featured insights are bright times ahead for for indias fmcg industry

8/13/2019 Featured Insights Are Bright Times Ahead for for Indias FMCG Industry

1/81Copyright 2013 The Nielsen Company

1

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

A R E B R I G H T E R T I M E S

A H E A D F O R I N D I A S

F M C G I N D U S T RY ?IMPACT OF INDIAS ECONOMIC SLOWDOWN

ON THE FMCG SECTOR

BY: SAMEER SHUKLA, DIRECTOR, NIELSEN INDIA

THE FMCG SECTOR IN INDIA HAS BEENGROWING IN HIGH DOUBLE DIGITS UNTIL 2012,

BUT GROWTH HAS SLOWED DOWN IN PASTTHREE QUARTERS.

FMCG CONSUMPTION HAS CONTRACTED BY0.5% 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 ECONOMICSITUATION IMPROVED IN Q3 OF CALENDAR YEAR 2013 LED BY A SHARP PICK UP IN

AGRICULTURE AND A MILD UPTURN ININDUSTRIAL OUTPUT.

Five years after being entangled in an economic tsunami, the globaleconomy remains fragile. Factors like the collapse of the residentialsubprime mortgage market in the U.S., the Eurozone crisis and

recent anxiety over the U.S. Federal shutdown have plagued marketsworldwide, leaving investors desperate for sustained relief.

DELIVERING CONSUMER CLARITY


2/82 FEATURED INSIGHTS IMPACT OF INDIAS ECONOMIC SLOWDOWN ON THE FMCG SECTOR

Despite the widespread effects of the great recession, Indian economywas resilient during the first half of the five-year meltdown, thanks tostrong fundamentals and a healthy consumption appetite. In fact, theIndian economy boasted a 9 percent boost in GDP during its 2007-2011fiscal years.

The last two years, however, have been a different story. In fact, Indiahas been staring down the barrel of a severe economic crunch, as keymacroeconomic indicators have slipped perilously. GDP growth hasslowed to its lowest pace in the past 10 years, touching 5 percent in2012-13. It then slipped to 4.4 percent in Q2 of CY 2013. Foreign directinvestments (FDI) from companies into the Indian economy have driedup, and Indias Index of Industrial Production (IIP) bottomed at 1.1percent in 2012-13 - an indication that businessmen arent as confidentas they used to be. Indias Current Account Deficit (CAD), which is aratio of imports to exports, also ballooned in the first three quarters ofCY 2013, making it one of the countrys top economic challenges.

MACROECONOMIC INDICATORS UNDER STRESS

Source: CSO, MoSPI, RBI

GDP GROWTH FACTOR COST; % CPI AVG;%

CAD TO GDP;% USD TO INR ABS;AVG

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0

10

20

30

40

60

50

2003-04

8.1

2.3

3.8

-0.3-1.2 -1 -1.3

-2.3-2.8 -2.7

-4.7 -3.7

45 44.346 47.4 45.6

48.1

54 54.5

40.2

3.9 4.2

6.8

6.2

9.1

13

9.5

9

8

7.0

9.5

9.6 9.3

6.7

8.6 9.3

6.25.0



Of all of Indias economic indicators, stability of the countrys currencyhas been the biggest newsmaker, and not for the right reasons. TheIndian rupee depreciated by 25-30 percent in the last two years. Whenthe value of the rupee breached the 68 mark against the U.S. dollar inthe 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 robustconsumer and business confidence. Until 2012, India had the highestconsumer confidence among the countries included in Nielsensquarterly Consumer Confidence Index. In the last three quarters,however, falling consumer sentiment has negatively affected Indiasindex level and its overall ranking with the other countries in the index.In Q3 2013, confidence in India plunged six points, pushing India to thethird spot, behind Indonesia and Philippines. Compare this with Q42012, when India ruled the roost for 32 consecutive quarters.

