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PACK SMALL, GROW BIGLEVERAGING THE POWER OF SMALL PACKS TO DRIVE GROWTH• Small packs sustain growth momentum even in times of

economic slowdown.• However, demonetisation made a higher dent on small packs,

as consumers kept their purse strings tight due to paucity of currency.

• North and West beat other zones and show higher preference for small packs.

• Small packs are as popular in metros as in rural markets.

NIELSEN FEATURED INSIGHTS

DECODING SMALL PACKS ‘Small pack’ is a relative term, but it broadly refers to stock-keeping units (SKUs) across categories with the lowest few price points. Over the years there have been several attempts by various brands to introduce and sustain price points as low as INR 1, 2 or 3, but given the ever-increasing cost pressures, only the INR 5 and INR 10 SKUs have survived. For categories like carbonated soft drinks, ketchups, household cleaners, skin care and others that cannot operate at INR 5 or INR 10, low unit packs (LUPs) are available at marginally higher price points while continuing to deliver the benefits of LUPs. While the jury is still out on whether profitability or small packs can better drive growth in the competitive market, small packs continue to lure consumers across all age groups and population strata.

A Nielsen BASES study shows that innovations in the FMCG space that have small packs in their assortment achieve higher success, a clear indication that consumers are seeking small packs.

A NIELSEN BASES STUDY SHOWS THAT INNOVATIONS THAT HAVE SMALL PACKS IN THEIR RANGE ACHIEVE HIGHER SUCCESS - A CLEAR INDICATION THAT CONSUMERS ARE SEEKING SMALL PACKS.

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SUCCESSFUL INNOVATIONS HAVE SMALL PACKS IN THEIR RANGE

Source: Nielsen BASES

Source: Nielsen Shopper Trends 2016

PRESENCE OF SINGLE SERVE SKU

SUCCESSFULINNOVATIONS

RESPONSE TO INCREASING FOOD PRICES

NO PRESENCE OF SINGLE SERVE SKU

68%

33 40 49 54

46%

SHOPPER TRENDS SHOW OPPORTUNITY FOR SMALL PACKS As per the 2016 Nielsen Shopper Trends report, “more consumers are increasingly buying less in total.” This indicates that small packs offer a definite opportunity for marketers by ensuring that their brands continue to remain in the consumers’ monthly purchase basket.

2013 2014 2015 2016

BUY LESS IN TOTAL

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Source: Nielsen

THE ROLE AND FUTURE OF SMALL PACKS An analysis of ~40% of the fast moving consumer goods (FMCG) industry reveals exactly how small packs are faring.

1. ROLE OF SMALL PACKS/LUPS:Small packs drive high growth momentum because of the critical advantages they offer:

• The opportunity to try newer brands before expanding to large packs.

• The chance of getting closer to aspirational brands and categories. • Creation of multiple occasions of consumption. • Ease of storage in most households where space is limited.

There are three strategic imperatives that make LUPs indispensable to brands.

Where small packs are pivotal for the existence of a category: These are categories where more than 50% of SKUs are small packs. Categories like salty snacks, shampoo and instant noodles thrive entirely on small packs in the sub INR 10 range for their existence.

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CATEGORY @ AI (U+R)

SUB INR 10 SALIENCE WITHIN

CATEGORYKEY PRICE POINTS

CAGR (OVER LAST TWO YEARS) VS

CATEGORY

INSTANT NOODLES 75% Rs.10-12 1.8X

WESTERN SALTY SNACKS

87%Rs.5 2X

Rs.10 2X

TRADITIONAL SALTY SNACKS

66%Rs.10 2X

BISCUITS 69%Rs.5 1.2X

Rs.10 1.9X

SHAMPOO 63% Rs.1 2.2X

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Had it not been for small packs, the growth momentum seen for these categories might have been considerably lower.

Where small packs are growth levers: These are categories where 20% to 50% of SKUs are small packs.

Given the tough economic landscape, it is becoming increasingly difficult for marketers to drive consumption and deliver value for money to consumers.

Attempts at consumer and trade promotions by manufacturers are a stop-gap measure. Deliberation on pack-price architecture is more sustainable in maintaining a fine balance between volume and value. A few daily-needs categories like packaged tea, coffee and washing powder, have done exactly the same and made small packs a growth lever for themselves. This also gives brands and categories the opportunity to aim for a larger share of air space rather than the already cluttered shelf space.

Where they are beginning to explore: These are categories where LUPs comprise less than 20% of all offerings.

In the current economic environment of flux and unpredictability, some categories like milk food drinks (MFDs) and hair oil have begun to lure the consumer with small packs. The growth triggered by small packs in these categories helps make products affordable, induces trial and mitigates the monotony set in by the erstwhile dependence on large packs.

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3

CATEGORY @ AI (U+R)

SUB INR 10 SALIENCE WITHIN

CATEGORYKEY PRICE POINTS

CAGR (OVER LAST TWO YEARS) VS

CATEGORY

TEA 20Rs.5 1.2X

Rs.10 1.2X

TOOTHPASTE 24 Rs.10 2.4X

WASHING POWDER 33Rs.5 1.5X

Rs.10 5.7X

COFFEE 42Rs.2 3.1X

Rs.4 63X

Source: Nielsen

PACK-PRICE ARCHITECTURE

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The North and West zones are at the forefront of the move to small packs. The higher salience of small packs and lower price points for select categories in these zones is a gold mine, since it implies higher competition and more choices for consumers at lower prices, creating an opportunity to test innovations with consumers who are spoilt for choice.

