Kantar Worldpanel - www.kantarworldpanel.com

Riding the Recession Rebound

24/05/2010

According to Kantar Worldpanel Taiwan’s long-term observation, Taiwan consumers’ reaction to the market and economic environment is highly sensitive, which was also true for the FMCG sector. It is noted that people would start to store up products when they anticipated price inflation, and to stretch usage to postpone the next purchase to leverage the impact of price increase. While Taiwan was entering its worse recession in 40 years with the highest unemployment rate in history, Taiwan consumers certainly found some ways to reallocate their spending. In addition to shopping less, buying less, stretching product usage, and switching to more affordable brands or discount stores in grocery shopping; consumers look to cut cost on some of their more lavish spending such as traveling, dining out or salon visit andreplaced them with in-home entertainment, cooking and doing hair treatment at home. This “trading-down lifestyle’ has in-turn benefited the higher price tier hair care, premium cooking ingredients(e.g. seasonings, olive oil) and frozen food the most, as more buyers newly enter the mass market and not all of these consumers will settle for the cheapest solution. The “trading up home economy” has further stimulated the opportunities for high-end products in the recession in Taiwan.


After a series of financial measures, we have seen the recovery of consumer confidence and spending power since July 2009. By 2010 March, total FMCG Volume sales has been higher than that of before the 2007 inflation, and value sales even climbed up to the historical high resulted from increasing raw material price and growing premium markets. However, it is found that the demand for food category is showing a decline trend, why?

The truth is - consumer’s demand for food category is not “in decline”, it is actually heading back to the level prior to financial crisis. What is worth paying attention to? Noticing the optimistic prediction of economic indicators and higher consumer confidence level recently, and people are re-visiting restaurants and hair salons, we are wondering if those sectors that enjoyed growth during the downturn will now be affected or threatened? Are there actions we can take to retain those buyers? What are the key strategies we could utilize in future business operation?


Compared with other Asian markets and developed countries, Taiwan retail environment is over-competitive and diverse and no any retailer is dominant in the market. In the recent years, most of the key retailers are aggressively developing its uniqueness and upgrading their service in order to precisely catch consumer’s need and even lead the market movement. Therefore, through investigating the development of channels, we can further understand Taiwan consumers' behavior and needs, and take it as a reference for brands to seize the opportunities in the market.


1. Shopper Spectrum -- Not only economical but extremely luxury

Normally, recession is a good timing for the development of discount stores. It’s a phenomenon also observed in the Taiwan market from continuous expansion of PX mart and discount stores such as RT mart outlet mall and S mart. These kinds of channels help consumers to save their pocket, and keep consumers coming back to the store during economic downturn. At the same time there is also a group of high-price product lovers who continually pursue high-quality products. The opening of luxury shopping malls and premium supermarkets has indicated the potential of Taiwanese luxury-spending. Moreover, Kantar WorldpanelBeauty data has also shown that the sales of anti-aging skincare priced over NT$5000 per Unit grew by 100% in the last year, much faster than that in medium and low-end price tiers. This polarized trend points out the necessity of a complete product line that covers every price range.


2. It's a long way for private label. Brand value is all that matters.

Given consumers’ stronger concept on budget control during economic downturn, key retailers have then taken the opportunity to broad scopes of their private label brands and tried to optimize shelf space and price advantage to compete with branded products. In the meantime, they also wish to change Taiwan consumers’ reserved attitude of private label brands and to improve the situation of private labels in the market. According to Kantar Worldpanel data, in 2008 to 2009, three out of four households bought private label products per year, about 500,000 households increased compared with 2007. However, these households average spending had a 4% decrease on private label products in 2009 versus the previous year. This indicates that during economic recession, private brands do attract more consumers to try, yet, they came back to embrace branded products when the economy recovers. In contrast with the continued growth of Europe’s private label products due to economic recession, in Taiwan, consumers significantly prefer branded products to private labels. Except for Costco, other retailers still need to breakthrough many bottlenecks if they wish to develop their private label further. This phenomenon also reflects that brand value is a priority concern and long-term investment on brand development is a MUST for Taiwan business.


