Catherine Eddy: How have businesses and consumers in SE Asia reacted to the challenges brought about...

SE Asian Reaction to The GFC

The D Word

National Foods Conference 2009

Diversity in:Economic performance (Singapore,

Malaysia, Thailand forecasting negative GDP growth)

Political stability (Thailand and Philippines challenges; Indonesia, Singapore, Malaysia ok)

Size (Indonesia 1,860,360 km2, Singapore 707 km2)

EthnicityConsumer sentimentHealth status…….

The D WordCulture Religion Geography Language Wealth Foreign investmentCurrency volatilityDemographicsRetail development

Reliance on exportsInfrastructureDemocratic maturityPopulationUnemploymentGovernmentMedia channels and

consumption Retail development

GDP – Indonesia and Vietnam standouts

2009 2008 2007 2006

-6.5 1.1 7.8 8.4

-3.4 2.6 4.9 5.2

3.5 6.1 6.3 5.5

1.0 4.6 7.2 5.4

-3.1 4.6 6.2 5.8

4.5 6.2 8.4 8.2

Singapore

Thailand

Indonesia

Philippines

Malaysia

Vietnam

Inflation

Singapore

Thailand

Indonesia

Philippines

Malaysia

Vietnam

2009 2008 2007 2006

0.1 6.5 2.1 1.1

-0.5 5.4 2.2 4.7

6.0 9.8 6.4 13.1

2.0 9.3 2.8 6.3

1.8 5.4 2.0 3.6

6.0 23.1 8.5 7.5

A melting pot or a hotchpotch….

Singapore

Thailand

Indonesia

Philippines

Malaysia

Vietnam

Popmln

Areakm2

2008 GDP PP USD

FDI inflowUSDm

4.8 707 49,912 22,801

66.5 513,120 8.705 9,834

228.5 1.860,360 3.943 7,918

90.4 300.000 3.506 1,520

27.8 330,252 13,748 8,053

86.1 331,212 2,816 8,050

ASIAInternet Users,

Latest Data

Penetration (%

Population)

Users (%) in Asia

• Singapore 3,104,900 67.4 % 0.5 %

• Malaysia 15,868,000 62.8 % 2.4 %

• Vietnam 20,993,374 24.4 % 3.2 %

• Philippines 20,650,000 21.5 % 3.1 %

• Thailand 13,416,000 20.5 % 2.0 %

• Indonesia 25,000,000 10.5 % 3.8 %

TOTAL ASIA 657,170,816 17.4 % 100.0 %

Internet penetration

The telling factors…131%

64%

27% 29%

87%

68%

Singapore Thailand Indonesia Philippines Malaysia Vietnam

Exports as % of GDP

Big variation in proportion of GDP from private consumption

Not all stimulus packages are equal

Fiscal Stimulus plans of select G20 countries

$75 b 38 of GDP

United States

$31 b 2.5 of GDP

Canada

$32.87 b 1.3 of GDP

France

$28.5 b over 1 of GDP

Britain $102.4

b 3.25 of GDP

Germany

$8.85 b 0.4 of GDP

Italy

$62 b 5.4 of GDP

Russia Chinaa

$49.28 b 5.7 of GDP

South Korea

$122.9 b 2 of GDP

Japan

$33.59 b 2 of GDP

Australia

$6.1 b 1.3 of GDP

Indonesia

$4 b 0.4 of GDP

IndiaSouth Africa

$30 b (approx.)

Argentina

$0.43 b 1.5 of GDP

Turkey

Source - The Standard Thursday 2nd April

?

$585 billion

13.3 of GDP

$6 b = 7% of GDP

Vietnam

Vietnam

Vietnam inflation

14.8

11.39.2

5.63.9

24.2

27.928.32726.8

25.2

21.419.4

15.714.1

8.5

26.7

17.5

19.9

2007

tota

l

Jan-0

8

Februar

y

Mar

chApril

May

June

July

August

Septe

mber

Oct

ober

Novem

ber

Decem

ber

Jan-0

9

Februar

y

Mar

chApril

May

June

Retail Volume index: Vietnam

Consumer Volume Index - Total FMCG

100

107105 104

112

105

116

134

123

154

132

139

134

142144

140

150

138

148

172

137

154

149

156

149

90

95

100

105

110

115

120

125

130

135

140

145

150

155

160

165

170

175

180

JUN07 AUG07 OCT07 DEC07 FEB08 APR08 JUN08 AUG08 OCT08 DEC08 FEB09 APR09 JUN09

Total FMCG

Growth %

YTD'09 vs.

