Nielsen market analysis

Malaysian consumers are among Asia's least confident  against a backdrop of inflation and rising costs of living. Hypermarkets and FMCG saw gains while personal-care and houshold brands stuggled. Look to youth and the middle class to drive the market.

The Malaysian economy posted something of a rebound in 2014, recording GDP growth of 6.0 per cent compared to 4.7 per cent in 2013, with strengthening domestic demand and external-trade performance contributing to the majority of this growth. Inflation also increased to 3.2 per cent in 2014, up from 2.1 per cent in the prior year. And 2015 is off to a good start with high domestic and export orders resulting in healthy sales. As such, the Malaysia Business Condition Index (as posted by the Malaysian Institute of Economic Research) has seen  sharp improvement in the first quarter with a score of 101 points (up from 86.4 points in the previous quarter). Foreign exchange remains a challenge, however, with the ringgit currently ranked as the second poorest performing Asian currency in the first quarter of 2015, after the Indonesian rupiah, largely due to to falling oil and energy prices. The ringgit depreciated 6.0 per cent against the US dollar in the first quarter and the expected upcoming hike in the US Federal Reserve’s interest rates may lead to further weakening.

Malaysia’s consumer price index rose in 2014, with March inflation up 3.69 per cent versus the same period a year ago. The price increases were reported for alcoholic beverages and tobacco (+10.6 per cent), health (+3.6 per cent), restaurants and hotels (+2.8 per cent) and food and non-alcoholic beverages (+2.3 per cent). While analysts forecast the recent implementation of the goods and services tax (GST) to drive further inflationary pressures, these pressures will likely be off-set to a certain extent by continued subdued domestic energy prices.

With rising inflation driving up the cost of living, consumer confidence remains relatively muted. Malaysian consumers are among the least confident in Asia Pacific and Malaysia’s Consumer Confidence Index stood at 94 in the first quarter of 2015 – 13 points below the regional average of 107 and three points below the global average of 97. From the Nielsen Global Survey of Consumer Confidence, Q1 2015, Malaysians indicate their key concerns are the economic outlook, job security and increasing food and fuel prices, and the majority (83 per cent) have taken steps to save on household expenses such as cutting down their spending on fashion and out-of-home entertainment and keeping their energy usage in check. The implementation of the GST is likely affect how consumers are spending in the next six to 12 months.

Malaysians’ shopping habits have evolved in recent years, particularly grocery shopping, as the expanding number of supermarkets and minimarkets increase in popularity. Smaller store formats are also increasingly popular, which is encouraging hypermarket retailers to venture into this channel. Modern trade continues to outpace traditional trade in terms of channel importance while the supermarket/minimarket channel continues to enjoy the fastest growth. As Malaysians enjoy relatively high internet (70 per cent) and smartphone (80 per cent) penetration, online retailing represents a key opportunity and a few major retailers have launched online offerings in recent years.

Within the grocery retailing sector, food and beverage sales experienced minimal growth (1 per cent) in 2014. While categories such as yogurt, coffee mixes, asian drinks, carbonated soft drinks, energy drinks and bottled water all experienced solid gains, this growth was off-set by declines in the personal care and household categories.

Brands generally increased their advertising investment in Malaysia in 2014, with total annual advertising expenditure during the year up 4.7 per cent growth compared to 2013. Television maintains the largest proportion of advertising expenditure (61 per cent), which can largely be attributed to increases in Pay TV advertising (up 10.4 per cent year-on-year) due to an overall increase in advertising volume and the addition of new channels. The top spending industries in terms of volume are local and government institutions, health and beauty and telecommunications (mobile), while the highest growth is seen on cinema and movie related advertisements (up 39.4 per cent).

To succeed in Malaysia, it is critical that brand marketers identify and understand the various consumer dynamics at play. Malaysia’s middle class segment is expanding and they are playing an important role in driving economic growth. Meanwhile, the country’s significant youth population (nearly half of the Malaysian population is below 30 years of age) seeks affordable ways to experience new trends, while an influx of migrant workers is driving growth in non-traditional categories as they seek out brands and products they are familiar with. As a result, brands need to create opportunities and differentiation in targeting the multi-segment and multi-racial mix of Malaysian consumers.