In this article we will discuss:
Why large corporates in the Fast Moving Consumer Goods (FMCG) segment are losing traction
In the past, FMCG Companies achieved their growth and competitiveness by focusing on growing their physical presence through acquisitions and more stores and through supply chain efficiency and ‘inhouse’ brands. But these directions are no longer effective in growing the top line.
According to a report published by McKinsey and Company, FMCG is one of the most profitable industries after the ‘materials industry’ with a return to shareholders that has grown at a steady rate of 15% for over 45 years. But over the last decade, FMCG’s reliance on brand names and bricks and mortar distribution networks is causing growth rates to slow:
- Profit margins were at ~10.4% annually from 2000 – 2010, yet dropped to ~3.2% annually between 2010-2020
- The top 30 companies saw the majority of their valuation growth coming from expanding margins as opposed to creating more value in the market or growing their business, a model that is not sustainable in the long term
- While, smaller brands are seeing top-line annual growth of ~1.7%, larger brands (with profits greater than $750 million) saw a loss in revenue of ~1.5%
- The focus on margins and cost reduction is reflected in the steady growth of ~4.3% in private labels
- Large brands have generated only 25% of the overall market value-driven growth, while SMB brands generated 45%, and private labels 30%
These numbers indicate a clear consumers’ preference for smaller, niche brands with an online presence that appeals to younger consumers.
3 key market trends, and how to use a data-first approach to build a winning strategy
#1: Digital-first consumers
According to the McKinsey study, millennial consumers have an ever-increasing discretionary spending power. This population, typically below 35, is comprised of digital natives:
- They do the vast majority of shopping online
- Even when they shop at physical retail stores, they look for online peer reviews, and do independent price comparison
- They prefer smaller, value-forward brands that espouse wholefood, organic, ecological, socially aware values (and according to the McKinsey study, are ‘four times as likely to not buy from big brands when compared with boomers’).
- This audience is willing to share their data in order to get highly personalized offers, and willing to spend more on items that are perceived as ‘unique’
These customers pose a problem to most of the larger FMCG brands that have not yet adapted to a digital-first approach, in terms of market research, production, marketing, and sales. Most of them are still heavily invested in their brand names and have a very stiff approach towards real-time decision-making and market posturing.
How data can help
Large FMCG enterprises have the human resources, capital, and network to pivot into this new market, and become more agile, and responsive to consumer preferences. Data is the first step in performing these changes.
Datasets, which consist of extensive amounts of data collected from various sources, provide the foundation for understanding market shifts, consumer preferences and competitors moves.
Some of the alternative datasets that FMCG companies should consider in this context include:
Social sentiment such as how consumers ‘feel’ about products. Are they excited to share with friends that they are drinking organic, gluten-free products made on ‘family-run’ farms, for example?
Search engine trends indicate what consumers are looking for now, and can help you produce and/or market based on those needs. For example, creating a new line of animal-free, environmentally friendly footwear.
eCommerce sales volume, and pricing points of smaller competing brands so that you can create a dynamic pricing model that is attractive to value-for-money-obsessed millennial consumers.
Product reviews and customer feedback are instrumental in understanding brand perception, what matters to consumers, and how each brand stands against its peers.
Market trends are increasingly moving towards automation integrated with Internet of Things (IoT) capabilities, including automated replenishment, and product-based needs, that are migrating into the service sector. Take for example refrigerators where people scan barcodes of products they have finished, and at a certain predetermined basket size, a groceries delivery gets automatically sent over to them. Or people who used to buy laundry machines, but are now looking for a dry cleaner pick up, and drop-off service.
These are both based on real trends, which when identified, can be capitalized on using data. Enterprise businesses stand a good chance of gaining large market share just by leveraging data and using their already established production, and distribution networks to identify and move into newly evolving niches.
#2: Small brands are on the rise
According to the same McKinsey study, ‘small challenger’ brands are on the rise. In previous years it was easy for large corporations to just swallow them up using classic Mergers and Acquisitions (M and A) tactics. Over the past decade however, venture capitalists have poured close to $10 billion in funding, spread across 4,000 SMB FMCG brands. With this backing, and reduced investor pressure for an ‘exit’, these companies are now better equipped to effectively compete for increased market share.
The problem to large FMCG enterprises is, therefore, multifold – it is now harder to scoop up competitor/niche brands, younger consumers prefer buying from these types of ‘mom, and pop’ operations and they seem to be stuck with their dinosaur-sized brands that they have poured millions of dollars into in terms of recognition. What has worked for boomer consumers no longer seems to be resonating with millennial audiences.
How data can help
Data can help by really understanding what millennial consumers want, answering questions such as:
- What is the price point that sells?
- What social/environmental issues are important to them?
- Which products are they currently buying?
- What content (including paid advertising) are they engaging with?
Relevant datasets may include:
- Competitor ad campaigns
- Identify strong and emerging sellers in key eCommerce platforms
- Collecting relevant information about social media influencers in your product category
- Monitoring brand reviews on marketplaces
This information can be aggregated in order to get a more holistic, real-time picture of your market demographics, and then used to create ‘sub-brands’ that are remarketed and better positioned to address the millennials. Companies may also want to use this information to create ‘micro-niche-brands’ or changing the ingredients (e.g. no sugar), the labeling (e.g. highlighting eco-production methods), as well as altered marketing campaign visuals, and messaging.
#3: Digital marketplaces
eCommerce platforms have increased their gross merchandise value at a rate of ~30% YoY over the past decade. Consumers are increasingly choosing to buy online or at least ‘consult’ the internet before making purchase decisions. This is revolutionizing the classic customer buyer journey. COVID-19 with its social distancing and curfews only intensified this trend.
The problem is that most FMCG global conglomerates have a widely developed brick, and mortar network with physical locations as their pivot, but are severely lacking digital Points of Sale (PoS), online2offline, omnichannel consumer experience, marketing campaigns, and influencers – all of which can be summarized as an overall ‘lack of digital presence’.
How data can help
Data can help large companies map out these new buyer journeys as well as establish a digital network, much in the same way they built their physical ones. By collecting/monitoring:
- Customer reviews
- Identify strong and emerging sellers in key eCommerce platforms
- Trending products using their SKUs to track volume
- Which marketplaces are attracting the majority of traffic
- What regions target audiences are currently located in
- Which digital retailers are most successful
Companies can open up their own digital PoSs which may consist of ‘owned channels’ such as a website where they sell their products or by identifying key influencers who will promote, and sell their items on social media platforms.
The bottom line
The FMCG consumer goods market is evolving quickly both in terms of the players grabbing market share, as well as in terms of consumer demographics and buying behavior patterns. Taking a data-driven approach and using advanced analytics will enable the larger players to become more agile, competitive, and resonate with younger audiences. An omnichannel presence alongside innovation, rapid testing/iterations, as well as decision-making based on ‘facts-on-the-ground’ will determine which brands will flourish over the next decade, and which will drown in a vast sea of millennial consumers.
