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Friday, April 22, 2011

Consumer Buying Habits Change as Indonesia Welcomes a New Era

April 21, 2011
Venu Madhav, Executive Director of Client Leadership, Nielsen Indonesia
It’s a new era in Indonesia: global capital markets have recovered significantly since the financial crisis of 2008, and in 2010 the GDP grew 6.1 percent and GDP per capita hit US$3,000, according to the IMF World Fact Book. If the experiences of China and South Korea are any indication, that income level marks the start of accelerated growth, with strong demand across a range of commercial sectors such as automotive, health, insurance and travel. Manufacturers of fast-moving consumer goods (FMCG) can also expect to experience stronger growth this year; a new retail audit conducted by The Nielsen Company found that industry to be growing at twice the pace of the economy in 2010.

As consumers saw economic conditions improve, they tended to adjust their purchasing habits, increasing their willingness to spend money or becoming more adventurous by buying in categories they had never before considered. Some consumers used products more frequently or “traded up” to more premium versions of products they use.

Upper class consumers seek premium products
Consuming “regular” products is no longer enough for upper-class shoppers, and they are now seeking products that provide them with greater benefit and added value. Nielsen’s home panel reported that household spending for health and lifestyle categories has increased since 2009. As time is also a concern for these consumers, products that provide them with convenience will see growth.

Nielsen observed three categories that experienced growth by answering the needs of the upper class: lifestyle, health and convenience.
  1. Hair conditioners: By offering convenience with their leave-on product, manufacturers of hair conditioners saw value sales grow 68 percent in 2010. The “Leave On” variant offers practicality, though the price is more than twice of regular hair conditioner.
  2. Liquid Milk: Sales grew 18 percent, with brands promoting health-related benefits such as low/non-fat, added calcium, probiotic qualities and kids nutrition.
  3. Toothpaste: Although it is already purchased by nearly all households in Indonesia, the sales value for this category still recorded 10 percent growth, driven mainly by medicated segments which grew 17 percent in 2010. The new variants promise stronger teeth, sensitivity reduction, calcium, anti-bacterial, natural and herbal.
Middle and lower class consumers buy products that are considered premium
As the upper class is seeking more benefits, the middle and lower class consumers are starting to buy products that they used to consider premium. Nielsen observed three categories (Cheese, Frozen Meats and Baby Diapers) that experienced increases in the number of household purchases.
  1. Smaller packages of cheese have opened to the mid-lower income segment. The category experienced 13 percent growth in sales value in 2010, with the annual sales value of smaller pack size doubling in 2010.
  2. Household spending for frozen fish/meat experienced a 23 percent increase in 2010 among the middle class and 32 percent among the lower class.
  3. Diaper single packs posted 93 percent growth in sales in 2010, with the variant providing affordability and convenience to middle-lower consumers.
The growth in these categories was also influenced by other factors, such as driving availability in more outlets and spending more in advertising to increase awareness and drive purchases. Nielsen’s retail audit found that both cheese and baby diapers have increased their availability by expanding the number of outlets in which they could be bought by 17 percent and 9 percent, respectively. Advertising spending in all six of these categories grew at rates higher than 2010 total advertising growth: Hair Conditioner (+22%), Liquid Milk (+52%), Toothpaste (+35%), Cheese (+32%), Frozen Food (+39%) and Diapers (+70%).

To grow in this new era, FMCG manufacturers need to adapt to these changes in consumer behavior by driving:
  1. Innovation, by understanding the need-gaps of upper class consumers, especially in area of convenience, health and lifestyle.
  2. Accessibility, by understanding purchase behavior of middle to lower class consumers and ensure availability of smaller pack sizes at the right price.
  3. Portfolio management, by having the right product portfolio to meet different consumer purchase motivations and providing the right level of support.