Fitch Solutions sees Malaysians turning discount hunters as high unemployment, stagnant economy bite

·3-min read
People are seen wearing protective masks as they walk along the Bukit Bintang shopping area in Kuala Lumpur on September 4, 2021. — Picture by Firdaus Latif
People are seen wearing protective masks as they walk along the Bukit Bintang shopping area in Kuala Lumpur on September 4, 2021. — Picture by Firdaus Latif

KUALA LUMPUR, Sept 6 — Malaysians were likely to become more cautious in their spending due to persisting high unemployment and a slowing local economy, said Fitch Solutions.

It projected that this could lead to potential expansion opportunities for private fast-moving consumer goods (FMCG) brands here as Malaysians.

A report by the think tank’s Country Risk and Industry Research arm pointed out how the high unemployment rates that hovered around 4.8 per cent in June and July were matched by private consumption contracting by 11.5 per cent quarter-on-quarter (q-o-q) for Q2 2021.

In comparison, they noted how the last five years pre-pandemic had shown an average growth of around 2.4 per cent for Q2 q-o-q performance.

Compounded with the projection of a stagnant GDP in 2021, after a 5.6 per cent contraction last year, the report said this would likely result in Malaysian households tightening their purse strings well into 2022.

Fitch also noted that those even with jobs are being left with little option but accept salary packages below the RM1,200 minimum wage limit, along with fresh graduates entering the workforce for compensation packages lower than what would have been offered pre-pandemic.

“We note that household disposable incomes will feel the pressure as a consequence of a stagnating economy

“This dynamic will force consumers, especially in the lower-income brackets, to trade down on price points and focus on staples and essential food and drink categories as an outcome.

“Companies operating in Malaysia will therefore have to navigate the challenges the country is facing, taking into consideration the weakened consumer appetite,” said Fitch.

Numbers produced by Fitch showed how there were 1.5 million Malaysian households with disposable incomes below US10,000 (RM41,460) per year in 2019, that number estimated to be at almost 1.8 million in 2020, and to hover around 1.6 million by the end of this year.

“Considering the current Covid-19 situation in Malaysia, wages for graduates and minimum wage workers will likely remain depressed over 2021 and 2022.

The rating company then said growth opportunities will arise for these private FMCG retailers as more consumers seek out cheaper and discounted options.

“This dynamic will force consumers, especially in the lower income brackets, to trade down on price points and focus on staples and essential food and drink categories as an outcome,” the report said.

One of the effective initiatives pointed out by Fitch that compliments this trend of thriftiness is the I-KeeP initiative announced by the Ministry of Domestic Trade and Consumer Affairs to offer consumers discounts ranging from two to 20 per cent on selected essential products.

These include items such as sugar, cooking oil, wheat flour, and rice, with Fitch saying more companies would take up if Malaysians become more careful with their spending.

“We believe there will be further partnerships between retailers, cooperatives and small traders to keep prices low as Malaysian households become increasingly price-sensitive, with demand for private labels expected to surge for the rest of 2021 and 2022,” it said.

Retailers who are part of the i-KeeP initiative include 66 outlets under the Tunas Manja Group, more than 518 KK Super Mart outlets, over 50 Segi Fresh Supermarkets outlets, and more than 190 D’Mart shops.

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