YTD'08

Jun'09 vs.

May'09

Jun'09 vs.

Jun'08

Total 6 Cities 12.4 -4.2 11.2

Total Top 37 Categories

Top 5 Consumer Concerns

1) Health1) Health

2) Increasing Bills2) Increasing Bills

1) Increasing Food Prices1) Increasing Food Prices

3) Increasing Bills3) Increasing Bills3) Job Security3) Job Security

4) Work Life Balance 4) Work Life Balance

2) Job Security2) Job Security

4) Price Increases in Petrol4) Price Increases in Petrol

5) Debt5) Debt 5) Children’s Welfare5) Children’s Welfare

$

$

HanoiHanoiHCMCHCMC

Source: Nielsen Vietnam Omnibus May 2009

Individualism V Collectivism

Other peoples opinions do affect my actions and

behaviours

Other peoples opinions do affect my actions and

behaviours

HanoiansHanoians

It’s my decision that counts. I use other

opinions for reference only

It’s my decision that counts. I use other

opinions for reference only

SaigoneseSaigonese

“When I came to the store to buy an LCD, I

had already decided to buy Samsung brand

before going there. I just asked others’ opinions

for reassurance’’

“For example, I want to buy a new TV and if some of my neighbors tell me that the TV is not high

quality, then I would be turned off that TV right

away”

Source: Nielsen Regional Differences Qualitative Study

Family recommendation a factor for all, but then much variation on sources

Q:Q: How important are each of these groups in making your purchase decisions?

* Significantly higherQ 23b: Please rate those statements based on importance (1 to 5).Top 2

Boxes

94% 99% Recommendation from my

family members

71% 91% Recommendatios from my

friends*

52% 83% Recommendation from

colleagues/ partners *

42% 94%

Recommendation from my

neighbors*

SaigoneseSaigonese HanoiansHanoians

But why?The role of public opinion and social conformity differs between the two cities and seems to influence Hanoians more

They don’t just live for themselves and they do care what others think of

them. Appearance is key.

They feel a responsibility to obey certain standards and disciplines

They don’t just live for themselves and they do care what others think of

them. Appearance is key.

They feel a responsibility to obey certain standards and disciplines

HanoiansHanoians

They just live for themselves and don’t care “much” about what others

think.

They just live for themselves and don’t care “much” about what others

think.

SaigoneseSaigonese

“When I go out with my friends, I don’t

need to wear premium luxurious

brands” “There’s a saying in the North which is: Tell me what motobike you are riding,

then I would tell you who you are”

Source: Nielsen Regional Differences Qualitative Study

To impact behavior it’s useful to understand the important touch points in each market

6% 23%* Like to watch ads and are

affected by them

* Significantly higherQ 32: Which statement best describe you? SA

Base: All respondentsSource: Nielsen Regional Differences Quantitative Study

HCMC HN

How important are each of these factors in influencing purchase decisions?

41% 91%* Advertising

42% 83%* Newspapers/Magazines

36% 67%* Recommendations from

sellers/store owners

22% 95%* Internet/other websites to compare information

22% 100%* Mfr/Distributor/Seller

websites and forums

* Significantly higherQ 23b: Please rate those statements based on importance (1 to 5). Top 2

Boxes


HCMC HN

The role of advertising is more critical in Hanoi

I watch advertising and also refer to others ideas to feel assured

HCMC HN

I like strange, unique and funny advertisements. It makes me laugh,

feel happy and attracts my attention

Advertisements are really helpful when I need to buy something

I have a tendency to love meaningful implied advertisements

I feel more comfortable with products which have many

advertisements

Preference for products will depend on the popularity of it’s

advertisement

57% 81%*

44% 75%*

28% 73%*

30% 68%*

19% 49%*

17% 49%*

* Significantly higherQ 33: How much would you agree on the following statements? Top 2 Boxes


