Chapter 1
The reaction

Malaysian consumers have

responded to price inflation in

a number of different ways.

How have Malaysians reacted to inflation with regards to their take home grocery expenditure?In understanding how price inflation affects consumers, it is key to first understand that the nuances differ from one FMCG category to the next. Categories that are facing severe supply chain bottlenecks are impacted the most, deepening the need for informed, targeted strategies to maintain sales levels. The like-for-like SKU price increases seen over the past year, and what is clear is that there is no overriding theme when it comes to which categories have been impacted: essential and non-essential categories are seen on both sides of the spectrum. The implications of this are that there is no one size fits all solution to retaining shoppers.

Then, to understand the impact of consumers’ reactions to price increases, we looked at multiple years’ worth of data and over 20,000+ SKUs to identify specific themes in shoppers’ behavioural changes which can be closely tied to increases in price.

The outcome of the analysis shows that on a total FMCG level, value growth for the industry has been driven primarily by price increases. Growth also continues to be supported by a consistent upward population trajectory, and a slight movement trend towards stores with relatively higher average price points. Deep diving into the Store Mix factor uncovered that pharmacies have risen in relevance across multiple personal care categories, indicating that shoppers are starting to look for specialised retail channels. Furthermore, recent observations show that volume shrinkage is decreasing, with shoppers reverting to hypermarkets and supermarkets, which drive bigger baskets.While FMCG growth was supported by the factors outlined above, what were the negative impacts of inflation in the last year? The primary trend was shoppers dropping volume purchases overall. Implications vary from category to category, but the key questions all manufacturers should be asking are:

What are the KEY metrics I should focus efforts on to minimise/overturn volume loss?

Is my pack size portfolio optimised to deal with this change in volume?

How do I build customer loyalty in order to minimise volume declines?

Are there unexplored consumption/usage moments I can leverage to minimise/overturn volume loss?

How do I strategise between my premium and mass product portfolios?

In addition to buying less, consumers have started switching purchases to cheaper alternatives within the category. Implications of this are primarily the loss of loyalty amongst brand shoppers, particularly for brands that are mid-to-high tier priced within the category. Brands should be asking themselves:

What are the KEY metrics I should focus on to build loyalty?
How do I increase my value proposition/reason-to-believe with the consumer?
Is my brand proposition in line with the KEY purchase drivers of the category?
Am I effectively communicating (above and below the line) my brand proposition to consumers?