SRI LANKA 2013 REVIEW AND OPPORTUNITIES IN 2014 - Nielsen
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SRI L ANKA 2013 REVIEW AND OPPORTUNITIES IN 2014 2013 was a period of consolidation in Sri Lanka, marked by ripples from a series of corrective measures in 2012 aimed to chill an overheated economy. The indicators are that the worst could be over. As 2013 came to a close, inflation was heading south and the Sri Lankan rupee was relatively stable, leaving consumers and businesses wondering if 2014 will be the year when confidence begins to ascend—leading to a bounce- back in consumption. As a country, Sri Lanka boasts an impressive per-capita GDP—one that’s bigger than India’s and steadily approaching Indonesia’s. Given the country’s economic footprint, marketers and brands certainly have an opportunity to increase their engagement with consumers—engagement that hinges on understanding their needs and spending habits. 2013 PER CAPITA GDP (US$) INDIA THAILAND SRI LANKA INDONESIA 1,414 5,878 3,127 3,498 Source: International Monetary Fund. 2 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
CONFIDENCE RISING On the heels of several landmark events over the past five years, including President Mahinda Rajapaksa winning a second, six-year term in 2010, sentiment about the future is improving among Sri Lankan consumers and businesses. Both consumer and business confidence are up significantly from their low points, even though there was some vacillation toward the end of 2013. At year-end, consumer confidence was at 68 (up from a recent low of 57 in August 2012) and business confidence was at 130 (up from a recent low of 90 in July 2012). CONSUMER AND BUSINESS CONFIDENCE NIELSEN CONSUMER CONFIDENCE INDEX AND LMD-NIELSEN BUSINESS CONFIDENCE INDEX CCI BCI 173 160 162 158 158 153 154 149 151 147 139 140 140 138 135 135 134 131 129 130 130 125 121 122 119 108 111 105 107 90 85 87 85 77 77 77 77 73 72 65 67 68 64 67 68 63 65 60 58 59 57 59 59 60 62 59 60 62 59 59 JU 12 D 3 D 2 D 1 A 3 A 2 '12 '13 'A 11 '12 JU 3 JU '12 '13 'S 1 JA 2 N 13 2 'N 11 M 3 M 2 '13 '13 '12 M 3 JA 1 M 2 O 3 O 2 'O 11 3 1 1 '1 '1 '1 '1 '1 '1 T'1 1 '1 '1 1 1 1 1 L'1 EC V LY E' G T EP Y' T' B' P' B' P' V R LY V G Y R EC G EC PR N PR N N C O C C U N JU A A SE O SE A O FE A FE U U 'JU A A N BCI Base: 100 per month CCI Base: Rolling Sample of 300 per month Respondents per Month Copyright © 2014 The Nielsen Company 3
THE FUTURE LOOKS BRIGHTER FOR CONSUMERS The improving consumer sentiment, business confidence and growing tourism suggests better times ahead. For consumers, stable rupee growth, lower inflation than in mid-2013 and mild interest rates for loans should be a welcome change and could be a positive for spending trends—amount and frequency—in 2014. The downside risk on the economic front includes a possible trade balance downturn. A trade balance slip could affect the value of the rupee and cause the economy to overheat. BETTER TIMES FOR CONSUMERS IN 2014? QUARTERWISE GDP GROWTH (%) INFLATION % (12 MONTH AVERAGE) GDP GROWTH AGRICULTURE INDUSTRIAL SERVICES MAY 2013 8.9% DEC 2013 6.9% MAY 2012 5.6% 8.3 7.9 7.8 6.4 6.3 6.8 6.0 4.8 JAN '2010 MAR '2010 MAY '2010 JUL '2010 SEP '2010 NOV '2010 JAN '2011 MAR '2011 MAY '2011 JUL '2011 SEP '2011 NOV '2011 JAN '2012 MAR '2012 MAY-'2012 JUL -'2012 SEP-'2012 NOV-'2012 JAN-'2013 MAR-'2013 MAY-'2013 JUL-'2013 SEP-'2013 NOV-'2013 Q4-2011 Q1-2012 Q2-2012 Q3-2012 Q4-2102 Q1-2013 Q2-2013 Q3-2013 EXCHANGE RATE (LKR:USD) COMMERCIAL BANKS AVERAGE INTEREST RATES (%) AVGE WEIGHTED LENDING RATE 135 135 AVGE WEIGHTED DEPOSIT RATE 18 130 130 16 125 125 14 12 120 120 10 115 115 8 110 110 6 JAN/12 JUL/12 JAN/13 JUL/13 JAN/14 OCT DEC FEB APR ; JUN AUG OCT DEC FEB APR ; JUN AUG OCT DEC '11 '11 '12 12 '12 '12 '12 '12 '13 13 '13 '13 '13 '13 4 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
