fbpx

With uncertainty in advanced economies one of the biggest risks to the global economy, and growth in emerging economies beginning to accelerate, consumers in these markets still hold great potential for multinationals.

Where do you see the biggest potential for FMCG companies when targeting low-income consumers?

The biggest potential can be found by building consumer loyalty, in other words: finding the consumers of tomorrow. Multinationals can gain traction by aiming to replace informally produced goods which are generally low-quality, and sometimes deadly (eg home brew), with safe alternatives. Improving the lives of consumers at the “Bottom of the Pyramid” (BOP) is not just altruistic, but also yields profits. A good example of this is Unilever’s Lifebuoy soap – this is sold in tandem with a hand-washing campaign. Lifebuoy had an 8.2% share of the market for bar soap in Asia Pacific in 2015, with as much as 27.3% in Indonesia. Hand-wash laundry detergent that works with less water is another example – this means less water for women to carry, and is also good for the environment.  Unilever again has a product “Comfort One Rinse” which the company claims has helped “homes use up to 75% less water while washing clothes”.

Brand Share of Lifebuoy Soap in Selected Asian Countries: 2015

lifebouy-soap-brand-share-asia

Source: Euromonitor International from trade sources/national statistics

Geographically, Sub-Saharan Africa is a key region. The BOP represents the largest share of population in this region and many consumers remain largely untapped by multinationals, which allows these companies to gain first-mover advantage. Sub-Saharan Africa is a region with economic challenges but it remains relatively fast-growing –behind only Asia Pacific globally.

How would you rate the importance of rural vs. urban markets in emerging and developing countries with regards to the FMCG industry?

Urban markets are the fastest-growing, but rural markets remain the largest in many countries. Rural areas often provide greater opportunities for first-mover advantage and building consumer loyalty. On the other hand, urban consumers have more money and are generally easier to reach – the latter is an important factor. Distribution challenges shouldn’t be underestimated, particularly in rural areas.

Urban and Rural Consumer Expenditure in Selected Emerging Markets: 2015

urban-rural-consumer-expenditure

Source: Euromonitor International from national statistics

Average Consumer Expenditure in Urban and Rural Areas in Selected Emerging Markets: 2015

avg-consumer-expenditure-urban-rural-emerging-markets

Source: Euromonitor International from national statistics

What is the reason that certain FMCG companies succeed in emerging markets? Why do others fail?

A failure to complete due diligence is a key reason. Multinationals must conduct in-depth research and compile detailed knowledge of the emerging markets they operate – or plan to operate – in. An understanding of consumers, the business environment, competitors and the market itself is crucial. This enables them to sell the right products to the right people at the right time.

Multinationals must also innovate to succeed – not just try and sell cheaper versions of the products they sell in advanced economies for instance. Innovation is really key – business must be prepared to educate consumers, design new products, and take on distribution themselves. Flexibility is also needed and a realisation that a one-size fits all approach will not do. To succeed it’s important to really think about what’s important to consumers in the market. This sounds obvious but is being overlooked.

Which challenges are the most relevant ones when targeting low-income market segments? What are the strategies to overcome these challenges?

The choice of business model is a readily apparent one – with many companies focusing on small pack sizes such as single-use sachets. Infrastructure is also important – not just the obvious transport and power deficits, but also the “infrastructure” needed for consumers to be able to use the product – do people have fridges? Do people have washing machines?

Lowest Penetration Rates of Refrigerators in Major Emerging Markets: 2015

lowest-penetration-rates-of-refrigerators

Source: Euromonitor International from national statistics

Note: Data refer to a ranking of 54 large emerging and developing countries

Distribution is probably the most important for low-income consumers. It can be really hard to reach these consumers – literally and figuratively. Literally in terms of the lack of infrastructure and poor retail environment, (which can be solved using micro-distributors, and small, frequent deliveries). But figuratively in terms of the lack of awareness of the brand, the product or sometimes even the category. So education is crucial.

