Embed Size (px)
Citation preview
South Africa's FMCG and retail industry is highly competitive and dynamic. Market players continue to face challenges based on political, economic, social, technological, and environmental factors. With disposable incomes shrinking, brands find themselves hard-pressed to stay relevant.
So how are South Africa's leading brands fighting for a place in the shopping basket? Some are building robust rewards programs. Others are creating differentiated product enhancements or novel brand experiences. Yet, far too many brands are focused on pricing tactics. Some find success in short-term, price-based, volume driving strategies. And while this might be a quick fix to regain lost share of basket, it can also send a brand into a value spiral.
What's in this eBook? What are the specific South African
market conditions impacting shopping behaviors
Why reactive, price-driven tactics are eroding brand value
How to build your brand and your share-of-basket in a price-crazed market
Distribution of stores visited in shopping trips, 2018
Branded Retail Stores
78% 19%Independent Retail Stores
Other Stores
3%
Sources: Nielsen; Npi Consulting; OFX Group; ioL; Amplifier; Grail Insights
Top-up shopping trips decreased to once every two weeks (in 2018) from 2-3 times a week (in 2017)
Total shopping trips reduced to an average of 60 in a year (from 71 in 2017)
Inclination towards cheaper substitutes and “value packs”
Preference for staple foods and essentials over luxury products, leading to the purchase of fewer categories
Improved access to formal stores as retailers are expanding to previously underserved communities. Preference towards branded stores/supermarkets
More stores visited per shopping trip (average of ~5 in 2018), to get better offers
GRAIL INSIGHTS | Page 2
Online sales amounted to ZAR 14 Bn in 2018 and are expected to grow by 20% y-o-y in 2019 and 2020, following 25% growth in 2017 and 2018
~54% of South African consumers believe that brands should be more responsible towards the environment
Consumers are increasingly opting for experiences (e.g., cinema, theatre, concert and vacation getaways) over material possessions
South Africans remain emotionally connected and loyal to the brands they know. Brands are often synonymous to the product categories
Nearly 87% of South African consumers leveraged online reviews in 2017 to arrive at their purchase decisions across both brick-and-mortar and online shops
1
Sources: Nielsen; Onshelf; Shopify; npi Consulting; World Wide Worx; Futurity; Business.com; Megalite; iOL; Grail Insights
| Page 3GRAIL INSIGHTS
Sources: Market visits; Biz Community; Grail Insights
To provide an intimate know-how of the product and the offering, through both tech and non-tech solutions
Nescafé Dolce Gusto leveraged pop-up stores, allowing consumers to experience the sight, smell and taste of its coffee and learn to use the machines
To create brand recognitionleveraging equity-building, thematic advertising
ABSOLUT teamed up with the hip-hop star Khuli Chana to create a concept album to promote its One Source product
To motivate consumers to buy more often in a tough economic climate through partner-based or independent programs
Royco encouraged consumers to upload an image of their till slip with purchase to earn a monetary reward
To keep up with the evolving needs, by adapting design, ingredients and packaging
Ariel launched its biggest marketing push in the last decade to convert more shoppers using its liquid washing detergent towards liquitabs
To meet the evolving needs of the market; for instance, focus on local and environmentally conscious products
Coca-Cola South Africa set up a recycling company to recover and recycle PET bottles and run a school recycling program
| Page 5GRAIL INSIGHTS
Sources: Shopify; Tralac; KPMG; Bizcommunity; Timeslive; Shoprite Holdings Website; Facebook; Makro Website; Nielsen; Clicks Website; Pick ‘n Pay Website; Valfor; Aperio; Marketing Week; Company annual reports; Business Insider; Grail Insights
Helps to quickly regain lost share.
Encourages adoption of newly launched products
Drives recruitment of new users
Helps clear stocks and manage inventory
Influences repeat purchases
Stimulates purchase driven by lower prices
Benefits of Price-off Initiatives
…however, these price-off initiatives cannot be sustained in the long term, without eroding margins
We want to focus back again on how we can drive market growth in our categories and how we can drive shopping trips and basket size for our retail partners. And it’s really about working together in a joint context to identify where those opportunities are.
