusted financial

reality and increased wallet pressure. Confidence levels will take time to recover as the

macro environment factors continue to stabilise in 2017.

DETERIORATING CONFIDENCE INDICATORS % excellent/good and trend (versus prior to change)

PERSONAL FINANCIAL PRESSURE

One of the most revealing indicators is how consumers now view their personal

financial situation as the transformation has penetrated daily life. The proportion of

consumers expressing financial difficulty increased by nearly 20 percentage points to

45% in quarter 1’2017, but this has since eased somewhat with 36% of consumers still

facing severe financial strain in quarter 2’2017. More consumers (57%) now feel they

are able to ‘make ends meet’, compared to the previous two quarters, as they have

modified their spending behaviour.

SUBDUED CONSUMER

SENTIMENT

20%

18%

10%

6%

49%

48%

42%

57%

27%

30%

45%

36%

AVG Q1-3'16

Q4'2016

Q1'2017

Q2'2017

WELL OFF COMFORTABLE MAKE ENDS MEET IN DIFFICULTY

PERSONAL

FINANCES

TIME TO

BUY JOB

PROSPECTS

23% 33% 20% 5 8 13


ECONOMY AND RISING PRICES ARE TOP OF MIND

CONCERNS AND COPING

MECHANISMS

TOP 3 CONCERNS (Q2’2017)

A YEAR AGO THIS YEAR

29% JOB SECURITY 35% ECONOMY

27% ECONOMY 29% RISING FOOD PRICES

16% PARENTS WELFARE 21% JOB SECURITY

COPING MECHANISMS

84% of CONSUMERS

HAVE IMPLEMENTED

HOUSEHOLD SAVING

STRATEGIES

With the substantial change in personal financial

health the majority of consumers indicate that they

have implemented cost cutting tactics to cope with

the increased monetary pressures. The top strategies

include: cutting back on takeaways and spending

less on new clothing (47%), followed by scaling down

on at-home entertainment (43%), saving on gas/

electricity (38%) and delaying technology upgrades

(36%). 34% of consumers also indicated that they

will switch to cheaper grocery brands - the most

significant change in action to manage escalating

household expenses.

Consumers will face ongoing pressure to rebalance and adapt their spending as high

levels of inflation persist throughout 2017. They will look to find efficiency in multiple

ways: discretionary items and activities will be further pressurized and additional

trade-offs will be required, even within essential products, as certain staple items

become more critical than others.

Consumers will adopt different, category-specific tactics from shopping less frequently

to reducing quantities (smaller packs or larger bulk packs if income permits), switching

to cheaper or local brands and looking for better deals and promotions.

MATCHING THE CONSUMER NEEDS AND SHOPPER TACTICS WITH VIABLE

OFFERINGS NECESSITATES FLEXIBILITY AND REINVENTION.

TWICE AS MANY

CONSUMERS WILL

SWITCH TO CHEAPER

GROCERY BRANDS


Growth in spend on a defined basket of Consumer Packaged Goods (CPG) does not

appear to have suffered, however, the reality is that the category mix and shopping

behavior have changed considerably as consumers seek to make ends meet.

Annual retail spend increased by +4% (March 2017), but quantities (items) declined by

-7.7%. Shorter term trends reflect an even more realistic view of the market impact,

with spend climbing by +11% (Q1’2017) and +13.5% (March 2017), versus a year ago.

Item quantities have declined at an escalating rate, -18.6% (Q1’2017) and -19%

(March 2017), underscoring the impact of inflation as consumers are faced paying

‘more for less’.

KNOWLEDGE OF THE TRANSFORMING MARKET DYNAMICS IS

FUNDAMENTAL FOR ADAPTING TO THE CPG DRIVERS OF THE FUTURE.

