SINGAPORE: Nielsen market analysis

Food and clothing brands could face tough times ahead in Singapore. Shrinking household size has knock on effects for several brand sectors.

Singapore started off 2014 with a strong first quarter, clocking up 4.6 per cent year-on-year economic growth. However, momentum slipped in following quarters and 2014 ended with GDP growth of just 2.9 per cent. The start of 2015 was also modest; first quarter growth only hit 2.1 per cent year-on-year; the same rate as the previous quarter.

A fall in output for the transport engineering, electronics and precision engineering clusters has crimped Singapore’s manufacturing sector. Conversely, construction and services have shown relatively better performance with private sector construction activities, wholesale and retail trade and business services driving the pick-up.

The country’s soft economic outlook reflects in Singaporeans’ relatively muted confidence in the economy, job prospects and their personal finances. According to Nielsen’s first-quarter Global Consumer Confidence Index, which is based on consumers’ perceptions of job prospects, the local economy and the state of their personal finances, the nation posted an index score of 100 (the Asia Pacific average was 107 and the global average was 97), which is unchanged quarter-on-quarter and up one point year-on-year, with job security and the economic outlook as key consumer concerns. A score above or below the baseline of 100 indicates the degree of optimism or pessimism.

Singapore’s consumer prices dipped 0.3 per cent year-on-year in March 2015, mainly on lower transport, housing and utility costs, while food prices nudged up 2.3 per cent over the same period. Singaporeans remain cautious with their budgets – overall spending intentions across many categories remain similar compared to the previous year and more consumers are channeling spare cash into savings and retirement funds.

All of this combines for a cautious mindset in the country, which has led value and pricing to take on a greater role in purchasing decisions. Many Singaporeans’ have taken steps to reduce household expenses (59 per cent), particularly spending on apparel and out-of-home entertainment. Price sensitivity has also extended to grocery purchases, with many consumers switching to cheaper grocery brands or cheaper store formats.

Other demographic factors impacting Singapore’s consumer landscape are the country’s ageing population and shrinking household sizes. More than one in 10 Singaporeans is over the age of 64, and this figure could climb to about 24 per cent by 2030, creating opportunities in categories such as adult diapers, nutritional supplements, diabetic foods, medical insurance and leisure travel. Meanwhile, declining fertility rates have shrunk the average household size from 3.7 to 3.4 at last count, which prompts demand for smaller pack sizes and on-the-go meal options, and has a knock on effect of reducing the overall basket for home-prepared meals.

Internet penetration is high (81 per cent of Singaporeans have internet access), and increasing connectivity and device ownership has fueled a boom in ecommerce and m-commerce. To date categories such as travel, fashion and beauty, and entertainment are key growth drivers in online purchases. Food and grocery sales online are still low, and retailers will need to boost platform investments in order to build confidence and drive greater traction.