Nielsen Featured Insights_what's in Store for India's Fmcg Market

1WHATS IN STORE FOR INDIAS FMCG MARKET? Copyright 2014 The Nielsen Company

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

W H AT S I N S TO R E F O R O U R F M C G M A R K E T ?

DELIVERING CONSUMER CLARITY

PREDICTING SALES OF FAST-MOVING CONSUMER GOODS IN INDIA

Nielsen predicts that Indias FMCG industry will grow

from$37billionin2013to$49billionin2016.

IndianFMCGindustryexpectedtogrow7%in2014,10%

in2015andabout12%in2016,takingthesales in2016

to$49billion.

Distributiongrowth,innovationsaroundsachetofferings,

employmentratesandindexofindustrialproduction(IIP)

arekeyinfluencersofFMCGsalesinIndia.

Indias FMCG industry is massive. In 2013, 8.4 million outlets served

1.26 billion people and accounted for US$37 billion in sales.

The last three years have been challenging for Indias FMCG industry.

Sales have been affected by a weak economy and high inflation.

Consumer confidence which we found has a strong correlation with

FMCG sales, has also dipped in this period. In more recent months,

however, confidence is rebounding and the sector appears to be one

with perceptible signs of a sustained recovery.

2 WHATS IN STORE FOR INDIAS FMCG MARKET?

23 22

FMCGVALUEGROWTHRATE%

19

2008

22 2017

13 12

2009 2010 2011 2012 2013

U + R URBAN RURAL

THEFMCGINDUSTRYMILIEU

To understand the declining FMCG growth trend and predict how the

future looks like, we must first understand the sales environment. There

are several forces at play that affect the FMCG industry in India.

FORCES AT

PLAY

DEMOGRAPHICPATTERNS

MEDIA(TV)

MACROECONOMIC INDICATORS

FMCG TRENDS &PRODUCT ATTRIBUTES

ENVIRONMENTALINFLUENCERS

IDENTIFYING SALES

DRIVERSQUANTIFYING IMPACT

OF EACH

USING THE DRIVERS

TO FORECAST SALES321


Through multivariate regression modelling and custom forecasting,

Nielsen arrived at drivers-based FMCG forecasts incorporating a

range of influencing variables. This helps in understanding market

dynamics, gain foresight into current and emerging trends and to plan

better.

Nielsen used a three step approach to forecast FMCG sales value.

1. Identify the drivers impacting sales through regression modelling

2. Quantify the impact of each of the drivers

3. Finally, forecast FMCG sales for the next three years using the

identified drivers and their future values

All the above variables were modelled against FMCG sales to attain

sales drivers. Using these drivers and their impact on FMCG, we were

able to forecast sales for 2014 - 2016.

DRIVERSOFFMCGSALES

Overall 8 factors have emerged which play a direct role in influencing

FMCG sales. We have classified these drivers of sales into two

categories: those that marketers can control and those they cannot.

The good news is marketers can directly influence more than half of the

drivers of sales.

AVAILABILITY SACHET OFFERINGS

AWARENESS VALUE PACKS

33% 18% 3% 1%

EMPLOYMENT RATE

20%

INDEX OF INDUSTRIAL

PRODUCTION (IIP)

13%

GDP

7% 5%

CRUDE OIL PRICES

CONTROLLABLE

NOT DIRECTLYCONTROLLABLE

DRIVERSOFFMCGSALES

MARKETERS CAN INFLUENCE 55% OF SALES DRIVERS.


AVAILABILITY

-1.6%

FMCG

-8.1%

AWARENESS

-0.3%

MACRO FACTORS

-2.4%

SACHET

-3.8%

=

+

+

+

MARKETERS CAN INCREASE THEIR SALES THROUGH WELL-PLANNED DISTRIBUTION EXPANSION AND SALES OF SMALLER PACKS

FMCG VALUE GROWTH ON DECLINE: BREAKDOWN

2013 vs. 2009

Given the Indian FMCG consumers preference for traditional trade

outlets and the challenge for marketers in actually reaching the

consumer, its understandable that availability is the biggest driver of

FMCG sales. This is followed by employment rates, which generates

income, and then proliferation of sachets (low volume packs), which

have a low outlay and are easy on the wallet. Sachet packs also play a

strong role in recruiting new buyers and in inducing trials.

USINGSALESDRIVERSTOEXPLAIN

GROWTHONDECLINE

FMCG growth has slowing for some time now, sliding by 8.1% from

2010 to 2013. In a clear indication that sales drivers have played a part in

this decline, a slowdown was seen in the rate of distribution expansion

and the rate of sachet launches during the same period. Admittedly,

weakening macroeconomic variables also contributed to the overall

FMCG slowdown.

Here is a closer look at how some of the drivers affect FMCG sales:

Availability: The slowdown in distribution expansion has held up growth. The distribution expansion in 2013 has slowed down to 1.1%

from a healthy 2.3% in 2010.

Awareness: While the extent of the impact is smaller, yet, the effect of lower television gross rating points (GRP) has affected sales.