RESHAPING THE SHOPPING DYNAMICS

NEW RETAIL SPENDING

REALITIES

Modern Trade retail has been hardest hit in recent months with

spend (-0.6%) and volume (-32%) declining ahead of Grocers in

March 2017. Grocers are preferred by 63% of consumers for

fulfilling ‘immediate or top-up needs’ which suits the more

strained wallet, and they have the added advantage of proximity

to home (74%). Modern Trade is favored for promotions (61%)

and pantry stocking purposes (79%), which has become less

common in tougher times.

CONSIDER PACK SIZE, FORMAT AND PRICE FOR MORE

FREQUENT, OCCASION-BASED SHOPPING, WHILE

LEVERAGING STRENGTHS TO ATTRACT SPEND.

4.0% 11.0%

13.5%

7.9% 10.5%

-0.6% 2.9%

11.1% 15.2%

-7.7%

-18.6% -19.0%

-5.9%

-19.6%

-31.8%

-7.4%

-19.0% -19.4%

12%

30% 33%

14%

30% 31%

10%

30% 35%

YEAR Q1'17 MARCH'17 YEAR Q1'17 MARCH'17 YEAR Q1'17 MARCH'17

TOTAL CPG BASKET PERFORMANCE

VALUE GROWTH ITEM GROWTH ITEM INFLATION

TOTAL EGYPT MODERN TRADE GROCERS

DECLINES

PLATEAU

IN GROCERS,

MODERN TRADE

CONTINUES TO

FALL MORE

RAPIDLY


Consumption across all categories has been adversely affected with consumers

scaling back on quantities purchased due to the sky rocketing prices. Declines are

more prevalent in discretionary categories such as Confectionary and Home Care, but

short term declines have escalated in Dairy and Beverages as consumers implement

further scaling back. Shopping is also less enjoyable when consumers cannot spend

as freely – consumers are 10% less likely to deviate outside of the planned trip.

Consumers have implemented a combination of trading down on absolute quantities

purchased and reducing shopping trips, together with looking out for value for money

via smaller pack sizes, cheaper brands and more promotional offers.

INFLATION FUELS INCREASED SPEND

PAYING ‘MORE FOR LESS’

IS THE NEW NORMAL

2X MORE LIKELY TO SCALE BACK ON

SHOPPING TRIPS - 35% SHOP

LESS OFTEN

17% REDUCE

QUANTITIES PURCHASED

1/3 LOOK FOR SMALLER PACK SIZES

TO ACCOMMODATE ALTERED

SPENDING ABILITY

LOOK FOR PROMOTIONS TO

OBTAIN BETTER VALUE

VALUE TREND ITEM VOLUME TREND ITEM INFLATION

QTR MONTH QTR MONTH QTR MONTH

+15.8% +17.5% -18.9% -18.9% 35% 36%

+10.8% +11.1% -14.1% -18.0% 25% 29%

+15.8% +16.3% -10.2% -13.0% 26% 29%

+9.1% +14.3% -21.0% -21% 30% 35%

+9.4% +11.3% -17.0% -17.0% 26% 28%

-3.5% +1.0% -22.1% -19.1% 19% 20%

SPEND CONTRIBUTION

25.8%

12.4%

17.2%

23.1%

14.3%

7.3%

Groceries

Dairy

Beverages

Confectionary

Personal Care

Home Care


Sales in Egypt are highly concentrated in a handful of categories

within the defined CPG basket. The top five selling categories

account for one third of consumer spend and the next five

contribute a further 18% (Q1’2017). Item volume declines for

these 10 categories are slightly less (-17.7%) than the basket

average (-18.6%), with inflation for the top 5 categories contained at lower levels than

the basket average. Categories 11-15 (13% of sales) faced markedly higher item

inflation (41%) resulting in consumers reducing quantities purchased by a greater

extent (-26.4%).

Despite the top 5 categories being less essential than many other food items, in

tougher times these categories often become meal substitute options due to the lower,

per item, price outlay.