CATEGORY @ AI (U+R)

SUB INR 10 SALIENCE WITHIN

CATEGORYKEY PRICE POINTS

CAGR (OVER LAST TWO YEARS) VS

CATEGORY

MILK FOOD DRINK 7 Rs.5 3.5X

HAIR OIL (INCL. COCONUT OIL)

8 Rs.10 16X

Source: Nielsen

SMALL PACKS TRIGGER GROWTH

2. LANDSCAPE OF SMALL PACKS

*Select FMCG categoriesSource: Nielsen

*SALIENCE INDEX VS. FMCG

1.1X

NORTH

0.8XSOUTH

0.9X

EAST1.2X

WEST

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• LUPs occupy lower shelf space and can occupy aerial space, thereby giving the maximum return per square foot, even to small retailers.

• They also have low invoice values while purchasing from wholesales or distributors, resulting in less credit risk in the market.

• The catch is that during changes in external environments, small packs tend to give in faster.

79%

LUP IS AS METRO AS IT IS RURAL Small packs and smaller price points is no longer a phenomenon of rural only but is a trend that is growing fast in metros with their confluence of consumers across SEC classes.

Approximately 14 lakh stores available in metros in India, offer a huge opportunity in the form of aerial space (the phenomenon of small packs being hung on display usually near the point of sale) for small packs in addition to the shelf space inside the store.

*LUPs considered for select categoriesSource: Nielsen

THE RISING ACCEPTANCE OF SMALL PACKS

0.9 1.3 1.6ALL INDIA (U+R) METRO RURAL

*LUPS CAGR INDEX WITH FMCG

3. GETTING THE LUP STRATEGY RIGHTPack-price architecture around small packs should be well thought out because it comes with its share of caution:

• Threat from small or regional players: LUPs can make it easier for small and regional players to enter the market because transportation of LUPs is easy. Also, the entry barrier for smaller players could become lower.

MARKET SHARE VALUEINSTANT

NOODLES (TOP 2)SALTY SNACKS

(TOP 5)BISCUITS (TOP 5)

WASHING POWDER (TOP 3)

NATIONAL PLAYERS 81 57 78 78

SMALLER/ REGIONAL PLAYERS

19 43 22 23

Source: Nielsen

SHARE OF NATIONAL VS. SMALLER PLAYERS

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SMALL PACKS ARE HERE TO STAY Sales figures over several years for some categories, and the last few years for others, indicate that the consumer is staunchly in favour of small packs. The analysis of recent data shows that marketers would need to focus on:• North and West zones• Metros as much as rural• Paan kiosks before their limited capacity get used up

While the focus can be on LUPs, medium unit packs (MUPs) can provide an immediate opportunity for these categories to upgrade consumers. With digital money gaining continuous acceptance and coins disappearing from wallets, INR 20 might be the new INR 10 in the near future.

GR VALUE OVER OCT NOV 14 NOV 15 NOV 16

MFD -0.3 -4.8 -1.4

Rs.5 -0.9 -2.7 -12.2

HAIR OILS -2.8 -1.9 -1.7

Rs.5 -23.7 17.9 -35.1

Rs.10 -7.0 2.8 -3.2

WASHING POWDERS/LIQUIDS -2.6 -0.0 -1.9

Rs.5 -3.5 0.7 -0.9

Rs.10 13.3 1.8 -2.4

TRADITIONAL SNACKS -0.8 -4.4

Rs.5 -5.4 -6.4

Rs.10 -6.1 -7.6

CARBONATED SOFT DRINKS -22 -18 -22

Rs.15 -19 -13 -22

INSTANT NOODLES -4 28 -3

Rs.10-12 -2 24 -5

Source: Nielsen

THE EFFECT OF DEMONETISATION ON SMALL PACKS

WHILE DEMONETISATION HAD SIGNIFICANT RAMIFICATIONS ON THE ENTIRE FMCG INDUSTRY, IT CAUSED A BIGGER DENT TO SMALL PACKS OF SOME CATEGORIES. SHORTAGE OF CURRENCY AT THAT TIME AFFECTED LOW UNIT TRANSACTIONS DESPITE SMALLER DENOMINATION CURRENCY BEING PROMOTED BY THE GOVERNMENT.

It is not that LUPs provide complete immunity from the economic environment. While demonetisation had significant ramifications on the entire FMCG industry, it caused a bigger dent to small packs for some categories. Shortage of both currency and small change at the time affected low unit transactions. With retailers initially reluctant to return small change, shoppers mostly purchased large packs. Many categories saw a sharper decline in sales of small packs against the overall category, possibly because the availability of retail credit allowed consumers to continue the purchase of large packs and temporarily give up small packs. Additionally, retail channels like modern trade and chemists where digital payments and old currency were still being accepted, generally tend to stock and sell large packs.

8Copyright © 2017 The Nielsen Company

ABOUT NIELSENNielsen Holdings plc (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers watch and buy. Nielsen’s Watch segment provides media and advertising clients with Nielsen Total Audience measurement services for all devices on which content — video, audio and text — is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry’s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen also provides its clients with analytics that help improve performance. Nielsen, an S&P 500 company, has operations in over 100 countries, covering more than 90% of the world’s population. For more information, visit www.nielsen.com.

ABOUT THE AUTHORS

VIJAY UDASISENIOR VICE PRESIDENTNIELSEN INDIA

SONIKA GUPTADIRECTORNIELSEN INDIA

SHRUTIKA KANCHANSENIOR MANAGERNIELSEN INDIA

Sarthak Dasgupta from the Nielsen Retail Measurement team contributed to this issue of Featured Insights