FMCG Across the Business Cycle PDF 5MB

FMCG acrossthe business cycle:What, so what and what next?What, so what and what next?

Helen Passingham-HughesEuropanel

Consumer price inflation

Background - Price Inflation – to December 2009Significant in 2008 – now deflation

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Background - Consumer Confidence – to January 2010Lowest ever in late 2008, early 2009 – now some recovery


Consumer Confidence Indicator

2

What does history tell us?


Contractions Shake Consumer out of InertiaBut prior levels are then re-established

0.6

0.65

0.7

0.75

0.8

Consumer Inertia over the Business Cycle


0.4

0.45

0.5

0.55

1993 1995 1997 1999 2001 2003 2005 2007

Contraction -1 Standard Deviation +1 Standard Deviation

4

Don‘t try to price promote...dropping price won‘t save you from a recession. Ehrenberg-Bass - 2008

Advertising and New Product Introduction

Reduction Increase/ No reduction

High loss potential Recession may be opportunityBrand Equity - High

Brands and Recessionary Times?


...recession doesn‘t change the fundamentals of marketing. Stephan Buck/Andrew Roberts – April 1991

Survival game Try to fight back?

Source: Prof. M. Dekimpe – based on published academic papers

Brand Equity - Low

5

Brands and Recessionary Times?


6

� PL growth is systematically related to business cycles

� PL increase in recession not compensated by decline afterwards

� Market behaviour perpetuates this result:

� Brand manufacturers’ behaviour is cyclical

PL growth consistent with previous times of uncertaintyNot easy to get back


� Retailers’ behaviour is countercyclical

7

Data: Belgium 1983-2004USA 1971-2003Germany 1975-2002UK 1980-2003

FMCG in 2008/9 Inflation and/or recession?


Volume

Yr ago %

Global

Inflation the major impact on FMCG

…not recession


Yr ago %

Change

Actuals

W. Europe FMCG

9

Volume

Yr ago %

Change

Global

Volume trend

Food inflation trend

Inflation the major impact on FMCG

…not recession


Change

Trend

10

W. Europe FMCG

15

20

25

30

2008 2009

Growth in FMCG value continuesRemains more important to consumers


-5

0

5

10

Value

% change

11

-5

-2

-8

-24

Value durable goods vs

previous year in %

Durables markets collapse in many European countriesOnly Germany stable


-0.1

-4

-5

-3

-4

-7

-10

-8

-9 -39

-42

-14

-16

-12

-20

-10Quarters 1.-3.2009

12

4

6

8

10

12

2008 2009

Despite inflation and economic conditions, volumes generally upVery resilient


-4

-2

0

2

Volume

% change

13

Spend compared to control group

year 1 year 2 year 3

bread winner

employed

bread winner - fear of

becoming unemployed

Economic hardship impacts some… and the effect is on the change


FMCG value

Value at discounter

Value of private label

10% less

4% more

7% more

14

Inflation the major impact…recovery countries eg France

2

4

6

8C

hang

e %

Inflation (Eurostat)

FMCG Volume Change


-6

-4

-2

0

Cha

nge

%

15

Private LabelThe effect this time


2

4

6

8

2008 2009

Down-trading still important in Europe but has reduced recentlyDeflation also a driver now

Down/Up


-6

-4

-2

0

17

Down/Up

Trading

%

Down

Trading

%

Down-trading in Western Europe

…driven by inflation


Western Europe

18

Actual trend

Pre-2008 trend

Western Europe - Private Label long term growthSteady and continued

Food Inflation


Private Label

Value Shares

Western Europe

19

Food inflation

% vs

yr ago

8

10

12

14

29

30

31

Western Europe – recent Private Label growthInflation impetus and then retained

New trend

Actual trend

Pre-2008 trend

Food Inflation


-2

0

2

4

6

8

25

26

27

28

Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09

20

Private Label

Value Shares

Western Europe

Food inflation

% vs

yr ago

Private Label FMCG

Value Shares

France SpainUK


21

NL Germany Poland

Discounters also gained share above expectation

- prior trend at a new level

Actual trend

Pre-2008 trend

New trend


Discounter

Value Shares

– Western

Europe

22

Discounter FMCG

Value Shares

France SpainUK


23

Germany PolandNL

Shopping behaviour?


0

1

2

3

4

Frequency Basket size Penetration Volume

FMCG volumes impacted by consumer category buying- reduced discretionary buying when inflation was high

Contribution


-4

-3

-2

-1

0To value

% change

France ‘08

25

Promotions are increasing in importance

17.415.3

22.5

11.6

17.1

28.1

32.5

18 16.9

24.4

13.9

18.8

30.2

33.8

2008 2009


26

11.6

France Germany Italy NL Spain UK USA

FMCG – Average number of top retailers visited per quarterGeneral increase in ‘shopping around’ and hence less loyalty to retailers

France SpainNL


200820072006 2009

Big 6 TotalUKGermany

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Inflation has also

impacted usage500 million extra meals

€5 billion less out of home


Back to basics – more

cooking at home, less

going out

extra meals at home

Around 0.6% of FMCG

Anti-cyclical behaviourExamples from Germany


Winners in both crises

19.020.218.8

2001 2003 2008 2009

Recession Recession

Winner and loser brands across economic cycles

Germany


both crises

Losers in both crises

13.5

15.7

17.3

19.017.8

18.8

17.0

30

Market shares

Ad spend

winners

140145

186

Winners act in an anti-cyclical way

Significant increase in advertising

2001 2003 2008 2009


Market shares

winners

Market shares

losers

Ad spend

losers

Source: Nielsen Media Research for ad vertising data

100

116

88

128

93

140

84

115

66 7367

31

140Market shares winners

2001 2003 2008 2009

% of winners with launches

Winners act in an anti-cyclical way

Much more innovation

48 41 53


Source: 20.000er GfK Household Panel ConsumerScan, market shares base value * 2007/2008

100

116

88

128

93

140

84

winners

Market shares losers

% of losers with launches22 38 25

32

Adspend vs Price elasticity - Germany

€8.3m

per brand€12.6m

per brand


40 brandswith highest price

elasticity

40 brandswith lowest price

elasticity

33


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FMCG Across the Business Cycle PDF 5MB

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