CATEGORY TRADING STRATEGIES

WHAT’S IN AND

WHAT’S OUT

CATEGORIES 1-5 (34%) 6-10 (18%) 11-15 (13%) 16-20 (11%) 21-25 (6%)

Soft Drinks,

Juice,

Salty Snacks,

Chocolate,

White Cheese

Tea,

Liquid Milk

Yoghurt,

Diapers

Detergents

Oil,

Meat,

Tuna,

Coffee,

Biscuits

Cakes,

Cheese,

Ghee,

Hair Care,

Toilet Soap/

Shower Gel

Frozen Chicken,

Ice Cream,

Croissants

Skin Care,

Shampoo

THE TOP 5

CATEGORIES

ACCOUNT FOR

34% OF SPEND

With almost no category unaffected by the price increases, the decisions which

consumers must now make are becoming more complex. What is emerging is that

consumers are trading off categories against each other, irrespective of price

increases. Categories are rationalised even when inflation is managed at lower levels,

as consumers make way for categories deemed to be indispensable, and these

categories are not only the essential foods, but also those products and categories

which fulfil a need or role, from a rational or emotional perspective.

Certain categories are also proving to be more resilient to the wallet squeeze, and not

only due to lower inflation levels. Some categories remain in the mix due to necessity

and are more inelastic to price changes.


WHO’S WINNING AND WHY

NICE, NECESSARY

OR NO-GO?

RATIONED RESILIANT

BASKET

AVG 29%

TUNA, BISCUITS, CROISSANTS,

GHEE, ENERGY DRINKS,

BLEACH, TOILET SOAP/SHOWER GEL

DUE TO HIGHER INFLATION

DUE TO NECESSITY MEAT, FROZEN CHICKEN, CEREAL, LABENAH, KETCHUP, MAYO, SOUP POWDER,

MILK POWDER, CREAMERS, NUTS, CANDY, ALL PURPOSE/TOILET CLEANERS, AIR

FRESHENERS, ANTISPETICS, MALE GROOMING

DUE TO LOWER INFLATION TEHINA, CAN BEANS,YOGHURT, ICE

CREAM, SOFT DRINKS, BOTTLE

WATER, HAIR CARE/COLOUR, HAIR

REMOVAL, FEMPRO, WIPES

TEA, COFFEE,

LIQUID MILK,

OIL, CAKES,

INFANT FORMULA

DUE TO NECESSITY

5%

15%

25%

35%

45%

55%

65%

-67% -57% -47% -37% -27% -17% -7% 3%

VO

LU

ME

IN

FL

AT

ION

VOLUME GROWTH

BASKET

AVG -18%

Categories which have been rationed due to higher prices or lower hierarchy of need,

call for more meaningful or disruptive actions in how they can be made available or

attractive to consumers.

INNOVATIVE POSITIONING, PRODUCT, PACKAGING AND PRICING IS NEEDED

TO JUSTIFY RE-ENTRY INTO THE BASKET.


LOCAL LIKELY TO THRIVE

BRAND TRADE-OFF

TACTICS

Consumer trade-off strategies within categories vary. The majority of consumers said

they will move to cheaper, local products in Food and Beverage (40%) and Personal

Care (41%) categories, and one-fifth of consumers will move to local brands. A quarter

of consumers are opting for cheaper imported products, with this even higher for Food

and Beverage (28%) and Personal Care (31%) products. The preferred strategy within

Home Care products is to move to loose products (37%). This is particularly prevalent

in Laundry Detergents, where consumers can now purchase a cupful of detergent

which the retailer has decanted from a branded, bulk or larger pack. Similarly in Dairy

categories, consumers are opting for decanted servings of Ghee, Cheese and Milk to

meet price points.

CONSUMER ACTION – BRAND IMPLICATION

MOVE TO CHEAPER IMPORTED

Opportunity for cheaper imported brands to expand

the ‘Affordable Quality’ and ‘Value for Money’

segments.

Premium imports will need to uphold

superior positioning and quality to

justify higher prices.

