FMCG Sector Overview

Fast-Moving Consumer Goods: Interesting Shifts Are Shaping The Sector

By Sinazo Mkoko

Despite inflation and tough economic times that South Africans are facing, the Fast-Moving Consumer Goods (FMCG) retail sector has 13.4% growth, largely driven by higher prices versus consumption growth, according to NielsenIQ State of the Retail Nation analysis.

NielsenIQ (NIQ), one of the country’s market research companies stated that interesting shifts are shaping the South African FMCG sector (including liquor and tobacco) that is “now worth R593-billion in annual sales (at the end of March 2023)—a 13.4% increase from the previous 12 months.”

Cost of Foods Prioritised & Bought First in an Average Household Food Basket: Year-on-Year According to PMBEJD:

A thorough analysis of the inflation pressure areas within FMCG during the last 12 months was conducted by NIQ, and it was revealed that cooking oil experienced the highest annual inflation rate (into Q1 2023), having experienced a 40% increase. “It remains the biggest contributor towards overall net FMCG inflation, contributing a 7.2% share of inflation even though it accounts for less than 2% of total sales.

“Interestingly, the full effect of these massive cooking oil price increases has created a change in consumer consumption patterns around this product. In response to the price increases, volumes purchased have dropped steadily over the last 3 quarters, indicating that consumers are curtailing their usage of this product despite its essential nature.”

“Consumers may look towards alternatives like pork, which is now comparably priced to frozen chicken, or tinned protein, which offers a longer, more cost-effective shelf life versus frozen protein. In addition, rice might also be considered a better alternative to maize meal, which has experienced a 17.6% annual increase versus the inflation for rice, which is at 1%,” NIQ revealed.

No More Treats?

According to the analysis, the snacking super group faces pressure in certain categories, with volumes purchased contracting due to price increases. Extruded snacks have experienced 14.9% annual inflation. This, they said, is exacerbated because this category is characterised mostly by impulse spending on perceived treats that are not deemed necessary, especially in a tight shopping basket.

“Where consumers used to be able to buy chips, chocolates, and biscuits, they’re now having tospend more on a loaf of bread and other food items and are therefore cutting back on treats. When deciding between a pack of biscuits costing R25, a slab of chocolate at R21, chips at R20, and a 6-pack of yoghurt at R18, they may well opt for the yoghurt, which represents six snacking occasions, or chips that look larger and are therefore seen as offering more value for money.”

Touching on beverages, the analysis shows that soft drinks are seeing some of the lowest annual inflation at 5.7%, far lower than the average of 10.7% for the other Top 40 products. “Whereas soft drinks should be driving 11% of overall inflation, they’re only driving 4.4%. Manufacturers of these products are somehow managing to keep a lid on input costs and absorbing them in the value chain.”

Sources: NIQ | Stats SA | Cost of foods prioritised & bought first in Household Food Basket: year-on-year