2023 Malaysia FMCG Outlook-p
Key directions to focus on in 2023 and beyond
2023 Malaysia
FMCG Outlook
Key directions to focus
on in 2023 and beyond
Foreword
Our report helps you understand and successfully respond to the FMCG market in Malaysia during this coming year.
Welcome to our 2023 Malaysia FMCG Outlook report. We’re pleased to present you with our insights and predictions for the FMCG market in Malaysia for the upcoming year.
2022 has been a challenging year for all of us, as we have been coping with the pandemic and the impact it has had on the economy. With the loosening of restrictions, the market has reopened and entered a new norm. However, we still observed a 2% decline in the total value of in-home groceries in 2022, looking at the Peninsular Malaysia region alone.
Despite this, there are opportunities for those brands and manufacturers who understand how and what it takes to win shoppers' choice for their products. We are expecting shoppers to buy less in a single trip, but increase the frequency of their visits to stores and outlets, as the market continues to reopen.
As we enter 2023, a year full of new challenges, we must be prepared for the impact of rising prices and income constraints. High inflation and wars in Ukraine continue to impact our everyday life in a number of different aspects. With the impact of rising prices and income constraints, we are expecting to see market polarisation deepen due to the behaviour of different income groups.
Our report is designed to help you understand and successfully respond to the FMCG market in Malaysia during this coming year. We have analysed the latest trends, consumer behaviours, and market forces, which have given us valuable insights into what to expect.
We hope that our report will be of value to you, and we look forward to hearing your feedback and insights. Thank you for choosing to read it, and we wish you all the best in navigating the FMCG market in Malaysia for 2023.
FMCG growth outlook for 2023
While hopes for post-pandemic growth were high, value declined last year. The market is likely to become even more challenging over the year ahead.
FMCG growth
outlook for 2023
Hopes have been high in Malaysia, as the market finally reopened after two years of pandemic restrictions. But the fact is, there will always be new challenges dropping by to say “hi”! We expected huge growth when shoppers returned to their regular pre-pandemic FMCG shopping behaviours – but the data indicates that this has not been the case. In fact, we registered a -2% decline in value for total in-home groceries in 2022, looking at the Peninsular Malaysia market alone.
Now we need to consider what’s going to happen in 2023. We know for certain that the market will be more challenging this year, and as a result we expect a further decline in value, for two simple reasons:
1) The normalisation of shopping behaviour, as consumers become more cautious in their spending, coupled with lower demand in-home.
2) Shoppers prioritising out-of-home occasions and non-grocery spending.
Buy less and
shop more in 2023
Volume sales are shrinking, as shoppers battle rising prices – but the hopeful recovery of shopping frequency brings more chances to engage.
Buy less and
shop more in 2023
So, are shoppers still making bulk purchases, like we observed during the pandemic? The truth is that they are already starting to cut down on purchase volumes due to a combination of lower in-home consumption and higher prices. We already know that inflationary pressure started to have an impact in Malaysia as early as Q4 2021; the question is now how shoppers are going to manage the ever-rising prices, including those affecting essential groceries.
As a result, we’re expecting that ‘buy less and shop more’ will be their mantra.
Shoppers have been paying more for their FMCG products, and this has forced them to change the way they shop. Baskets have been shrinking, and people are no longer focusing on stocking up their pantries – which means shoppers are opting for smaller volumes or buying fewer items or categories overall.
Shoppers will be more selective in what they put into their basket, making competition for space in the basket more intense. This means that both above-the-line and below-the-line marketing activities are very important: brands will need shoppers to remember and consider them even before they buy, and subsequently convert them in-store. It’s crucial that FMCG manufacturers know how relevant their brand or category is to shoppers, what their needs are, and how to showcase a stronger reason-to-buy.
Secondly, consumers will shop more. We have seen shopping frequency recover in recent months, with shoppers going back to the store more often. This translates to more windows of opportunity for brands to engage and target them. Brands should leverage this trend by focusing on product availability and relevance of assortment, to maximise basket conversion.
Convenience and value perception will be key drivers for 2023
Shoppers are happy to pay for an easier life, or for a product that is highly relevant to their needs.
Convenience and value perception will be key drivers for 2023
This reflects a major difference compared with consumers’ behaviour during COVID. In 2022, the performance of the food sector was basically driven by the normalisation of behaviours, while the performance of the non-food sector was largely driven by increased demand for cosmetics, personal care and household products as the market reopened.
Both food brands and non-food brands are likely to face a tougher market in 2023. There’s a saying: “when the tide is out, we know who is swimming naked”. The top priority should be to remain competitive, whether through pricing, product proposition or product assortment.
Brands must be laser focused and very precise in their activations and investments – based on the two main growth drivers we have identified for 2023: (1) convenience and (2) value perception.
There are two simple reasons why these will be the key factors this year. First, shoppers will be more willing to pay for convenience which helps them to save time or avoid hassle. Second, they will be more willing to choose or pay for a brand if the product gives more value and is more relevant to them, due to the experience it provides or the occasions it serves, for instance.
In the laundry detergent segment, to give an example, we are seeing a shift towards liquid formats alongside a rising trend for capsule detergent which is priced at more of a premium. Shoppers are willing to pay for the convenience and less hassle the product provides, making it easier to store and handle for instance.
In dishwash, too, shoppers prefer value-added ranges such as those that are anti-bac, natural, or gentle on the skin. These cater to shoppers’ needs and address the pain points they face, which makes them appear better value compared to other products.