MOVE TO LOCAL

Position, communicate and capitalise

on strength of origin,

New openings for home players.

MNC’s to convey when local inputs

(sourcing, production, resource) are

incorporated and promote benefits.

MOVE TO LOOSE

Potential loss of brand awareness

and equity as consumers are unable

to identify brands in decanted servings.

Requires trust in the retailer to provide the

requested brand, and not a cheaper substitute,

as they look to manage their margins.

MOVE TO CHEAPER LOCAL

Opportunity for Private Label growth,

by introducing new products and

serving options.

Clear differentiation required to avoid

brand price wars and overall

category devaluation.

19%

36% 18%

26%

The ‘home-grown’ advantage cannot be under-estimated

as local brands start to prove their worth. While price is the

main driver (86%), a sense of loyalty in support of the local

economy is also emerging, with 33% of consumers stating

patriotism for Egyptian brands, beyond just price.

As conditions have compelled change, consumers have

had to reconsider their brand choice drivers. The risk for

prior brand leaders is that consumers may be less likely to

return to their previous brand of choice, once new equity

has been earned or needs equally well served by local or

cheaper products.

CONSUMERS ARE

DISCOVERING THAT

THEIR NEEDS MAY

BE EQUALLY WELL

SERVED WITH

SUBSTITUTE

PRODUCTS


WAR OR STRATEGY

IS IT ONLY ABOUT THE

PRICE?

Nearly two-thirds (62%) of consumers are shifting to cheaper alternatives based on

lower, absolute price points, for imported and local products. When price is top of

mind, loyalty to brands and stores is at risk, and the challenge becomes maintaining

equity and share in an environment where consumers are forced to consider cheaper

alternatives. In addition to everyday pricing, Egyptian consumers are becoming more

promotion conscious with 31% of consumers actively seeking out promotion.

78% of consumers would like to receive free complimentary products, 73% prefer free

units of the same product and 66% want price off promotions. Promotions do alter

consumers loyalty to brands, 27% of consumers will regularly buy different brands

because of promotions, while only 17% are loyal to brands and will rarely switch

because of promotion.

PROMOTIONAL BEHAVIOUR

While spend in Modern Trade outlets has declined, 61% of shoppers choose this

channel because of the offers and promotions in packaged goods categories, and the

broader portfolio of products.

USE OFFERS AND PROMOTION AS AN ADVANTAGE TO REGAIN FOOTFALL,

AMEND ASSORTMENT FOR ‘IMMEDIATE-NEEDS’ SHOPPING RATHER THAN

PANTRY STOCKING.

17%

15%

41%

27%

RARELY CHANGE BRANDSBASED ON PROMO

ONLY BUY PROMOPRODUCTS IF I LIKE THE

BRAND

ONLY BUY PROMOPRODUCTS IF I KNOW THE

BRAND

REGULARLY BUY DIFFERENTBRANDS BECAUSE OF

PROMO

LOYAL DISLOYAL VARIABLE LOYALTY

MOST LIKELY TO

SWITCH BRANDS

LEAST LIKELY TO

SWITCH BRANDS


PERFORMING IN THE NEW STATUS QUO

NAVIGATING WHAT’S

NEXT IN EGYPT

THE NEW NORMAL WHAT’S NEXT

MANUFACTURERS RETAILERS

PRODUCT

MORE DISCERNING CONSUMERS -

FACED WITH ‘PAYING MORE FOR

LESS’ - RATIONALISE CATEGORIES

AND SWITCH TO CHEAPER, LOCAL

AND LOOSE PRODUCTS.

Diversify/reformat portfolios to

provide flexibility and meet

price points for immediate

needs.

Capitalise on strength of origin.

Premium imports to promote

superior quality as small

luxuries still count.

Evaluate private label ranges

and pack options.

Develop or expand variable

weight offerings.

Formalise consistent on-pack

price labelling and

communication.