Promotion strategies need to cater to different consumer preferences

Increase volume/ quantity

Attached gift

Reduce price

Reduce price11

22

33

11

HCMCSaigonese consumers favor various promotion strategies

HNHanoians strongly prefer one type of promotion: PRICE

ShampooBeverage

ShampooBouillon

TVFridge

TV Food

Base: All respondentsSource: Nielsen Quantitative Study

Q 19b: Which promotion program do you prefer the most?Q19c: Which categories would you like this promotion program to be

applied?

Vietnam

What are the top concerns of manufacturers and suppliers?

1) Competitive pressure/ Activity/Growth (40%)

1) Competitive pressure/ Activity/Growth (40%)

2) Global Economic Crisis (38%)

2) Global Economic Crisis (38%)

5) Inflation (24%) 5) Inflation (24%)

7) Wage Growth (13%)7) Wage Growth (13%) 3) Price increases (37%) 3) Price increases (37%)

4) Low GDP Growth (33%) 4) Low GDP Growth (33%)

6) Labour force skill shortage (18%)

6) Labour force skill shortage (18%)

8) Foreign Investment Slowdown (12%)

8) Foreign Investment Slowdown (12%)$

Source: Nielsen Business Barometer, Feb 2009, Base: All respondents

Which of the following issues concern you in terms of the impact they may have on your business? Rank the top three issues that concern you where 1=most concern, 2=second most concern etc.

How does business view Vietnam conditions (compared with last year)?

11 9

49 54

15 11

21

4

21

5

0%

20%

40%

60%

80%

100%

Total (n= 75) FMCG (F) (n=56)

Deteriorated significantly (1) Deteriorated somewhat (2) Remained the same (3)

Improved somewhat (4) Improved significantly (5)

Business Conditions in Vietnam (Now vs Year Ago)

•Q5. Compared to the same time last year, do you think business conditions in Vietnam have improved or deteriorated?

60% 63%

…but the future feels bright - more optimism among own industry

7 4 1

31 38

23 25

28 25

35 32

3233 36

38 7

30

4

0%

20%

40%

60%

80%

100%

Total (n= 75) FMCG (F) (n=56) Total (n= 75) FMCG (F) (n=56)

Deteriorated significantly (1) Deteriorated somewhat (2) Remained the same (3)

Improved somewhat (4) Improved significantly (5)

Total Market Your Industry

Over the next 6 to 12 months, do you believe that business conditions in the total market & your industry are more likely to improve or deteriorate?

63%59%

Over 70% of Vietnamese in rural; manufacturers are aware of the opportunity

4 4

32 32

51

13

52

12

0%

20%

40%

60%

80%

100%

Total (n= 75) FMCG (F)(n=56)

Decrease significantly (1) Decrease somewhat (2)Neither increase nor decrease (3) Increase somewhat (4)Increase significantly (5)

In the next 12 – 18 months, to what extent will you look to rural Vietnam areas to drive your company growth?

64% 64%

Mixed opinions on how advertising spend will move in next 6 – 12 months. Global or local forces?

12 13

21 18

29 30

32

7

32

7

0%

20%

40%

60%

80%

100%


Reduce significantly (1) Reduce somewhat (2) Remain the same (3)

Increase somewhat (4) Increase significantly (5)

Over the next 6 to 12 months, how do you anticipate your company's spend on advertising to change?

39% 39%

Only 12% of companies plan to reduce staffing numbers

111 9

53 57

31

4

32

2

0%

20%

40%

60%

80%

100%


Reduce significantly (1) Reduce somewhat (2) Remain the same (3)

Increase somewhat (4) Increase significantly (5)

Over the next 6 to 12 months, how do you anticipate your company's work force numbers to change ?

