Taiwan market snapshot: Sluggish growth, cautious spending

Nielsen provides insights into Taiwan's economic outlook and retail backdrop.

Led by a recovery in exports, Taiwan’s GDP grew 2.9 percent in Q4 2016, the highest quarterly growth since Q2 in 2015 and slightly up from the forecast 2.6 percent.  Consumer confidence dropped three points to 72 due to consumers’ negative perception of future job prospects and uncertainty that it is a good time to buy the things they want and need.  Increasing food prices became consumers’ second biggest concern and increasingly consumers are switching to cheaper grocery brands and delaying technology upgrades to save on household expenses.

Despite this cautious economic environment, FMCG sales remained strong overall and the market grew 5.5 percent during the quarter on the back of the performance of confectionery and household food categories. Confectionary is the FMCG market’s third biggest category and its growth is being driven by product innovation, gifting occasions, marketing campaigns and strong demand for high-quality products.

Household food has recovered from the food safety crisis in late 2014 as consumers traded-up to more premium products to guarantee better quality and this has continued as a consumer preference.  Companies in personal care categories are facing cost increases that are impacting profitability while the innovation of emerging players is raising the bar for existing players.

Health issues are becoming an increasing concern among consumers, as reflected by ​growth in “health related" categories, such as health supplements, essence drinks and vitamins.  Recognising this trend, health companies are strongly investing in above-the-line marketing (up 7.7 percent), with advertising for medical and health products ranked highest among all categories in the first half of 2016.

Taiwanese consumers’ concern over health is likely to stay with its ageing population set to grow at 56 percent over the next 10 years to account for 19 percent of the population in 2025. Customers are willing to seek out and buy premium food products, often for health reasons, as for they strive for healthier lifestyles.

Looking ahead, as the economy warms up, consumer confidence should start to recover. Taiwanese consumers are quality driven, and despite their rising concern about price inflation, they will actively seek out and pay more for premium products. Companies that can cater for this demand through product and marketing efforts will have better growth prospects.