More Filipinos shifting to brandy, 3-in-1 coffee mixes
John Patrick Cua is executive director of Nielsen Philippines and looks after the Consumer Packaged Goods Industry Group. After 16 years with Procter & Gamble holding several roles in Singapore and the United States related to governance, project management and business intelligence solutions, he finally quit and joined Nielsen in 2013.
He shares his insights about Filipino consumers, what makes them buy things and what ticks them off.
Q: Research showed how Filipinos have been saving money and buying fewer clothes in 2016, which seemed surprising. Why was this so? Will this continue this year?
A: Filipinos, along with their Southeast Asian neighbors, have been consistent in being avid savers. It is a positive indicator of financial health when you see consumers who are conscientiously planning their financial future. As disposable incomes become more readily available than before, consumers have the capacity to boost their savings and to invest their spare cash.
While establishing financial security takes center stage in the Philippines, consumers are spending to a degree. After saving, Filipinos plan to spend their spare cash on new gadgets, eating out and on travel. This reflects an aspirational lifestyle focused on trying new experiences.
The Nielsen Consumer Confidence survey consistently shows that when Filipinos need to cut back on household expenses, they will first delay purchasing new clothes, which ties into government data on household spending.
Q: We are the world’s No. 1 consumer of brandy and gin and No. 2 in rhum next to India. Brandy has also taken over rhum and gin in market growth rate the last few years. What could be causing this shift and preference?
A: The Philippines has a young population with a median age of 24 and comprised of more than 30 percent millennials. Consumer behaviors are constantly evolving and the younger generation is looking for a brand they can call their own.
Emperador Light is a good example of a demand-driven innovation. Through research, the company realized that younger consumers were looking for an alcoholic beverage product that would “go down more easily” and invested in refining the blend to meet this taste profile. The brand message was also about success, the aspirational lifestyle and “how everything is lighter and more fun,” which matches the young, growing middle class.
Brands can stay relevant by being in tune with the shifting consumer needs.
Q: Shampoos innovated with packaging via the twin chambers sachet. This was replicated in another industry, the 3-in-1 coffee sachets. What lessons can 3-in-1 coffee learn from shampoo beyond the packaging innovation?
A: Shampoo and 3-in-1 coffee mix categories sell more sachet packs and are high household penetration categories at 99 percent and 97 percent, respectively. When the 3-in-1 coffee mix was introduced, brands grew the category by introducing pure soluble coffee drinkers to the convenience of a mix; and adding new category users with “white” or “creamy” variants.
As category penetration matures, brands must look for growth by increasing consumption or providing products that give consumers the experience or option to move up, a trend which we call in Nielsen as “premiumization.” Recently, the “twin pack” innovation was introduced, which allowed brands to retain the consumer for two drinking occasions, at a discount. This is a factor behind the slower category value growth for coffee mix in 2016.
Brands should look to innovate with affordable premium offering via new flavors or move consumers to the ready-to-drink coffee category.
Q: Housewives seem to be trading down on diapers or going for economy rather than quality. Given the aspirations of mothers for their children, why do you think this is happening?
A: The universal insight of mothers wanting the best for their children still holds true. The diaper category challenge is that manufacturers need to recruit new moms every three to four years. However, in the past few years, the lower priced diaper segment grew faster than the higher priced variants.
It is possible that consumers already find the lower priced brands to offer acceptable quality, with a narrowing perceived value gap between variants. In order to address this, brands must bring relevant innovation to the category and invest in communicating with the shopper.
Q: Small format stores like convenience stores and neighborhood supermarkets have been growing rapidly the last few years. Yet, it did not affect the growth of sari-sari stores (mom and pop) from 660,000 stores in 2008 to close to 1.2 million in 2016. Why are both still growing rapidly?
A: In the recent Nielsen Shopper Trends Study, three out of 10 Filipinos patronize a convenience store compared to less than 10 percent five years ago. In 2016, more than 30,500 Filipinos share a convenience store compared to South Korea with 1,643 people per convenience store or Thailand, with 5,000 people per convenience store.
This means that there is still room for convenience stores to grow in the Philippines as the middle class continues to expand and urbanization further rises. Convenience stores fulfill many other roles, particularly answering time-strapped consumers’ immediate or urgent needs, so they are not seen to replace the role of the sari-sari store. Convenience stores also draw a big portion of their revenues from ready-to-eat meals.
On traditional trade, nine out of 10 Filipinos continue to patronize sari-sari stores. Developing markets like the Philippines continue to see shoppers visit traditional trade 28 times a month.
The sari-sari store is informal compared to our Southeast Asian neighbors. Filipinos can open a window, sell a few categories such as soft drinks and cigarettes and start calling themselves sari-sari stores. It is still very much a part of the Filipino community where the stores act as a pantry extension, credit or “pa-lista” is given and tingi (retail) sales are common. Sari-sari stores also continue to thrive with the support of semi-retailers such as Puregold and other regional players that provide credit, store delivery and special promotions.
This is an exciting time for the Philippine retail trade, when brands need to re-assess their route to market and upskill their sales teams in this continuous shift to modern trade. At the same time, retailers must evolve from buying income to shopper-centric category management.
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