Annual consumer packaged goods sales up 11%, but food inflation still bites

Annual consumer packaged goods sales were up 11% over the past year, but food inflation still bites consumers, increasing by 8.1% compared to a year ago. Annual Consumer packaged goods sales topped R527 billion, while the liquor sector continues to rebound.

This demonstrates that the South African manufacturing and retail sectors remain stoic in the face of a continued onslaught of input prices, with consumers feeling the full effects of their severely constrained wallets.

According to the latest NielsenIQ State of the Retail Nation Report, the annual consumer packaged goods sales showed an 11% increase for the past 12 months compared to the previous 12 months, while monthly sales (for the four weeks ending 8 July 2022) reached R54 billion, also an 11% increase compared to the same period in 2021.

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Alcohol sales doing well

The report indicates that alcohol sales continue to rebound significantly, with 30% annual growth in the alcoholic beverages supergroup category and 25% latest month’s growth. Alcohol sales were dealt a severe blow over the past two years with four globally unprecedented liquor bans in 2020 and 2021.

The trend to buy longer lasting bottles of spirits during the country’s prohibition era continued as South Africa’s ‘new liquor palate’ becomes entrenched. The report shows sustained annual sales growth, although from a liquor ban base, in categories such as gin (38%), wine (38%), vodka (36%) and whisky (28%). Beer remained a best seller with growth of 22%.

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Buying bread, although it is hit by food inflation

One of the biggest movers among the product categories measured was bread, where value sales increased by 33% in the latest month with continued acceleration despite the category’s inflation sitting at 14%.

“This is the third month we have seen a significant increase in bread sales, indicating that consumers continue to forgo more expensive protein options in favour of cheaper staples,” Ged Nooy, MD of NielsenIQ South Africa says.

This buoyancy in bread sales is also reflected in NielsenIQ’s Top 20 Manufacturer ranking which shows, for example, Premier Foods increased sales by 31% in the latest month which might indicate that consumers are not only buying more bread, but also the ingredients to make their own bread.

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Strong double-digit growth

Four of the other Top 10 Manufacturers (Including liquor and tobacco) are seeing strong double-digit growth, with only one experiencing a decline while six (excluding liquor and tobacco) are seeing double digit growth and two are seeing declines.

“Despite these positives, price increases remain an obvious concern with overall basket inflation sitting at 8.1% compared to a year ago, calculated across 580 categories, weighted to their size in the basket.

The top five products showing the highest levels of inflation, all due to raw material increases, are:

• Cooking oil’s latest month inflation compared to a year ago is at 45%, due to raw material increases. Its value sales have increased by 43%, while the number of units sold has decreased by 2% as consumers react to the higher price of a product at the frontline of price increases.
• Frozen chicken experienced 17% inflation due to avian flu.
• Laundry detergent experienced 16% inflation
• Bread increased by 14%
• Maize meal experienced an increase of 12%.

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Paying more for less

Challenged by these cost pressures, consumers are not buying more but are paying more for less, as reflected by total basket value sales (excluding liquor and tobacco) up by 7.6%, but with a very sluggish 1.1% increase in the number of units sold over the same period.

Consumers also changed their behaviour with increased price sensitivity and willingness to switch brands. According to NielsenIQ’s latest Shopper Graphics report, there has been a steady increase in value per buyer over the past two years, but this was not accompanied by a rise in volume/unit sales, a clear indication of inflationary pressures at work.

Local consumers are also shopping less frequently and at fewer retailers, but when they are in-store they are spending more per trip with increased overall basket spend, driven by LSM 1-4 due to the introduction of social grants, Nooy says.

“We have also seen increased price sensitivity across multiple categories, with disloyalty growing when it comes to brand preference versus the cheapest available price. South Africa is already one of the most price sensitive countries in the world and it will be interesting to evaluate the role of promotions, for example, within this new shopping environment.”

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Could SA be turning an inflation corner?

“Overall, we predict a plateauing of price increases in the next three months based on further decreases in the petrol price leading to lower input costs. In addition, as the Reserve Bank continues to increase the cost of credit, consumers’ buying power will be curbed and result in less demand for products and a reduction in overall inflation over the coming months.”

Nooy says unfortunately the added risk in South Africa is that many of the LSM groups have already cut back so much that they have no more room to manoeuvre.

“It will therefore be interesting to see the cost coping strategies shoppers employ to counter these constraints.”