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

CONSUMER CONFIDENCE INDEX TOP 10

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

Q4 2012

%

Q2 2013Q1 2013 Q3 2013

ID PH IN TH AE CN BR HK DK MY

1 2 2

1 2 4

1 2 0

1 1 9

1 1 8 1 2

1

1 1 8 1 2

1

1 2 0

1 1 8

1 1 2 1 1

5 1 1 5

1 1 4

1 1 2

1 1 3

1 0 8

1 0 8

1 0 8 1 1

0 1 1 0

1 0 7 1

1 1 1 1 1

1 1 2

1 1 0

1 0 9

8 5

1 0 8

1 0 7

1 0 6

8 9

9 6 9

7 1 0 3

1 0 3 1 0

7

1 0 3

1 0 1

1 1 7

THE DEPRECIATINGRUPEE HAS BEEN THEBIGGEST NEWSMAKERAMONG THE COUNTRYSECONOMIC INDICATORS,AS THE VALUATIONTOUCHED THE 68 MARKAGAINST THE U.S.DOLLAR IN THE 1ST WEEKOF SEP 2013.



IS THE CONSUMER STILL BUYING?

The impact of the macroeconomic stress on the Indian consumerhas been significant with the adverse climate affecting discretionaryspending 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 GlobalOmnibus Consumer Confidence Survey Q1 2013, India. The downturnhas had a significant impact on the automobile, insurance andconsumer durable sectors. While spending on life insurance premiumsin Q3 2013 was the lowest its been in three years, car sales have beenslowing for eight consecutive months. Sales in May 2013 and July 2013slid 1.9 percent and 2.1 percent respectively, on a year-over-year basis.

SPENDING ON LIFE INSURANCE PREMIUMS IN Q3 2013

WAS THE LOWEST ITS BEEN IN THREE YEARS

BUSINESS CONFIDENCE INDICESNCAER - BusinessConfidence Index

Jun 13

FICCI BusinessConfidence Index

J-M 2013

Dun & BradstreetBusiness Optimism

Index Q1:13

CII BusinessConfidence Index

June13

CURRENT LEVEL OF THE INDEX . . . .

INDEX AS PER PREVIOUS SURVEY . . . .

INDEX LEVEL ONE YEAR BACK . . . .

CATEGORY SPENDS IN INR LACS FOR LIFE INSURANCE

Source: moneycontrol.com

Source: Various Business Confidence/ Optimism Surveys

AMJ10 JAS10 OND10 JFM11 AMJ11 JAS11 OND11 JFM12 AMJ12 JAS12 OND12 JFM13 AMJ13

86978065

13202

26297

7648

10854

14114

24238

6811

11232

8924

19042

3950



THE GOING GETS TOUGH

While Indias fast-moving consumer goods (FMCG) industry has beengenerally immune to the macroeconomic stresses over the past fewyears, it has started to show signs of giving in. Largely unaffected until

October-November 2012, the industrys growth trajectory has dwindledsince December 2012. Nielsen retail measurement data suggests thatIndias FMCG sector in the first three quarters of 2013 did experiencestress, as the FMCG value growth (vs. same quarter of previous year)dipped to a single digit in the third quarter.

Significantly, Indias volume-based growth, which hovered around 10percent throughout 2012, has fell in the first three quarters of 2013. Sowhatever nominal (value) growth that Indias FMCG industry experiencesin 2013 is largely due to unit value changea combination of price hike,reduction in unit pack size (viz. 100g to 95g) and consumers shifting tomore premium brands.

FOR THE FIRST TIME,VOLUME GROWTHOF INDIAN FMCG

INDUSTRY HAS BECOMENEGATIVE IN Q3 13.

