NIELSEN | Australian manufacturers need to think hard about where and how they are going to place their bets in 2018. We are a market that has collectively become accustomed to high growth. At the turn of the century (2000-2009), the industry enjoyed 6-7% dollar growth; while this decade recorded 3-4% average growth. Today, we are facing a different reality. In 2017, grocery dollar growth hit 1.3% – the lowest in two decades.
There is no denying we are in a deflationary environment. The key to unlocking future growth is to think small. Companies that are agile, entrepreneurial, and can think fast and outside the square with innovative and ‘edgy’ initiatives can succeed in this new low-growth environment.
DISRUPTIVE RETAIL LANDSCAPE
In 2017, the e-commerce channel was the standout performer. Dollar sales increased by 24% versus 2016, accounting for 45% of the total market growth. Around the world, Nielsen predicts that online FMCG will grow four-times faster than offline over the next five years, and we expect Australia to continue this trend.
However, while online shopping might win when it comes to convenience; price and online experience will be the key differentiators driving the future performance of online retailers. Amazon may well shake things up in the pricing arena if it follows overseas trends where up to 65% of its items are priced more competitively than other major online players. While over in the U.S., the game has lifted in the online experience with different e-commerce players introducing initiatives including the option to have products delivered inside your home or car, voice ordering and faster shipping (Amazon is currently working on a 2-minute pickup!).
BREAKING OUR PRICING ADDICTION
In a low growth environment, we often look to price for the quick win. The Australian experience has been no different. In the past decade, we have seen the percent of products sold on promotion increase to 40%, making Australia one of the most highly promoted countries in the world.
In deflationary environments, our instinctive response lever has generally been to pull price. In 2017, 40% of Australia’s grocery products (by volume) were sold on promotion – with some categories such as deodorant and toilet paper sitting even higher in the 70-80% bracket.
Currently the wasted amount is $11 billion due to lost reduced pricing that may not have been necessary. Even a small improvement in our promotions can help find large growth for manufacturers and retailers. One way to uncover this opportunity is to look at what we are promoting, analyse the elasticity of our products and find the right balance of promotions that minimise wastage.
RE-INVEST PROMOTIONAL WASTAGE INTO INNOVATION AND PREMIUMISATION
Not everyone is shopping for the lowest prices. There are distinct demographic and ethnic groups of Australians who are willing to (and do) pay a premium for grocery products. Products that have a perceived health benefit, offer superior quality or are just the latest and greatest new thing are highly valued by these particular consumer groups.
Millennials, high income households and middle-class Chinese consumers (living in Australia as well as those in mainland China) all over index in willingness to pay a premium for products that offer the above qualities.
It is also important to note that premiumisation of a brand is not a one-time thing. Brands must continue to find ways to do this or risk being commoditised. What was premium yesterday can become mainstream today, so there is a need to keep innovating.
The key to tapping into the growth opportunity through premiumisation is a deep understanding of the changing Australian consumer and their needs and desires.
WHAT’S NEXT? THINK SMALL
The traditional channels and your traditional consumer will most likely not be where your growth will come from in the next few years. Despite facing the lowest growth environment we have had in decades, the opportunity for growth is there if we think small:
- Look at smaller channels to unlock growth and focus on the shopper experience as well as price
- Make small changes in promotional activity to help to claim back the billions of dollars in wastage
- Focus on smaller and more niche product trends, as well as distinct consumer groups, like Daigous, to premiumise our categories and find growth.
By Justin Sargent, CEO, Nielsen, Pacific