Which recommendations would you give multinationals on how to successfully enter the FMCG market in the low-income market segment in emerging and developing countries?

In doing business with low-income consumers, companies must understand the trade-off poor consumers make between price and quality and focus on offering value. It also requires multinationals to rethink their business models – from product design, through to packaging and distribution.

Businesses succeeding at capturing the BOP market tend to be those that focus on innovation, education and distribution networks. Forming partnerships with local stakeholders, and also creating purchasing power for low-income consumers, are also both important.

It’s imperative to understand the local market – consumers in Latin America won’t have the same tastes, motivations and aspirations as those in Asia-Pacific. Indeed, even generalizing about a region should be avoided. Research from the World Bank showed that BOP consumers in a particular country in Latin America had more in common with middle class consumers in their own country rather than with other low-income consumers across the region. Not in socio-economic terms, where they tend to share same characteristics, but in tastes and attitudes.

individuals-aged-over-18-in-key-emerging-markets

Source: “Doing Business at the Bottom of the Pyramid” Euromonitor International

Do you have any case studies that showcase how the FMCG sector has successfully or unsuccessfully entered low-income markets in emerging and developing countries?

  • A well-known example of a company innovating in terms of adapting its business model is Nestlé and its Amazon barge in Brazil –a boat with 100-square metres of supermarket space which travels to 18 small cities and 800,000 potential consumers. As well as supplying consumers, the barge also supplies micro distributors in the area thus extending the company’s reach to thousands of BoP households;
  • Global Alimentos SAC is the leading breakfast cereal player in Peru with a 59% value share of the market in 2014. It focuses on innovation and offers smaller pack sizes, incorporating Andean cereals into its offer as well as having an impressive distribution network. This ensures that its products are available throughout the country, even in rural areas, and in traditional sales channels like independent small grocers, in order to reach low-income consumers;
  • Éxito, the market-leading supermarket in Colombia, offers store cards to its shoppers. The Éxito Origen credit card can be obtained by cardholders without a banking history or formal income;
  • Farmacia Similares, a drug retailer in Mexico with 2,000+ stores, provides access to basic health care for low-income consumers who cannot access public services or pay the usual private fees. Low-cost generic drugs are available and consultations with doctors for a low fee are also available through adjacent medical clinics;
  • South Africa’s Promasidor, through its Cowbell brand, provides milk powder in small portions packaged in sachets. By removing the animal fat from the milk and replacing it with vegetable fat Cowbell allows for a longer shelf life. These two innovations mean that Cowbell is sold across Africa including in Nigeria, Kenya and Malawi; in countries where households are without refrigeration and suffer from irregular power supplies and in countries where fresh liquid milk is not available;
  • In India, Godrej and Boyce launched what has been feted as the world’s cheapest refrigerator. It retails for US$69 and was designed to target poor, rural consumers. In a country with 854 million rural inhabitants this market is huge. The ChotuKool refrigerator looks from the outside like a box, consumes half the electricity of a standard refrigerator, and, importantly in a country which suffers power outages, it also stays cool for hours with no power, due to its superior insulation. It was designed with input from village women and is linked to microfinance organisations which means families can purchase it on credit;
  • Unilever’s Surf Excel Quick Wash was developed with India in mind – it’s a detergent for hand washing laundry and it claims to reduce water consumption and the time taken for rinsing by 50%. Freshwater resources are scarce in India, added to which, in 2015 only 49.8% of households had an improved water supply – so a product which uses less water means a lot less collecting of wáter;
  • The brewer, SABMiller brought out Chibuku “Shake Shake” an opaque beer made from maize and sorghum, at half the price of its regular beers to compete with homebrew. The ingredients are tweaked to suit local tastes in different markets and it retails at 40% less than a “normal” beer. Unsurprisingly, it has been hugely successful. Diageo has done a similar thing with Senator Keg in Kenya.

About Our Research

Request a complimentary demonstration of our award-winning market research today.