It could largely be agreed that most businesses are happy to see the end of 2017. It’s been a tumultuous year, one in which South Africans in particular were not quite sure what the next day would hold.
Political and economic uncertainty has been consistent and a lack of investor confidence has resulted in a South African being downgraded to junk status. As a country, we have a shortfall of R50Bn in tax revenues – putting additional pressure on the common person. The result is a contracting economy which can only be rescued through long term investor confidence in the South African political landscape.
According to StatsSA South Africa Annual consumer inflation rate dipped to 4.8% in October from 5.1% in September. Although the Rand gained some ground in the earlier months of 2017, the level of instability will have a direct impact on the costs of products with the potential devalue in the currency. On Friday last week, S&P Global downgraded SA’s long-term local currency debt to junk status the same day that consumers were looking for Black Friday deals. Moody’s at the same time placed the country under review to be possibly downgraded in 2018. The downgrading impacts the cost of borrowing and creates volatility in the Rand which could increase inflation and once again impact the consumer, who will have increased loan repayments and less disposable income.
The Impact of Black Friday and Year End Christmas Sales Surge
For the past few years Black Friday has been growing as a shopping trend in South Africa. The day after Thanksgiving is traditionally celebrated by Americans but has been globally adopted. In the week leading up to the 24 November 2017 retailers were positioning themselves in anticipation of the day. The ‘phenomena” this year extended to smaller businesses having joined the day. Consumers flocked to the stores on Friday in the hope of securing special deals. But with this spend usually reserved for the “big Christmas shop”, how has the retail spend pattern shifted? Has more been spent? Have consumers spent on credit? Will they spend again in the build up to Christmas. The new year will show us the number. What we know now for sure is that South Africans are looking for value and price offers. And this is not limited to in store offerings. Superbalist online retailer saw it’s biggest trading day on Black Friday, and the Takealot website (which prepared for 6% of annual sales on Black Friday weekend) crashed due to higher than expected traffic volumes.
As we reach the year end, we know that spending trends are usually based on emotions – consumer spending behaviors are not always rational. These short term boosts for the retail economy, though encouraging, are not ideal for the long term sustainability of the economy. The current surge in retail sales over Black Friday may actually have a negative impact on end consumer over the long term. Deeply indebted consumers become very tempted with the marketing ploys of the retail sector and often succumb to making an unplanned purchase. The purchase is usually made on credit with anticipation of paying the debt through a bonus or a 13th pay check. Hi-Tech purchases are common and consumer could have conflicting priorities and hold their purchases of FMCG goods.
Capturing the Christmas Sales – A last minute effort
Research has shown that its costs 5 times more to acquire a new customer then to keep an existing one. Although Black Friday may have exhausted the consumers hi-tech purchases there is always opportunity for retailers to invest in adverting in creating a feel good campaigns about products that can enhance the consumers image or health.
In the thick of the so called silly season, the pricing points of FMCG good will need to be well positioned to ensure sales are driven. Availability will be key and shelves must be constantly in stock to encourage purchase. Consumers will not only be looking for better offers but also additional value in their purchases. An opportunity to bundle products with and overall value and personal benefit to the customer. If you haven’t already done this, do try to create the opportunity.
What about 2018?
With the economy looking less stable, the spending behavior of consumers is likely to change. Brands and their retail homes will need to review marketing, branding, focus areas, packaging and communication trends in order to maintain pricing and possibly introduce smaller product sizes to maintain brand loyalty, or in some cases bulk packs to deliver value through volume.
January and February are generally depressed sales months on the revenue calendar. As South Africans, we face a very important December, and the economy will enter a new phase after a politically charged December period.
Scenarios can be planned for, but no one knows how the general public will react, nor how the international investor confidence will be affected. We need to show our strong South African resilience, pull up our sleeves and go back to basics.
As retailers start to plan their strategies for 2018, flexibility and adaptability is key. Although innovation is always critical for market growth, 2018 will only be ready for incremental innovation. Nervous consumers will be looking for ways to stay positive about their future. Hit the sweet spot of building confidence, inspiring simple choices and winning on price, and you are likely to succeed.
2018 will be a year to closely monitor economic trends. Organizations will need to be flexible and adaptable to the economic climate.
In summary consider the following for your organizations
- Decide if you’re in the game or not.
Life goes on regardless of the economy. People need to repair their goods. People get married, have babies, and celebrate milestones. Dishes must be washed, and health must be looked after. The shopper base may buy more carefully, and potentially less frequently, but 50% of consumers in the category are there to buy their favorite brand (EBI 2017) vs 50% who are browsing, which says there is still opportunity to win sales!
There’s no room in a competitive market for testing the waters – You’re either all in or not. Brands who do not work hard will fail, and the retail space and share of wallet they lose is up for grabs by those who cease the opportunity. If you can ride the storm, the prize will be big once it passes.
- Postpone all major brand overhauls until the economy is more stable
Unnecessary investments are just that – unnecessary. Consumers are looking for value. Increase price promotion frequency and offer tangible value adds. Repackaging certain brands may actually have a negative effect on the consumer when they are seeking the comfort of brands that they can directly associate. In some cases repackaging often creates the perception of a more inferior quality product, even if the only change has been visual appearance.
- Keep delighting your customer.
Your customer is feeling vulnerable. Your brand – if stable, available and OnShelf – can make her feel safe – that somethings remain the same. Much needed in a volatile environment where stress is high, jobs are scarce and costs are rising.Deliver Customer Experience at all levels – Talk to your consumer not just in store, but on digital platforms, on social media and hold her hand and become her best friend. What you give now, you will gain in the long term.
- Define whether you are a commodity brand or a luxury?
Remember that the consumer is cutting back on major purchases – like replacing major household items and travel – but will still invest in small luxuries which make her feel good on a day to day basis. The FMCG retail environment will still provide an opportunity for the consumer who would still want to walk into a store and choose a brand that provide some level of lifestyle support and comfort. Products that are desirable for personal care will always be seen by the consumer as a must purchase. Often when the economic outlook impacts people’s emotions they would resort to smaller wins, like taking care of their health or purchasing goods that give short term joys. These often are cosmetic in nature and relatively cost effective.
- Build a Marketing Strategy
Henry Ford stated – A man who stops advertising to save money, is like a man who stops a clock to save time. Build your strategy – it may need to be more creative, more opportunistic, leaner and meaner, but it is essential if you want to survive and thrive. As part of the strategy, focus on the basics – Product, Packaging, Price and Promotion. But ensure you do this in a way that makes sense for your brand and category. An investment in consumer research, testing a concept, before launching, or running a price analysis, will serve you well – and save you money.
A dynamic marketing strategy will force you to consider how to best spend your limited rands and keep your share of market on track, in what will be an increasingly competitive market.