When we take a look at what’s driving the GDP growth, we SOURCES OF GDP GROWTH don’t see any surprises. The sources behind the uptick are SIMILAR IN ‘12 & ‘13 similar to those we saw in 2012 and last year. Agriculture is still stifled, offering very little in terms of growth, mainly due 2012: Q1-Q3 2013: Q1-Q3 to poor weather. Consequently, agriculture contributed only 6.3% 6.9% marginally to overall GDP growth in the last two years. The 0.3% 0.8% positive, however, is that in aggregate, agriculture represents a very small part of the larger GDP picture. The larger contributors, the industrial and services sectors, is where the 2.9% picture is more optimistic. 2.7% HOW ECONOMIC 3.7% TRENDS COULD 2.9% AGRICULTURE INDUSTRY AFFECT CONSUMER SERVICES BEHAVIOR At a granular level, construction delivered more than half of the GDP growth in the last two years, fueled by surges in domestic trade and transport—a trend that should continue. On the flipside, import trade has contributed very little to the equation. For consumers, lower borrowing costs could lead to higher spending on housing and consumer durables. Older consumers who are reliant on fixed incomes, however, will likely trim back on spending as interest rates FOOD EXPENDITURES on their savings and deposits come down. Inflation had dipped below 7 percent at the end of 2013, another level of breathing room for consumers, but fuel hikes and related increases in electricity and transport costs did 25% THAILAND cause a rise in non-food costs last year. Non-food costs aren’t the top concern for Sri Lankans, however. 35% INDIA On average, consumers in the region spent about 40 percent of their household expenditure on food, well above the average of less than 15 11% AUSTRALIA percent for developed countries. Comparatively, food expenditures are 25 percent in Thailand, 35 percent in India, and 11 percent in Australia. Copyright © 2014 The Nielsen Company 5
RURAL & ESTATE CONSUMERS > HIGH FOOD COSTS % OF HOUSEHOLD SPEND ON FOOD 2013 2010 TOTAL SRI LANKA 37 40 URBAN 31 34 RURAL 39 41 ESTATE 50 50 2010: GLOBAL COMPARISONS ON % OF EXPENDITURE ON FOOD 9% 7% 14% 34% 46% 35% 25% 37% 40% 45% 25% 43% 11% Sources: Sri Lanka; DC&S, Housing Income & Expenditure Survey 2013 Other Countries: Economic Research Service, US Department of Agriculture / Euromonitor (2010) 6 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
WHEELS, RICE COOKERS AND TECHNOLOGY Against a backdrop of relative optimism, there are a few areas where consumers in Sri Lanka could direct their disposable income as futures brighten. The first is transportation. Sri Lanka is home to 5 million households that have 4 million vehicles—and climbing. While sales of car, three-wheeler and dual-purpose vehicles (vans) have tapered off in recent years, motorcycles are becoming the transportation of choice. At year-end 2013, there were 2.7 million motorbikes in the region—steadily making them the family vehicle of choice. OVER 4 MILLION VEHICLES FOR 5 MILLION HOUSEHOLDS 45,00,000 40,00,000 35,00,000 TOTAL NO. OF REGISTERED VEHICLES 30,00,000 25,00,000 20,00,000 15,00,000 10,00,000 5,00,000 UNITS 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 JUL-13 MOTOR CARS 3 WHEELERS MOTORBIKES DUAL PURPOSE Source: Registration of Motor Vehicles Copyright © 2014 The Nielsen Company 7
Consumers are also spending more on durables and technology. Sri Lankans are no longer content with outdated items, as many are opting to replace their old televisions and refrigerators with new, efficient models. Technology is also playing a bigger role for consumers these days. In 2013, Sri Lankan households purchased 250,000 new computers and 550,000 new rice cookers. TV & REFRIGERATORS > UPGRADING TO NEW MODELS COMPUTERS, RICE COOKERS > INCREASING PENETRATION PERCENT OF HOUSEHOLDS OWNING SPECIFIED DURABLES TV 96% 97% RADIO 89% 88% REFRIGERATOR 57% % OF HHS OWNING 57% COMPUTER 27% 32% RICE COOKER 48% 59% WASHING MACHINE 13% 2012 14% 2013 Source: Nielsen Consumer Surveys, 2012, 2013 in 9 Provinces, 23 (out of 24 districts) 8 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