88% 91%

57% of manufacturers expecting to grow at a greater rate than industry average

3 28 9

32 27

24

33

29

34

0%

20%

40%

60%

80%

100%

Total (n=75) FMCG (A) (n=56)

Significantly lower (<=IA-5%) Somewhat lower (btw IA-1% and -4%)Equal (>=IA-1% and <=IA+1%) Somewhat higher (btw IA+1% and +4%)Significantly higher (>=IA+5%)

Note: IA = Industry Average

*

Company versus Industry average growth rate (next 12 months)

Vietnam

There are some bad signsTextile and construction have

sufferedVietnam saw a significant drop in

services exports (tourism air and maritime services) in 2008 but it’s a relatively minor export focus

But good stuff tooThere is still a GDP estimate of 5-6%Inflation is under controlBusiness is pretty buoyant and

optimistic about the next 12 monthsFMCG volumes continue to grow

Indonesia

Indonesia

Q1 2009 Q2 2009

• Stock market is at lowest level in Feb 2009

• Crude oil price stabilizes at $40 after sharp declines in the prior 6 months

• Lay offs from export oriented manufacturers (i.e garment, shoes)

• Currency rate at 11,250 to USD after peaking in Q4 ‘08

• Parliamentary election under way

• Stock market index improves to 1800 way above prediction

• Crude oil price increases to 65 per barrel (but local fuel price remains stable)

• IMF revised their GDP prediction for Indonesia

• Currency rate is 10.000 to the US$ 1

• SBY’s party secures highest vote, voters opting for stability & continuity

FMCG value continues to increase; driven by Modern Trade and Java.

Indonesia Total 6.8 4.54.3

Ind. MT 12.1 7.211.8

Ind. TT (GT) 3.8 2.90.1

Java Total 7.8 5.86.4

Sumatra Total 3.3 4.72.1

O. Island Total 2.1 5.3 -0.1

Total Top 50 Categories, Value: indexed to Average of 2007 Indonesia

0

20

40

60

80

100

120

140

May

'07

Jul'0

7

Sep'07

Nov'07

Jan'

08

Mar

'08

May

'08

Jul'0

8

Sep'08

Nov'08

Jan'

09

Mar

'09

May

'09

Growth (%)Cal. YTD 09VsCal. YTD 08

May 09Vs Apr 09

May 09VsMay 08

Value grows but many categories seeing volume contraction

-6.9

1.9

12.3

-2.9

-8.2

-1.6

2.2

-9.1

-16.4

2.5

2.9

9.7

17.0

12.5

10.1

3.5

5.3

7.2

-21.2

22.8

Volume Growth %

Value Growth %

Value & Volume Growth % - Jan-May09 vs. Jan-May 08

Instant Noodles

Powder Milk

Branded Coffee

Detergent

Biscuit

SCM

Shampoo

Toilet Soap

Branded Cooking

Oil

SkincareSource : Retail Index

Indonesia

Top 10 categoriesIndonesia Total Grocery – Top 10 FMCG

Instant Noodles

Powder Milk

Branded Coffee

Detergent

Biscuits

SCM

Shampoo

Toilet soap

Branded Cooking

oil

Skin Care

Mini Market

Super Hyper

-13.3

6.6

1.9

-15.1

0.8

2

-1.6

-22.3

9.9

68.9

-4.9

8.7

13.7

-2.4

3.7

6

10.7

-29.3

26.8

63.5

Trad. Trade

33

26.5

7.3

7.4

62.2

12.5

9

-25.7

26.9

-0.8

42

34.8

18.5

27.4

68.4

18

21.1

45.9

-9.8

-12.4

12

-6.4

-10.7

-8.1

-0.3

-14

-3.5

-7.8

-3.2

-4.1

16.7

10.9

8.5

-2.2

2.3

3.1

-5.6

7.1

-14

Source : Retail Audit

Indonesia

Volume

Value

Reaction to hard times is category dependent

Brand Oriented

Quantity Oriented

Function driven Emotional

driven

Rice

Cooking OilHousehold Care (detergent, floor care)

Instant Noodle

Personal Care (soap, shampoo)

Facial Care

Tea, Coffee

Milk for Kids (under 6 y.o.)

Mums more willing to reduce quantity rather than brand as these products are linked to taste (preference)

Quantity is more important – willing to use cheaper brand if necessary

Reluctance to shift to cheaper brands; greater emotional attachment.