SHOPPERS

SHIFTING TO SMALLER, INFORMAL

OUTLETS IN NEAR PROXIMITY,

WITH FEWER TRIPS, IN SEARCH

OF BETTER DEALS.

Match product (format/price) to

place (outlet) with optimal

supply to avoid missing sales.

Determine price elasticity and

volume down-trading drivers to

set everyday and promotional

pricing.

Devise unique engagement

experiences to entice shoppers

to stores.

- add-on services

- broader ranges/price tiers,

- quality guarantees,

- total basket pricing,

- loyalty programs.

RETAIL

TAKES ON A PIVOTAL ROLE

PROVIDING AFFORDABLE,

RE-PURPOSED PRODUCT/ SERVINGS,

TO MATCH CONSUMERS’ ALTERED

NEEDS.

Collaborate with retailers to

sustain falling demand and

preserve brand equity via:

- flexible packaging (bulk,

refillable, branded

containers),

- variable size and format

configurations

Implement cross-category

promotions on strategic

products to regain footfall and

rebuild loyalty.

Deliver value propositions

beyond price to attract and

retain shoppers.

Sentiment is likely to remain subdued throughout 2017, and in the early period of 2018,

as consumers reprioritize and rebalance spend, opting to rather save for future

uncertainties over immediate outlays. Various purchasing tactics are fundamentally

altering the future of the CPG retailing environment as consumers search for greater

efficiency in what, where and how they spend.

Manufacturers and retailers will need to demonstrate ongoing agility, adaptability and

resilience through relentless change and innovation, to match the shifting consumer

needs. Those who are able to retain or regain relevance will be more successful in

weathering the transforming landscape to capture profitable growth.


• Nielsen Global Consumer Confidence and Spending Intentions

survey is conducted quarterly and polls more than 30,000 online

consumers in 60 countries throughout Asia-Pacific, Europe, Latin

America, North America and Middle East and Africa. The sample

has quotas for age and sex for each country based on its internet

users and is weighted to be representative of internet consumers.

• Nielsen Egypt FMCG Pulse dashboard is compiled from the

Nielsen monthly retail audit data, in a defined universe of retail

outlets regularly updated to reflect the most current universe

evolution and channels. Retail trends are representative of a defined

basket of 76 categories across Consumer Packaged Food

(Groceries), Dairy, Beverages, Confectionery, Personal Care and

Home Care. Value is reported in Egyptian Pounds and volume is

reported in items, unless otherwise stated.

• Nielsen Egypt Mood of the Nation survey is conducted quarterly

amongst 1,000 respondents, nationally representative of

demographic, regional and socio-economic groups. Consumers are

surveyed on their lifestyle, attitudes, economic outlook, spending

patterns and media habits.

• Nielsen Egypt Shopper Trends survey is conducted annually

amongst 750 respondents, in the urban centers of Cairo and

Alexandria, representative of demographic and socio-economic

groups. Consumers are surveyed on their shopping trends and

habits.

• Central Bank of Egypt - economic indicators and forecasts

• Trading Economics – economic indicators and forecasts

SOURCES


ABOUT NIELSEN Nielsen Holdings plc (NYSE: NLSN) is a global performance management

company that provides a comprehensive understanding of what consumers

watch and buy. Nielsen’s Watch segment provides media and advertising

clients with Nielsen Total Audience measurement services for all devices on

which content — video, audio and text — is consumed. The Buy segment

offers consumer packaged goods manufacturers and retailers the industry’s

only global view of retail performance measurement. By integrating information

from its Watch and Buy segments and other data sources, Nielsen also

provides its clients with analytics that help improve performance. Nielsen, an

S&P 500 company, has operations in over 100 countries, covering more than

90% of the world’s population.

For more information, visit www.nielsen.com.

NAVIGATING THE NEW NORMAL IN EGYPT - … · scaling back on quantities purchased due to the sky...

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