FMCG VALUE AND GROWTH TRENDS

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

Source: Nielsen

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 0

- Q 2

2 0 1 0

- Q 3

2 0 1 0

- Q 4

2 0 1 1 -

Q 1

2 0 1 1 -

Q 2

2 0 1 1 -

Q 3

2 0 1 1 -

Q 4

2 0 1 2

- Q 1

2 0 1 2

- Q 2

2 0 1 2

- Q 3

2 0 1 2

- Q 4

2 0 1 3

- Q 1

2 0 1 3

- Q 2

2 0 1 3

- Q 3

-5

0

5

10

15

25

20

16

4.8

10.9

6.5

9.4

8.5

9.1

9.2

8.2

8.9

9.1

9.1

3.6

8.9

-5

6.4

2.4

8

11.5

8.9

0.3

11.1

10.9

5

15.3

3.2

19.5

15.918.5 18.5

20.9

1617.5

11.4

18.317

20.4

18.2

12.5

10.5

5.9

17.9

20.2

18.2

1.9

9.3

9.2

7.5

8.5

16.5

3.1

UNIT VALUE CHANGE VOLUME CHANGE NOMINAL GROWTH

%

Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313

0 0

5

10

15

20

25

100

200

300

400

600

500 429 449 466

528 523 538 552486 515

1817

2018

1211

6



0

5

10

15

25

30

35

40

20

Q 12 Q 212 Q 312 Q 412 Q 113 Q 213 Q 313

Q 12 Q2 12 Q3 12 Q4 12 Q 113 Q2 13 Q3 13

0

5

10

15

25

30

35

40

20

Q 12 Q 212 Q 312 Q 412 Q 113 Q 213 Q 313

0

10

30

40

20

DEEP IMPACT

The 2013 slowdown in Indias FMCG industry has been most severein South India and in modern trade among channels. The slowdownhas affected all population tiers; however, Middle India (Towns with a

population of 1-10 lakh) has been hit the worst. The rural market, in spiteof its promise, has witnessed a steady decline in FMCG since Q4 2012.

CHANNELS

GROCER/GEN STORE

OTHERS

CHEMIST

MODERN TRADE

ZONES

TOWN CLASS

Source: Nielsen

METRO

TC1

ROU

RURAL

NORTH

EASTWEST

SOUTH



FOOD FOR THOUGHT

The foods, household and personal care segments have largely driventhe slowdown this year. That said, the period of sluggish growthhighlighted how some categories were able to fare better than others.

For example, demand for impulse categories like salty snacks andchocolates improved, thanks to growing distribution that helped boost20 percent growth. On the flipside, categories such as biscuits, tea andhot beverages didnt fare as well.

The non-food categories have experienced a higher degree ofslowdown, and its worth noting that distribution growth in thissegment has been almost stagnant. In fact, most of the big over-the-counter (OTC) categories, barring antacids, witnessed shrinkagein distribution, leading to significant softness in growth over theprevious year.

SILVER LINING

In spite of the slowdown in Indian FMCG industry in 2013, there are anumber of positive factors that FMCG marketers and manufacturers canlook forward to. The new Governor of Reserve Bank of India initiatedsome measures recently that have had a comforting effect on the rupeeand equity markets. Also, results of Q3 2013 (CY) indicate an upturnin the overall economic scenario, which was termed to have alreadytouched the nadir.

The Indian economy grew at 4.8 percent in the Q3 CY 2013 ascompared to 4.4 percent in the previous quarter.

An above-normal monsoon this year has lifted agriculturalgrowth to 4.6 per cent in Q3. It is expected that agriculturalgrowth will get a further boost in Q4 as impact of monsoons fullymaterialises.

Higher farm incomes will raise rural incomes and help drive arecovery in private consumption growth, which has already startedshowing signs of improvements (2.2 percent growth in Q3 ascompared to 1.6 percent in the previous quarter).

Industry growth has picked up in Q3 to 2.4 percent from a mere0.2 percent in Q2 13.

In Q3, exports grew by a staggering 16.3 percent, benefitting fromimproving global demand and a weak rupee. At the same time,import growth slowed down to 0.4 percent due to restrictions ongold imports and weak domestic demand. Consequently, CADsituation has improved significantly.

Looking forward, the resilience of Indias economic fundamentalscoupled with increasing consumerism displayed by our surging

population indeed shows brighter times ahead for FMCG sector.

A 9% INCREASEIN TOTALFARMED AREAAND A 20% 30%ABOVE NORMAL

MONSOON AREPOSITIVES FORTHE FARMINGCOMMUNITY.

THE SALTY SNACKS

AND CHOCOLATECATEGORIESCONTINUEDTO GROWSIGNIFICANTLYIN 2013, ON THEBACK OF RAPIDDISTRIBUTIONEXPANSION.


8/8

ABOUT NIELSEN Nielsen Holdings N.V. (NYSE: NLSN) is a global information andmeasurement company with leading market positions in marketingand consumer information, television and other media measurement,online intelligence, mobile measurement, trade shows and relatedproperties. 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. Nielsenand the Nielsen logo are trademarks or registered trademarks ofCZT/ACN Trademarks, L.L.C. Other product and service names aretrademarks or registered trademarks of their respective companies.

SAMEER SHUKLADIRECTOR, NIELSEN INDIA

ABOUT THE AUTHOR

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

featured insights are bright times ahead for for indias fmcg industry

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