PHILIPPINES FOCUS: Is 2011 a year of change for the FMCG scene in the Philippines?

Price hikes in fuel and food products in particular, sent Consumer Confidence Index (as measured by Nielsen) for the country on a steep 10-point fall in Q1 2011 to 110, compared to Q4 2010, the lowest level in four consecutive quarters.  Overall, the price increases in basic everyday necessities left consumers in the country with little choice but to spend more money on their household needs.  With 85 per cent of households in the Philippines falling into the lower income bracket, rising costs become an even bigger challenge as consumers do their best to cope.

External shocks, such as the natural disasters in Japan and the unrest in the Middle East, are also making dents in consumer confidence.  Consumers are now more cautious with their spending as their outlook on employment becomes clouded. Nielsen’s research shows that consumers are less optimistic about their job prospects in Q1 2011 - only 60 per cent of consumers surveyed online believed job prospects would be good or excellent in the next year, a 14-point decline from Q4 2010. Consumers also aired concerns on the impact on their personal finances with those 'optimistic' declining by 5 points from Q4 2010 to 68 per cent of the total.

Yet, it is not all gloom and doom as the country has many reasons to be optimistic!

1. Consumers are still spending! Based on Nielsen’s analysis, FMCG sales at the retail level saw a nine per cent increase over the first two months of 2011, compared to the same period last year. While growth is tempered compared to 2010, this is good news for the country as private consumption accounts for 70-80 per cent of gross domestic product.
2. The continued growth in business process outsourcing will support the job market in the country, as Philippines is currently the number-two outsourcing country in the world, next to India.
3. Remittances from overseas Filipino workers are still growing, and the Philippine Central Bank also expects the level of remittances to continue to rise.

In the face of economic challenges, will dynamics in the Philippine consumer market change? Based on Nielsen’s observations in the market, we highlight three trends in consumers’ purchasing behaviour when it comes to FMCG products:

Health craze

Consumers are trying to stay healthy and, in the process of doing so, consuming products that are perceived to be “healthier”. 

Perception is key to riding this trend.  Although not all “health” products in the market deliver the claimed benefits, these products are still enjoying growth because they have successfully created 'need states' such as prevention of conditions including colon cancer or osteoporosis.  Manufacturers with high-quality health products that help consumers with their wellness issues will appeal to a clear segment of the market.

Convenience is king

The business process outsourcing industry in the Philippines, which employs a significant proportion of the workforce, may have accentuated consumers’ need for even more convenience.  Workers in call centers, for example, have very little time for rest and are seeking products that are convenient (“instant” and “quick”) so that they can have more time for other priorities.

Ready-to-drink, all-in-one and multi-benefit products continue to stir the market.  For example, Del Monte Sauce Sulit, with its “no-mix” formula which provides for easier cooking, has gained success since 2010, as has Magic Sarap, an all-purpose cooking aid since 2006.  The healthy sales of microwave or instant meals, as well as ready to eat-and-drink products, as observed by Nielsen, are an indication that the convenience trend is here to stay.

The sachet revolution

Not surprisingly, economic uncertainty due to the increase in food and fuel prices as well as external factors have pushed consumers to go into a “defensive” spending mode, focused on value.

To address consumer needs, many products are now offered in sachets and low unit packs which help consumers as they require lower cash outlay.  Success cases in Powdered Beverage and Fabric Conditioner are testament to the popularity of products in sachet-sizes.  We have also seen innovations in sachets in the form of multi-chamber sachets and upsized sachets, which continue to drive the market as these enable consumers who may be cash-strapped to still enjoy their favorite brands at lower price points.

The risk of offering sachets and low unit packs, of course, is that manufacturers may see a “downsize” in the value of the transactions.  Manufacturers must also remember that consumers still expect them to deliver on the product/brand promise, even at lower price points.

As in other developing markets, getting a keen pulse on changing needs and delivering relevant benefits will be key to winning the hearts and minds of consumers in the Philippines.