The other area where technology is affecting consumer spending is in the digital space. While fixed and mobile voice connectivity is declining or flat, mobile broadband connectivity is growing. As of September 2013, there were 1.2 million mobile broadband connections in Sri Lanka, and the number of accounts is steadily increasing. And where there’s digital growth, there’s increasing Internet penetration. In Sri Lanka, the availability of technology is having a huge impact on Internet use. Between 2012 and 2013, the country’s population of Internet users, aged 15 to 60 years, grew from 2.5 million to 2.8 million, and 2.4 million of them are connecting either daily or weekly. 2.8 M INTERNET USERS (2.4 M DAILY/WEEKLY USERS) FREQUENCY OF INTERNET USAGE (AMONG ALL 15-60 YEAR OLDS) 2012 2013 2.5M 2.5M 2.8M 2.8M INTERNET USERS INTERNET USERS (22% of 15-60 yr olds) (24% of 15-60 yr olds) 17% Daily / Weekly users; 21% Daily / Weekly users; 5% occasional users 3% occasional users 2012 2013 FREQUENCY OF INTERNET USAGE 2013 (% BY AGE GROUP) AGE ALL 15-25 26-35 36-45 46-60 DAILY/WEEKLY/LESS OFTEN 24 47 18 15 7 HOW INTERNET USUALLY ACCESSED 52% 57% 15% SOME USE MULTIPLE DONGLE MOBILE ADSL MEANS OF ACCESS Source: Nielsen Consumer Surveys, 2012, 2013 in 9 Provinces, 23 (out of 24 districts) Copyright © 2014 The Nielsen Company 9
CONSUMPTION OUTLOOK—A REVERSAL OF RECENT TRENDS Given the various factors affecting businesses and consumers in Sri Lanka over the past couple of years, it’s not surprising that fast-moving consumer goods (FMCG) volume was down in 2012. That was a year ago, however, and that downtrend reversed its course in the last two quarters of 2013. So where are the biggest areas of opportunity? The personal care and emerging lifestyle sectors. Despite negative growth in the household care (cleaning products and detergents) area, double-digit growth in personal care item sales has been an offsetting positive. 10 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
MONTHLY AVERAGE GROWTH FMCG MARKET VALUE (RS. MN.) - MONTHLY TRENDS IN TRADITIONAL TRADE 15,000 HOUSEHOLD CARE PERSONAL CARE F&B 10,000 5,000 0 D-10 M-11 J-11 S-11 D-11 M-12 'J-12 S-12 D-12 M-13 J-13 S-13 D-13 QUARTERLY FMCG VALUE GROWTH & SOURCE OF GROWTH (COMPARED TO SAME QUARTER A YEAR AGO) UNIT VALUE GROWTH (%) VOLUME GROWTH (%) NOMINAL GROWTH (%) 14 14 4 3 8 14 15 16 6 11 10 4 10 % GROWTH 14 2 8 7 1 -1 -2 -3 -6 -9 -5 -12 -16 -21 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Source: Nielsen Retail Audit (excl. N&E) Copyright © 2014 The Nielsen Company 11
From a retail perspective, package size is once again a primary consideration. When times were tougher, retailers and companies began offering products in medium-sized packs to provide a price-conscious option when consumers didn’t have the economic bandwidth to spend for larger, higher-cost packages. Over the past year, however, consumers are noticing these options less. From a trend perspective, more and more consumers are gradually shifting to either larger or smaller sizes—even when prices for smaller packs are going up. The fastest-growing categories, even in general trade, are those in the emerging lifestyle and personal care arena, albeit from a very small base. The products and services that have seen the highest growth are those that appeal to younger consumers. And when it comes to pricing, consumers are very value conscious: the magic numbers in these categories fall between Rs30 (food and beverage) and Rs45 (personal care). SALES VALUE CONTRIBUTION % - NOV ‘13 ALL F&B F&B EXCL. MILK POWDER -9 -19 - 24 -2 9 4 -3 5-3 9 4 9 9 9 -4 5-4 0-5 0-6 0-7 9 -8 9 9 - 9 - 12 4 49 174 99 224 49 274 99 345 99 499 599 999 00 0 10 -1 - -1 - -2 - -2 - -3 - - - 10 20 25 30 3 40 4 5 6 7 80 90 100 12 5 15 0 7 5 0 5 0 7 5 0 6 0 0 0 > = 1 20 22 25 2 30 34 40 50 60 PERSONAL CARE HOUSEHOLD CARE 9 9 4 9 9 9 9 9 9 4 9 4 9 4 9 4 9 5 9 9 9 9 -9 -19 - 24 -2 4 -3 5-3 -4 5-4 0-5 0-6 0-7 -8 - 9 - 12 14 - 17 19 22 24 27 29 34 - 39 - 49 - 59 - 99 00 0 0 10 20 25 30 3 40 4 5 6 7 80 90 100 5 - 50 7 5 - 0 - 25 - 50 - 7 5- 0- 6 0 0 0 =1 12 1 1 2 0 2 2 2 30 3 4 40 5 0 6 0 > 12 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