– Jon Moeller, Chief Financial Officer, Procter & Gamble
0%
3%
6%
9%
12%
20162014 2015 2017 2018
To overcome market changes, many retailers and FMCGs are resorting to short-term, volume-driving strategies such as price-off initiatives…
Net Profit Margins of Top Six South African FMCGs
The percentage of FMCG products sold on discounts increased by 3% in 2018, to reach
30% – one of the highest in the world
Reducing industry margin coincides with
the increasing proportion of FMCG products sold
on discounts
| Page 6GRAIL INSIGHTS
Consumers’ product purchases are increasingly dependent on the availability of promotions. They await promotions to make purchases
The short-term focus on sales volumes, with a limited emphasis on understanding and creating alignment with consumers’ real needs, is leading to a lack of affinity with the brand
Excessive availability of discounts is resulting in consumers losing interest and failing to see the value and relevance of the available initiatives. Shoppers vigorously switch between brands driven by the apparent values
Frequent promotions set an expectation of discounts on each purchase. In case consumers fail to get the desired discounts, they feel discontent with the brand, impacting its brand value
Jan-14Jan-13 Jan-19Jan-16Jan-15 Jan-17 Jan-18
118
56
All Sales
December sales continued to surpass November sales by as much as
29%
December sales exceed November sales by lower percentages; 2018
increase stood at:
19%
Changes in Purchase Cycles Due to the Advent of Sales such as Black Friday; South Africa Retail Sales, 2014–18 (in ZAR Bn)
Sources: Bizcommunity; Forbes; Killianbranding; Nielsen; Business Insider South Africa; Statistics South Africa; Grail Insights
| Page 8GRAIL INSIGHTS
Source: Grail Insights’ Analysis
Drives consumer purchase in the short term
Boosts market share in the short term
Erodes margins and profitability
Erodes loyalty in the long term, impacting share
Boosts brand equity and loyalty
Bolsters market share in the long term
Focuses on the needs of relevant consumers
Improves equity amongst target consumers
| Page 9GRAIL INSIGHTS
Sources: Polity; Pick n Pay; Valfor; The Citizen; My Broadband; Grail Insights’ Analysis
A price-based initiative, aimed at offering lowest price across several product categories
A brand-focused, loyalty program that encourages repeat purchases through
targeted, bespoke rewards
Advocatedlowest price
Asserted personalized offers
Offered cashback in case of price differential
Followed a points-based system with rewards extending to partner stores
Linked discounts to products, not shoppers
Customized offers to users based on shopping preferences
Disbursed discounts as physical vouchers
Offered personalized offers on multiple channels
Positioned Pick n Pay amidst competition based on price
Positioned Pick n Pay true to its brand value “Inspired by you”
To create value, Pick n Pay, a leading South African retailer, offered two distinct propositions to its customers: a price-based initiative and a reward-based program
| Page 11GRAIL INSIGHTS
7.9
8.9
10.7
7.0 7.0
12
16
20
4
8
12
17.5%17.8%
FY 2013/14 FY 2015/16FY 2014/15
17.9%
18.7%
7.0
FY 2016/17
18.7%
FY 2017/18
19.0%
FY 2018/19
Active Smart Shopper Users (in millions) Gross profit margin (%)
Despite increasing Smart Shopper base, during the prominence of Brand Match, the margins were near stagnant
With diminishing focus on Brand Match, and increased focus on maintaining ‘loyal’ Smart Shoppers, the margins have witnessed improvement
We are increasingly seeing more customers making use of their Smart Shopper weekly discounts. A customer’s shopping history is used to predict what they are most likely to buy next and we try to offer them discounts on those products. We have seen millions of customers responding positively to deals that are spot on for them.
– Head of Marketing, Pick n Pay, March 2019
Coinciding with non-distinctive profit growth, Brand Match has been observed to have faded; whereas, Smart Shopper is continuing with a targeted approach and is, perhaps, contributing to improved margins
Sources: Polity; Pick n Pay; Valfor; The Citizen; My Broadband; Grail Insights’ Analysis
Number of Smart Shoppers maintained to ‘loyal’ consumers
| Page 12GRAIL INSIGHTS
Understand the consumers and gear
efforts towards defining a suited proposition,
meeting their needs and becoming a part of their
day-to-day lives
Create relevant, bespoke, localized
products that satisfy the needs of the
target consumers; diversify portfolio
Set the price based on the consumer’s
perceived value; avoid sole focus on
competitive pricing. Value is not necessarily
the cheapest
Stay true to the brand story to connect and stay relevant with the target audience, by aligning the story to emerging consumer needs
Focus on an optimal supply-chain and omni-channel strategy, to ensure the product’s accessibility
Evaluate and review the performance relative to competitors, and how well consumer needs are met
FMCGs and retailers need to balance their efforts between long-term brand building strategies and short-term price-off initiatives, as an overt focus on the latter can potentially create a downward, margin-eroding spiral
Sources: Grail Insights’ Analysis
| Page 14GRAIL INSIGHTS
How to remain in the basket? | Page 17
FMCGs and retailers are faced with mounting competitive pressure, driven by an increasingly product-aware consumer and dampened by a continuously shrinking shopping basket.
Instead of retaining shares through price-based initiatives, FMCGs and retailers must place their consumers’ needs and priorities at the center of their strategies. Players need to ascertain nimble ways of understanding and responding to the evolving consumers, while remaining true to their brand promise.
Find out more about
The evolving needs, preferences and behaviors of consumers that drive their choices
The impact of your current strategies, on your brand and consumers
The opportunities that your organization can leverage, to remain in the consumers’ shopping basket
Contact us [email protected]