Macro factors: Declining FMCG growth seems to be reflective of the Indian economy as a whole. The key macroeconomic indicators have

weakened; GDP slowed from 7.9% in 2009 to 5.7% as of Nov. 12, 2013.

The Index of Industrial Production (IIP) has also plunged from 5.8% in

2009 to 1.7% in November 2013. This has affected the economy and the

consumers purchasing power.

Sachet (Low volume packs): New product launches through sachets have fuelled growth over the years. The growth in the number of low-

volume packs hit 31.1% from 2009 to 2010. The rate then dropped to

10.5% from 2012 to 2013. This drop in sachet innovations has impacted

FMCG growth.

The big question that faces the Indian FMCG industry today is -

Are slower growth rates the new normal for the FMCG sector, or can we dare to expect better days ahead?


AVAILABILITY

+1.4%

FMCG

4.8%

AWARENESS

+0.1%

MACRO FACTORS

+3.3%

=

+

+

2016 vs. 2013

WHATTOEXPECT

The dark clouds of sales growth of the last few years appear to be

clearing. Nielsen expects a steady recovery over the next few years.

While we dont expect growth rates to touch the levels we saw in 2010,

we do expect the numbers to improve.

The primary factors expected to drive a spurt in sales are a stronger GDP

and rise in employment. An increase in the rate of availability through

distribution expansion is also expected to support sales growth.

20%

17%

13%

12%

7%-8

%

10%-

11%

12%-

13%

22%

2009 2010 2011 2012 2013 2014 2015 2016

ACTUAL GROWTH% FORECASTED GROWTH%

FMCGVALUEGROWTHRATE%

Source: Nielsen

STRONGER GDP AND RISE IN EMPLOYMENT ARE PRIMARILY EXPECTED TO DRIVE A SPURT IN SALES AND EFFECT A RECOVERY OVER THE NEXT FEW YEARS

FMCG VALUE GROWTH BREAKDOWN

POSITIVE GROWTH RATE OF MACRO FACTORS AND AVAILABILITY IS EXPECTED TO REVERSE THE TREND OF GROWTH ON DECLINE

Nielsen expects the Indian FMCG sector to touch US$49 billion by 2016.

The early signs of revival include a recovering GDP, a strengthening

economy and higher consumer sentiment about their employment

opportunities.


WHATTHISMEANSFORMARKETERS

While marketers may not have direct control on macro-economic

factors, they do have control on the other marketing variables which

have emerged as key drivers of sales, giving them enough latitude to fuel

brand and their company growth.

DISTRIBUTION REMAINS A PRIORITY:

Distribution expansion emerging on the top of the pile is perhaps

intuitive, but we now know just how important it is. Given that an

overwhelming majority of sales still move through traditional trade,

availability of products in stores will continue to drive sales to a large

extent.

While distribution expansion should remain a priority, equally

important, if not more, is reaching the right stores. A blanket approach

to store expansion might not help; going to stores which matter more

for the respective category and brand, will make all the difference in

maximising returns and growth.

It is well-known that a small proportion of stores account for a large

proportion of sales; hence going to these stores and ensuring presence

and avoiding churn will play a pivotal role.

INNOVATIONS THROUGH SACHETS AND THE RIGHT ASSORTMENT:

Sachets come with a low outlay, and as we have seen from the drivers

of sales, they are integral in driving trial, penetration and sales. Sachets

also help in recruiting new stores as a part of distribution expansion.

This, when combined with the established importance of consumer-

driven innovations, can lead to a potentially promising idea. Marketers

now need to boldly innovate and come out with appealing packs which

are affordable and can get consumers into the fold. Given the economic

environment, affordable low volume packs will play an important role in

driving consumer adoption and sales.

This also points to a larger theme of assortment. Based on our

experience with FMCG and with sales drivers, we have seen assortment

playing a critical role. Sachets/ low volume packs are a part of this

theme and stand out as a key driver given the nature of the Indian

market and purchase dynamics. Therefore, marketers will be better

served by focusing on the broader agenda of getting the right

assortment as well. Going one step further, getting the right assortment

of SKUs in the right stores will make an even bigger impact.

NOT JUST DISTRIBUTION EXPANSION BUT THE RIGHT DISTRIBUTION EXPANSION CAN MAKE ALL THE DIFFERENCE TO GROWTH.

WHILE DRIVING SALES THROUGH LOW VOLUME PACKS AND AFFORDABLE INNOVATIONS WILL NEED TO BE A FOCUS AREA, MARKETERS MUST ALSO KEEP AN EYE ON THE BROADER THEME OF GETTING THE RIGHT ASSORTMENT OF SKUs IN THE RIGHT STORES TO FULFIL VARIED CONSUMER NEEDS.


ABOUT THE AUTHORS

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 and mobile measurement. 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 2014 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.

NITYA BHALLA

EXECUTIVE DIRECTOR

NIELSEN INDIA

Arjun Trehan and Mohammad Zeeshan Alam from Nielsen

Performance Management team were instrumental in the creation of

this issue of Featured Insights.

For more details at a category level, please contact

[email protected] or your Nielsen representative.

A J R VASU

DIRECTOR

NIELSEN INDIA

Nielsen Featured Insights_what's in Store for India's Fmcg Market

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