Milk for kids serves a functional and an emotional role (I want the best for my kid). For kids under 6 years old – necessary to have adequate amount of nutrition rather than a prestigious brand

Some products may be more difficult to replace compared to others depending on degree of functional and emotional attachment to them

How does behaviour change when people are challenged economically?

Activity

LOWER CLASS

Change to cheaper brand

More Likely

Less Likely

Change pack size/ Reduce usage

Reduce purchase quantity

Reduce frequency (luxurious items)

MIDDLE CLASS





HIGHER CLASS





Source: Nielsen, Qualitative

Indonesia

What are the big concerns for industry in Indonesia?

Total

62

53

45

45

39

38

36

36

28

26

FMCG

Exchange rates

Cost of raw materials

Government policy / regulation

Lifestyle changes among consumers

Pressure on trading terms

Inflation

Political stability

Increase in promotional sales & erosion of baseline sales

Lack of certainty of enforcement of regulations

Economic condition of trading partners

68

62

53

51

45

38

32

26

24

22

Cost Of Raw Materials

Exchange Rates

Pressure On Trading Terms

Lifestyle Changes Among Consumers

Increase In Promotional Sales & Erosion Of Baseline Sales

Government Policy / Regulation

Inflation

Political Stability

Lack Of Certainty Of Enforcement Of Regulations

Retailer Supply Chain Strategies

Total FMCG

5

21

15

48

11Improvedsignificantly

Improvedsomewhat

Remained thesame

Deterioratedsomewhat

Deterioratedsignificantly

2

19

14

51


Improvedsomewhat

Remained thesame



59%59% 65%65%

How does business view Indonesian conditions (compared with last year)?

Business Conditions in Indonesia (Now vs Year Ago)

And bright conditions forecast for Indonesia(Over next 1 – 2 years)

Total FMCG

4

8

70


Improvedsomewhat

Remained thesame



05

7

69


Improvedsomewhat

Remained thesame



88%88% 87%87%

Over the next 1 to 2 years, do you believe that business conditions in the total market & your industry are more likely to improve or deteriorate?

Revenue growth of 12% + for 59% of companies in 2009 (FMCG 65%)

Total FMCG

3 396 5

813

8

8

40

25

19

22

31 24

12

20 26

4 9 7

Sales Volume Profit

Less than 0%

0 - 5 %

6 - 11 %

12 - 20 %

21 - 30 %

Above 30%

Don't Know

1 212

4 3

821

10

10

42

28

14

25

27 25

6

2227

29

3

Sales Volume Profit

Less than 0%

0 - 5 %

6 - 11 %

12 - 20 %

21 - 30 %

Above 30%

Don't Know

Future View on Rural Indonesia (Next 2 Years : Y2011)

Total FMCG

3

24

56

16

Increasesignificantly

Increasesomewhat

Neitherincrease nordecrease

Decreasesomewhat

Decreasesignificantly

3

17

59

21


Increasesomewhat


Decreasesomewhat


72%72% 80%80%

Future View for outside Java business (Next 2 Years : Y2011)

Total FMCG

1

15

52

31


Increasesomewhat


Decreasesomewhat


17

51

40


Increasesomewhat


Decreasesomewhat


83%83% 91%91%

Production Capacity anticipated to expand in the 2 Years to Y2011)

Total FMCG

1

12

60

22


Increasesomewhat


Decreasesomewhat


9

61

29


Increasesomewhat


Decreasesomewhat


82%82% 90%90%

Advertising spend expected to increase in Indonesia in 2010; 79% of FMCG coys

Total FMCG

3

27

57

13Increasesignificantly

Increasesomewhat


Decreasesomewhat


2

19

63

16


Increasesomewhat


Decreasesomewhat


70%70% 79%79%

25 top advertising spenders in H1 2009 Indonesia

Top 25Ad

Spenders

DecreasedAd Spend

6

IncreasedAd Spend

19

PositiveGrowth

14

Negative Growth

5

PositiveGrowth

2

Negative Growth

4Volume

And the majority of companies expect to increase hires in the 2010 year

Total FMCG

2

40

49


Increasesomewhat


Decreasesomewhat


2

35

54


Increasesomewhat


Decreasesomewhat


59%59% 63%63%

Indonesia Q2 Domestic growth (Real GDP) slowed to 4% but it still leads the region

