Fraser & Neave Holdings Bhd Annual Report 2020

062 FRASER & NEAVE HOLDINGS BHD Both our key markets – Malaysia and Thailand – have been significantly impacted by the global COVID-19 pandemic, which has severely curtailed economic activity as well as trade. In Malaysia, the Ministry of Finance in its Economic Report published in November 2020 has predicted a contraction in the economy of 4.5 per cent for the year. This is following weak performance in the first half of the year, and particularly the second quarter, post MCO, when the economy shrunk by a record low of -17.1 per cent. The anticipated pick-up in the second half of the year is due to the implementation of various stimulus packages comprising fiscal and non-fiscal measures totalling RM305 billion, which are expected to lead to an upturn in production and trade.1 Similarly, in Thailand, the economy contracted drastically in the second quarter, improving in the third quarter along with an easing of lockdown measures. Recovery has not been complete, however, as the country is heavily reliant on tourism, which continues to be affected by travel restrictions. At the same time, although companies signalled an improvement in manufacturing activity, sales continue to be impeded by a weak trading environment. Consumer sentiment dipped significantly in March and has been steadily rising since April but still remains much lower than it was in January 2020.2 1 https://www.theedgemarkets.com/article/ malaysias-economy-seen-grow-6575-2021-after- 45-contraction-2020 2 Trading economics, Thailand Consumer Confidence, https://tradingeconomics.com/thailand/consumer- confidence#:~:text=Looking%20forward%2C%20 we%20estimate%20Consumer,according%20to%20 our%20econometric%20models. 3 https://www.globaldata.com/covid-19-accelerates- e-commerce-growth-malaysia-says-globaldata/ KEY TRENDS AND OUR RESPONSES OUR RESPONSE CONSUMER BEHAVIOUR HEALTH CONSCIOUSNESS Social distancing measures and other restrictions imposed due to COVID-19 have meant that people are not dining out as much as before. This has seen an increase in spend on groceries, including food for home consumption. At the same time, loss of jobs together with general economic uncertainties have made people even more cautious than ever about their spending. Where possible, they seek bargains and value- for-money deals when making purchases. Additionally, there is a discernible preference for convenience, ie to shop in outlets where consumers are able to get everything they need for home in one go, such as supermarkets, and proximity due to movement limitations that gave rise to growing popularity of convenience stores near homes. COVID-19 has served to create a reset in lifestyles, with a real shift towards healthier living to boost immunity. Whilst before people were aware of the need to focus on well-being, today they are acting on such knowledge to safeguard themselves and their family. They are exercising more, taking more wellness supplements, and paying more attention to what they eat and drink, especially as they are now cooking and eating more at home. When making purchase decisions, they are increasingly opting for foods and beverages that are nutritious. There is therefore increased consumption of healthier choices such as fresh juices and low-sugar, or no-sugar, drinks. • To meet greater demand for value buys, we introduced a number of promotions such as product bundling and value trade ups. For example, we have started offering 1.75L bottles of carbonated soft drinks for the price of the original 1.5L versions in Malaysia. In Thailand, we introduced Carnation and TEAPOT Evaporated Milk in 1 kg pouch value pack that are targeted at hawker customers. • In line with the fact that people are cooking more, we focused our marketing efforts on in- home consumption, and especially our dairy products as these have multiple applications in food preparation. • As for meeting demand in the right outlet, our sales teams worked closely with customers such as supermarket/hypermarket chains to ensure they always had enough stock of our products. We also penetrated deeper into previously unserved areas throughout Malaysia with van sales to provide easier access for our consumers. • We have continued to focus our product innovation on developing healthier choices for consumers. Six new healthier products were launched this year, increasing the total products that carry the Healthier Choice Logo (HCL) issued by the relevant national public health authorities in Malaysia and Thailand to 47. • Our conscious effort towards lowering sugar content has successfully reduced our total sugar index by half today compared to 10 years ago. Today, more than 90 per cent of our ready- to-drink products sold in Malaysia contain less than 5g of sugar per 100ml. • We nowoffer a healthier option is every product category we are in except for energy drink. F&N takes the position that reducing the sugar level of our energy drinks drastically would result in a loss of its functionality and purpose to our consumers. Hence, we did not proceed to launch a healthier choice for ‘Energy’ category. STRATEGIC REPORT: Market Review