Consumer Belt-Tightening Impacting Fast-Moving Consumer Goods Sector
South Africa’s fast-moving consumer goods (FMCG) sector is growing, but that’s not because we’re consuming more; it’s because consumers are tightening their belts.
The latest NielsenIQ State of the Nation Report, based on barcode-level information of about 100,000 FMCG products scanned at 10,000 modern trade stores, shows the sector has grown by 13.4%, largely driven by higher prices and not growth in consumption.
The South African FMCG sector (including liquor and tobacco) is worth about R593-billion in annual sales, which is up 13.4% year on year.
The Consumer Price Index (CPI) might have slowed slightly, but NielsenIQ’s consumer panel commercial lead Steve Randall says it is often misunderstood when conducting a robust analysis of the real impact of food price increases.
“Overall, CPI is currently sitting at 6.3% (down from 6.8% in the previous month) and, as a result, people say it is cooling, but food inflation is still sitting much higher at 12.2% and has only started to normalise in April and May of this year.”
Last week, the Competition Commission’s Essential Food Pricing Monitoring Report revealed that overall inflation might have declined marginally, but food price inflation is nearly twice that for other goods and services. The commission has been monitoring price movements of essential foods such as sunflower oil and bread.
NielsenIQ says cooking oil – which increased by 40% over the past year – has experienced the highest annual inflation rate and is the biggest contributor towards overall net FMCG inflation, adding 7.2% to inflation (although it only accounts for less than 2% of total sales).
This massive price increase changed consumption patterns, as seen in a steady decline in purchases as consumers curtailed usage.
Frozen chicken – deemed a complementary product to cooking oil – has also risen in price, driving consumers to cheaper forms of protein such as pork and tinned protein, especially pilchards.
The price of rice has risen by 17.6%.
AP News reports that rice prices are soaring worldwide, with Vietnam’s rice export prices at a 15-year high and India, the world’s largest exporter of rice, banning some rice shipments in July to control domestic prices.
Countries are frantically buying rice as El Niño is expected to create a supply crunch and send prices skyrocketing.
NielsenIQ says that increased promotional intensity, coupled with increased promo-seeking from consumers, is helping to bring down inflation, citing coffee as a category as seeing high inflation (15.5%) due to decreased promotion and higher everyday prices.
Extruded snacks have gone up in price by 14.9% – exacerbated by the fact that they are often impulse purchases and not deemed essentials.
“Where consumers used to be able to buy chips, chocolates and biscuits, they’re now having to spend more on a loaf of bread and other food items and are therefore cutting back on treats,” Randall says.
“When deciding between a pack of biscuits costing R25, a slab of chocolate at R21, chips at R20, and a six-pack of yoghurt at R18, they may well opt for the yoghurt, which represents six snacking occasions, or chips that look larger and are therefore seen as offering more value for money.”
Soft drinks have only gone up by 5.7% — far lower than the average of 10.7% of the other Top 40 products – which NielsenIQ attributes to manufacturers keeping a lid on input costs.