Demand has been broad-based, with domestic demand that is very resilient; balancing out the export concerns (but exports for Indonesia are among the lowest in the region)

Q2 saw stronger export performance partly due to commodity price increases

Things are not bad…Telkomunikasi Indonesia posted its biggest quarterly profit in almost 7 year in Q2 2009. Net income up 16% on PY and sales up 5.3%

A successful democratic election, highest consumer confidence in 4 years and a 14.6% gain in the rupiah in Q2 are all very positive signs

Regional Consumer Sentiment

Consumer Confidence Index Q1 ‘09

A good time to buy? Q1 ‘09

What do people do with spare cash?- South East Asia (Top 5)

Indonesia Malaysia Philippines Singapore Thailand Vietnam

Putting into savings (67%)






Investing in shares of stock / mutual

funds (44%)

Paying off debts/credit

cards/loans (41%) New clothes (35%)Holidays/vacations

(42%)Holidays/vacation

(46%)sHolidays/vacations

(27%)

New technology products (29%)

Holidays/vacations (37%(

New technology products (34%) New clothes (28%)

Home improvements /

decorating (27%)New technology products(25%)


cards/loan (29%)s


funds (32%)


cards/loans (32%)


cards/loans (27%)Retirement fund

(27%) New clothes (23%)

Holidays/vacation (25%(s New clothes (24%)

Holidays/vacations (27%)


funds (26%)New technology products (24%)

Home improvements /

decorating (23%)


Compared to last year, how have consumers adjusted? Q1 ‘09

For Vietnam, also less on clothes, upgrading technology and OOH entertainment? Q1 ‘09

Moving ahead – what comes next

When conditions ‘improve’ consumers in Indonesia will continue to…

In Vietnam, when things get better, consumers will continue to …

Commonalities

Large rural population

Corruption

An emerging modern trade

Traditional still very significant

A big bubble of under 25’s

Infrastructure challenges

Legislative unpredictability

You need to create enough jobs to absorb new workers; if you don’t you risk dissent among the masses and that can drive instability

Are these large young populations – good or bad? It’s a double edged sword

Philippines have 10% of population working abroad; when things go wrong, they’re among the first to be sent home. If the economy were truly healthy they’d absorb that employment at home.

Good news

ADB say Asian economies are likely to bounce back in 2010

Philippines imports rebound up 18.9% in May

Hyundai in Seoul posted a 2nd quarter net profit up 48% on strong sales

Bharti India net profit up 24% for Q1

Asian stocks at a 10 month high end July

But perhaps the sustainability of the recovery is in question…..if the rest of the world fails to bounce back

In that case, Indonesia and Vietnam are better poised because of their relative resistance through lack of reliance on global market

Outlook and taking advantage

Opportunities Look for unmet opportunities eg. telcoms in

rural areas.

Unbranded products that will covert to branded in good times

Distribution is key; extensive and effective distribution network

Rural comprises 75% in Vietnam, 58% in Indonesia

Note the huge income disparity between rural and urban – you are dealing with very different needs

Rural - daily paid. Unilever has worked this to advantage as has Coke - reducing pack size to make consumption of their products more affordable

Jakarta has a day time population of around 12 million and an evening one of 8 million

People quite happily spend the equivalent of their net monthly salary on a mobile handset

Despite body shape, SE Asians are not immune to diabetes or obesity

In fact 1 in 6 Thais are also considered obese (specialty drinks are a popular luxury for Asians with spare discretionary cash).

RTD Green Tea has experienced massive growth in Indonesia and Coke Zero has taken off in Thailand where Coke has seen 7% growth in Q1 2009 across all brands. This is counter to the general contraction in consumer spending there.

In Indonesia, if you have a disability you will soon be asked to wear signage so that drivers know that’s the case


such is life in Asia….


SE ASIAN REACTION TO THE GFC

Not so much….

Catherine Eddy: How have businesses and consumers in SE Asia reacted to the challenges brought about...

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