THE MILLENNIAL OPPORTUNIT Y When we look at demographics across Sri Lanka, as well as other regions of the world, consumers born in the 1980s and 1990s are becoming a steadily important group to engage with. These young adults, born in the reality TV show era, are 3.5 million strong and represent a portion of the consumer base that will become increasingly more influential as they grow older. In addition to being a group with growing spending power, Millennials tend to be more optimistic than the average consumer. In fact, consumer confidence in Sri Lanka is highest in this group. They’re also more likely to spend on themselves when it comes to discretionary purchases. GEN Y MORE OPTIMISTIC AND MORE LIKELY TO SPEND ON THEMSELVES CONSUMER CONFIDENCE INDEX, BY AGE GROUP 25-30 31-35 36-45 46+ 80.5 77.5 75.5 75.5 74 71 67.5 65 65.5 63.5 60.5 59 2011 2012 2013 Copyright © 2014 The Nielsen Company 13
SO WHERE ARE THEY SPENDING? % RESPONSE JAN 2013 – DEC 2013 25-30 31-35 36-45 46+ PUT IT INTO S AVINGS 60 53 42 34 BUY NEW CLOTHES/SHOES 13 7 2 1 RESTAURANTS AND DINING OUT 10 2 1 1 PAYING OFF DEBTS/CREDIT CARDS/LOANS 6 6 4 3 LATEST TECHNOLOGY PRODUCTS 4 2 0 0 GROOMING 1 2 1 0 HAVE NO SPARE CASH 18 39 35 26 Engaging with Millennials requires different tactics than other demographics. They are fun-loving, adventurous and usually want to be want step ahead of their peers. So in that regard they’re always on the lookout for the brands that are considered the most modern and trendy. They also love to tell their peers, friends and families about their latest purchases—whether they be clothing or the latest tech gadgets. For Millennials, it’s all about lifestyle and convenience, so engaging with them needs to keep these two prime motivators at the forefront. 14 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
A BRIGHTER HORIZON AHEAD? 2013 was a year of consolidation. The impact of the corrective measures taken by the government in 2012 to calm the economic environment weighed on consumer spending and prevented any meaningful forward momentum. Now, however, consumers and businesses are cautiously optimistic, particularly as inflation declines and interest rates for loans recede. If these trends persist, barring any significant deterioration of the Sri Lankan rupee, 2014 could open the door to a notable bounce- back in consumption. Mobility is a fast-evolving trend for consumers—both on wheels and in the digital space. Motorbike ownership is on the rise, enhancing consumer experiences in leisure and shopping, while mobile broadband expansion is broadening the way consumers interact on the go. And the robust growth of the branded FMCG market toward the latter half of 2013 stands to continue improving against a backdrop of consumer and business optimism. And much of the growth in FMCG has come from Millennials, a sizable portion of the population that holds the key to future growth across a number of key sectors that will need to pace themselves in order to keep up with and engage this vibrant, young audience. Copyright © 2014 The Nielsen Company 15
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. 14/7483 SRI LANKA: 2013 REVIEW AND OPPORTUNITIES IN 2014
Copyright © 2014 The Nielsen Company 17
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