3. Everywhere shopping partner - Internet

Obviously the Internet has a profound effect on human’s life nowadays. Given the advantage of “Convenience” and the emerging “stay-at-home economy”, the products sold through virtual channels like the internet and TV shopping have already expanded from mainly Cosmetics and health food to various FMCG products - Pre-cooked food, dry food, cookies, and home cleaning products. Kantar Worldpanel has indicated that there are 18% of households had shopped FMCG products through internet in 2009, higher than 13% in 2008. It’s about a 40% uplift and 0.4million household increase within a year. To estimate in accordance with this growth rate, there will be almost half of the households buying their consumer goods through internet within the next three years.

As for target consumers, although the young group under 35 years old is still the main customers in virtual channel, we can’t ignore those over 35 who made 48% buyer growth in past one year for virtual channel shopping.

In addition to convenience and economical advantage, the word-of-mouth effect and the power of internetcommunity are also outstanding for internet channel. The influence online blogs and social networking communities such as Facebook make FMCG manufacturers take a more cautious approach. Proper use of these newfound media can accelerate a brands presence with the consumer, but can also be the fastest alerter for negative issues, which could largely damage a brand. Another recent trend of smart phone usage brought up by iPhone greatly increased the influence of the Internet on daily life by instant messaging, instantaneous search of prices and word-of-mouth, which helps consumers make smarter and savvier choices. Therefore, how the FMCG manufacturers enhance their visibility and interaction with the consumers on an internet platform, and even use the internet community to build brand images are definitely one of the key strategies in 2010.

4. Understand your customers and decide your distribution strategy!

The more sever the recession is, the hotter Taiwan’s channel markets are, both virtual and physical channels included. Look back in 2008 and 2009, Taiwan’s channel markets are trying hard to break through their original business model and attempt to catch as much as different consumers by diversified services. For example, some hypermarkets design mini-hyper (such as Carrefour Express) to compete with supermarkets and offer neighboring stores for community residents and the elders. Some hypermarkets then aggressively get into virtual channels (eg. RT-DRIVE.com.tw, savesafe.com.tw) which provide 24-hour shopping and free delivering for those who are too busy in work to shop. Personal care stores provide a successful one-stop service as it has everything you need in store and with variety of personal goods, cosmetics and health food provided. Convenience stores (CVS) committed to become a good neighbor that not only provides 24-hour service but a one-call home delivery service provider. In addition to convenience, it has everything you need in your daily life that can fulfill most of the consumers’ urgent need. Thus, in 2009, the penetration rate of consumer goods in convenience stores goes over eighty percent (81%) for the first time, adding 210,000 more households compared with the previous year. Furthermore, pre-order service for bulk purchases is expected to bring another wave of growth in sales for the CVS. What kind of lifestyle do your target customers live in? Which shopping channel do they prefer? Is your product eye-catching on the shelf in the channel? Does it make customers easy to make decisions?

Taiwanese consumers have become more cautious and cleverer after experiencing ups and downs in economy, as well as the rapid changing and developing of retailers and media. Besides to meet their “Rational needs” for price, quality, and convenience, it’s also important to provide “emotional resonance” by brand images or value proposition. Thus, the keys to sustain your brand in 2010 will be better using multi-media to tell a good product story, building strong consumer trust and recognition, planning a complete product line to clearly differentiate product prices and quality level when riding on the polarization trend, and understanding channel characteristics for accurate targeting.
Taiwanese Ladies still pumping $$ into the beauty market…and Trading up!

Women worldwide are known for their consumption power, especially when it comes to the name of beauty, and Taiwanese womenwell as the rapid changing and developing of retailers and media. Besides to meet their “Rational needs” for price, quality, and convenience, it’s also important to provide “emotional resonance” by brand images or value proposition. Thus, the keys to sustain your brand in 2010 will be better using multi-media to tell a good product story, building strong consumer trust and recognition, planning a complete product line to clearly differentiate product prices and quality level when riding on the polarization trend, and understanding channel characteristics for accurate targeting.

Riding the Recession Rebound

Author

Yvonne Wang

General Manager of Taiwan

 

+886 2 2570-0556 #360

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