#10things you need to know about the current state of SA’s CPG sector

The latest NielsenIQ State of the Retail Nation report (for the four weeks ending 8 July 2022) puts annual consumer product goods (CPG) sales at R527 billion, which is an 11% increase for the previous 12 months versus the previous 12 months. There is also a reported rebound of the liquor sector. NielsenIQ is fairly optimistic, announcing that there are indeed “pockets of positivity” to be found.

This is despite the fact that food inflation continues to squeeze consumer budgets, increasing by 8.1%, versus a year ago. These are the 10 things you should know:

1. Alcohol sales have a different flavour: Lest we forget…the South African liquor sector has been dealt a severe blow over the last two years with four globally unprecedented liquor bans in 2020 and 2021. Despite this, we continue to see a significant rebound in this sector with 30% annual growth in the Alcoholic Beverages supergroup category and 25% latest months growth. The trend toward the purchase of longer lasting bottles of spirits during South Africa’s prohibition era has continued, as South Africa’s ‘new liquor palate’ becomes entrenched, with sustained annual sales growth – albeit off a liquor ban base – in categories such as gin (38%), wine (38%), vodka (36%) and whisky (28%). Beer retains its best seller top spot amongst alcohol sales at 22% growth but it’s clear that a new era has dawned within South Africa’s alcohol sector.

2. Bread continues to rise: In terms of the biggest movers amongst the product categories measured by NielsenIQ, bread value sales have increased by 33% in the latest month with continued acceleration – despite the category’s inflation sitting at 14%. NielsenIQ South Africa MD, Ged Nooy,says; “This is the third month we have seen a significant rise in bread sales indicating that consumers continue to forgo more expensive protein options in favour of cheaper staples.” This buoyancy in bread sales is also reflected in NielsenIQ’s Top 20 Manufacturer ranking which shows, for example, Premier Foods has increased sales by 31% in the latest month. This might indicate that not only are consumers buying more bread but also the ingredients to make their bread.

3. Manufacturer performance is strong: In terms of the performance of other top 10 manufacturers (including liquor and tobacco), four are seeing strong double-digit growth with only one seeing a decline; while of the top 10 manufacturers (excluding liquor and tobacco) six are seeing double digit growth and two are seeing declines.

4. Price pain for consumers: Despite these positives, price increases remain an obvious concern with overall basket inflation sitting at 8.1% versus a year ago, calculated across 580 categories, weighted to their size in the basket. NielsenIQ monthly inflation figures are based on the difference between Rand value sales growth vs. unit sales growth, i.e., how much more consumers are spending in terms of rands paid per pack, than they were the month before.

5. Top five products showing the highest levels of inflation:

• Cooking oil’s latest month inflation versus a year ago is at 45%, due to raw material increases. Its value sales have increased by 43% while the number of units sold has decreased by 2% as consumers react to the increased price of a product at the frontline of price increases.
• Frozen chicken has experienced 17% inflation due to avian flu.
• Laundry detergent has experienced 16% inflation, bread 14% and maize meal 12% all due to raw material increases.

6. Fewer packs, more price: In the face of cost pressures, consumers are not buying more, but are paying more for less. This is reflected by total basket value sales (excluding liquor and tobacco) up by 7.6%, but with a very sluggish 1.1% increase in the number of units sold over the same period.

7. Increased price sensitivity and willingness to switch brands: Adding to NielsenIQ’s analysis of the local market, is its latest Shopper Graphics report which reveals interesting broader changes in the in-home consumption and shopping behaviour of South African households. It shows that while there has been a steady increase in value per buyer over the past two years, this has not been accompanied by a rise in volume/unit sales – a clear indication of inflationary pressures at play.

8. Local consumers are shopping less frequently and at fewer retailers: So while consumers are making less shopping trips, when they are in-store they are spending more per trip, with increased overall basket spend being driven by LSM 1-4 due to the introduction of social grants.

9. SA could be turning an inflation corner: Nielsen IQ predicts a plateauing of price increases in the next three months. This view is based on further decreases in the petrol price, leading to lower input costs. In addition, as the Reserve Bank continues to increase the cost of credit this will curb the purchasing power of consumers and lead to less demand for products resulting in a reduction in overall inflation over the coming months.

10. Risk remains that SA consumers cannot cut back anymore: Increased price sensitivity and cutting back by consumers is at peak pressure. Nooy commented, “We have seen increased price sensitivity across multiple categories, with disloyalty growing when it comes to brand preference versus the cheapest available price. South Africa is already one of the most price sensitive countries in the world so it will be interesting to evaluate the role of promotions, for example, within this new shopping environment. Unfortunately, the added risk in South Africa is that many of the LSM groups have already cut back so much, that they have no more room to manoeuvre. It will therefore be interesting to see the cost-coping strategies shoppers employ to counter constraints.”

Main image credit: Pexels.com.

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