Consumer confidence slowdown
The Nielsen Consumer Confidence Index is one of the single best indicators of consumer sentiment and spend intentions – where a score over 100 indicates degrees of optimism and below 100, degrees of pessimism.
The 2008 recession had a big and prolonged impact on consumer confidence, fluctuating between 65 and 75 until mid 2013. From then, consumer confidence picked up and increased steadily until it peaked in Q3 2016 at 106, despite the Brexit vote earlier that year.
As a knock on effect of the Brexit vote, the value of the pound dropped to a 31 year low which accelerated consumer price inflation from 0.5% in June 2016 to the current position of 2.6%. We saw the very early signs of a decline in consumer confidence at the end of last year, finishing at 102, down 4 points from the previous quarter.
A decrease in the level of consumer confidence means that shoppers start reverting to coping strategies where they tend to buy less volume, seek cheaper brands or shop around to get the best prices in order to help them manage their household budgets. We’re already seeing a -1.7 decline in volume sales of OTC categories over the last year alongside the slowdown in value growth. This is somewhat surprising as for the last few years OTC was growing consistently ahead of FMCG (fast moving consumer goods).
To protect volume and value growth in the short term there needs to be added focus on monitoring sales data closely and adjusting activation plans accordingly, such as promotional strategies or digital ad campaigns. In the longer term, the greater focus needs to be on big category drivers such as self care and responding to increasing shopper demands.
Rise of the Uber shopper
Shoppers are more demanding than ever before. Taste, lifestyle, convenience, social awareness and technology are all major influences on shopping behaviours.
This is exemplified by the rise of the “Uber shopper”. The Uber shopper is typically 34 years and under, encompassing both Generation Z and millennials, and is expected to be the largest shopper group by 2020.
This group is more digitally connected than any other. They are price aware but not driven, and look specifically for good value, simplified promotions and ranges. They are also time pressured which means that they’re looking for convenience both online and offline – and when it comes to retail outlets they’re looking for a positive in-store experience.
The Uber shopper is also health conscious which is particularly important for OTC manufacturers where health and wellness is high on the agenda. This group also actively looks to try new products and, as overall physical and mental health is important to them, they are likely to be a key audience for new product developments.
Self care is one of the key long-term drivers for the OTC market and consideration of products aimed at the Uber shopper group should play a role. Health conscious shoppers are looking for products with perceived added health benefits such as nutrients, vitamins and even protein and 81% of millennials are willing to pay more for products with health benefits.
Self care strategies should be supported by clear messaging about health benefits and digitally enabled to optimise and personalise the experience which should be accessible anywhere and at any time. The personalised nutrition market is a good example where businesses are responding to the needs of the Uber shopper by providing personalised advice on beneficial vitamins and supplements based on an individual’s personal health, lifestyle and habits.
Changing retail landscape
Over the past decade we have seen major shifts in both shopper behaviour and the retailing landscape. From the inflation coping strategies that followed the 2008 recession which led to shoppers shopping more often and looking for the cheapest option, to the ‘little and often’ trend we see today where shoppers shop more often but buy in smaller quantities and seek stronger price stability.
As a result, we’ve seen the growth of value retailers, particularly in the last 5 years, surpassing other retailers with Aldi and Lidl now accounting for 13.3% share of FMCG (12 WE 15.07.17).
OTC ranges overall are the least developed within value retailers and this is unlikely to change in the mid-term. However, more commoditised categories such as pain relief or allergy are already facing a threat from discounters. If shoppers continue to buy low priced brands from discounters this could spill over into traditional retailers who may look to offer more support to generic variants with the potential consequence that shoppers become accustomed to trading down, damaging overall category values.
There is an opportunity for greater focus on online as there is strong growth potential in this channel, overall FMCG volume is growing at + 4.3% and OTC at + 7.9% (latest 52 weeks to 17.06.17). OTC has been slower than some categories to make the move online, and while some manufacturers are investing and prioritising online, a wider focus could provide greater growth opportunities. As a category, OTC is well positioned to be successful online as products are easily stored, have long expiration dates and can easily be shipped. The challenge for the OTC markets success online will be to overcome the barrier of urgency. For example, a shopper who experiences a headache wants paracetamol quickly – innovative thinking and solutions around how to overcome this urgency barrier are key.
While consumer confidence and the shifting retail landscape are significant, influencers on the overall performance of the OTC market, the rise of the Uber shopper may have the biggest long-term impact. This group is disruptive and will require a rethink of traditional approaches. As OTC manufacturers, investigating how to proactively and reactively meet their needs for wellness while simplifying the shopping process and providing personalised and timely digital solutions will be vital for the future growth of brands and channels.
Vitaliy Zhyhun is Client Business Partner, Nielsen. Email: firstname.lastname@example.org
This article first appeared in PAGB’s member newsletter, Spotlight (August 2017)