If brands are able to master the art of understanding shoppers, they will be one step closer to being their first choice.
Know where your category plays
Are you an essential, a fence-sitter, a bargain hunter or a low priority? Wherever you sit, you can move up by leveraging shopper needs.
Know where your category plays
The next question is, what is the right brand planning strategy? The answer lies in knowing how relevant your brand or category is to shoppers.
Looking at the 125 FMCG categories we track continuously, we are able to group them into four main quadrants based on the big change in behaviour we’ve witnessed in Malaysia: buy more/ less vs. pay more/less.
1.Essentials
these categories are the must-haves in the household. Shoppers also tend to buy more due to increased demand/usage. And because they’re essential, shoppers have no choice but to pay more for them.
2.Fence sitters
These categories are still needed on a daily basis, but shoppers are more willing to sacrifice usage/consumption to manage their budget or shift their money to categories that are deemed to be more essential.
3.Bargain hunters
These categories are also viewed as a necessity, with shoppers still buying more due to demand. However they’re also looking for cheaper alternatives, which makes it highly probable that these categories will be impacted by the downtrading trend.
4.Low priorities
These are the categories shoppers are least likely to prioritise in terms of spend, and where they’re likely to reduce usage/consumption. Consumers are also not willing to pay a premium for them.
In Malaysia, half of the FMCG categories fall into the Fence Sitters quadrant, which is huge. What this means is that the tendency for a category to be a secondary priority for consumers is very high. These are the categories shoppers will sacrifice first when times become challenging and uncertain – either through buying less volume or cutting them from their repertoire entirely.
If brands and categories that are Fence Sitters don’t react quickly enough to maintain their relevance, it’s likely they will shift towards the Low Priorities quadrant, which must be avoided at all costs. If that happens, shoppers will just look for cheaper products to serve their basic day-to-day needs, and it will cost brands even more to win shoppers and to develop their category.
Talk to shoppers, look at what they want from the category and how you can leverage their needs, tapping into the white spaces by coupling understanding with the right execution strategy. This will enable you to move up to the Essentials quadrant, or at least remain within the Fence Sitters quadrant.
Brands in the Essentials quadrant are not necessarily safe, as the increase in demand could be temporary. If they are complacent, it’s highly likely that they will shift toward the Fence Sitters quadrant where they will need to inject more effort to drive growth. And if they are relying on pricing alone for growth, sooner or later they might end up in the Bargain Hunters quadrant where communicating value will be a lot harder.
Market polarisation will be deepened by the behaviour of different income groups
Higher income shoppers are focusing on value, while low-income shoppers are prioritising purchases.
Market polarisation will be deepened by the behaviour of different income groups
Malaysia’s FMCG market is expected to become more polarised, due to the distinct behaviour demonstrated by different income groups in response to the market dynamics.
For example, despite paying more, high-income shoppers’ baskets are shrinking faster which means they’re focusing more on cutting down their repertoire and spending on products that they perceive to be more valuable. Low-income shoppers, on the other hand, are forced to pay the inflated prices, which will lead them to prioritise spending on essentials or look out for cheaper alternatives to cater to their needs.
This means that there’s no ‘one size fits all’ strategy for product offerings, the messages to be communicated, media buying, in-trade strategy and so on. Different shopper groups and profiles will be triggered by different reasons to buy. Knowing who their shoppers are, and who they are talking to, can help brands to strategise and execute successfully by leveraging the different needs they have from the category.
Channel volatility will continue into 2023
Online growth has plateaued, as consumers return to traditional channels.
Channel volatility will continue into 2023
Yesterday’s winner could be the loser today – and tomorrow we could have a different winner altogether. Since the beginning of the pandemic, ecommerce has been the focus of many brands’ efforts to sustain their sales volume and growth. It was one of the highest growth channels during COVID-19, in tandem with the aggressive expansion of neighbourhood mini-market stores, but the ecommerce arena has become more competitive and is now no longer shoppers’ top priority and preference. They are now moving back to conventional channels for their FMCG purchases, especially supermarkets and mini markets - absorbing the trips from Hypermarkets and General Trades.
Shoppers still buy FMCG from five different channels per year, which means they continue to ‘shop around’, shifting their trips and spending to channels that they find more relevant in terms of experiences and product offerings. Brands that have performed strongly online in the past might want to consider moving their investment back towards the conventional channels, or craft a specific role for the online stores. For the offline channel mix, they might want to be flexible in their activations and distribution strategies for different touchpoints.
It is crucial for brands to have an on-time budget allocation, and to be aware and reactive to market changes. Follow where shoppers are going to discover which channels and, more importantly, which particular stores to prioritise in terms of trade investment and product availability, according to their role in regards to your category.
3 tips for how
to thrive in 2023
Applicability, availability, and audience are the keywords for the coming year.
3 tips for how
to thrive in 2023
1. Applicability
Get close by knowing your shoppers. Stiffer competition for space in baskets and shifting category priorities mean brands need to be closer and more relevant to shoppers, through understanding their needs and the purchase drivers for the category.
2. Availability
On-time measurement and budget allocation. Shopping frequency is expected to recover, which means product availability in-store will be crucial to maximise each shopping trip and basket conversion.
3. Audience
No ‘one size fits all’ strategy. Different shopper groups are behaving differently in response to market changes, especially when it comes to the products they choose to put in their basket. Understand who your target audiences are, and how they manage their priorities, preferences, and expenditure.
