The change in FMCG

A seismic shift in global retail is occurring amid profound changes in consumer culture and technology advancement. The race is intense and executing new product innovation is tough.

The ability to meet the growing expectations of consumers is tougher due to

  • A low growth FMCG marketplace influenced by a soft macro-economic backdrop
  • Complex paths-to-purchase amid intensifying Omnichannel experimentation
  • Profound generational shifts in consumer preferences
  • Market fragmentation and entrepreneurial disruption
  • Personalisation being an impactful but challenging industry imperative.

Driving forces of change

Past few years, the Consumer packaged goods (CPG) manufacturers have been struggling in a low-growth marketplace. In the financial year 2018–19, IRI recorded a 2.4 per cent dollar increase in FMCG sales. Without tobacco, the growth subsides to 2 per cent – well below the 3.1 per cent increase across all Australian retail reported by the Australian Bureau of Statistics (ABS) in the same timeframe.

Increased number of technology-enabled touchpoints, rapid adoption of e-commerce, digital payments and delivery to home has reduced the path to purchase from an in-store.

The increase usage of mobile devices for managing all aspects of daily life, the categories once solely available in store are now just a fingertip away. These changes are a driving force of market fragmentation and channel blurring. The battle for Omnichannel buyers is evolving between Amazon’s order and delivery and retail’s order and pickup.

The marketplace dynamics is shifting creating opportunities for more direct contact with consumers. Meanwhile, competition for the consumer’s attention and wallet is rapidly intensifying as the lines blur between discovery, research, shopping and entertainment. For example, YouTube’s ‘Beauty Try-On’ feature allows beauty product trial in real time during video playback with augmented reality.

Staying relevant

The level of Omnichannel experimentation and present pandemic, forced suppliers and retailers to find new ways to stay relevant with their key consumers and shoppers.

For example, Morrisons became the first UK supermarket to offer discounted perishable food past its “best before” date via the “Too Good to Go” app in all of its 494 supermarkets nationwide. This touchpoint connects users (1.8 million in the UK) with unsold food that might been thrown away by European retailers and foodservice operators. Such concepts will play a role supporting industry players in meeting their quotas around waste.

Concern over loyalties

The Gen Z FMCG consumers are less predictable and less loyal (to both brands and stores) than previous generations. Younger consumers are app oriented multichannel shoppers with different preferences in terms of where they shop and what they buy. Whereas ageing populations are redefining the lifestyle norms of older age.

Everywhere there are examples of smaller, disruptive companies winning hearts and minds through fast thinking and innovation. Global FMCG giants were unable to pace-up and missed millions of dollars in sales to small players. This is evident in Australia, where independently owned craft brewers and local craft distilled spirits gaining share in high-performing segments. IRI reports says in 2019, smaller suppliers delivered disproportionately high growth to Australia’s supermarkets.

Emergence of high-performing small and mid-size players and Industry fragmentation has pushed larger players to take up the cards of merging and acquisitions for future growth opportunities. For example, brewing giant Lion acquiring a 50 per cent stake in Victorian-based Four Pillars Gin in 2019.

Consumers are more concerned about generic goods and opts for personalisation. CPG brands must gain better insight but this causes concern over data privacy, security and intrusiveness remaining pervasive. Research by IRI reveals 75 per cent does not like when websites ask for personal information.

Competitive advantage with Data and Tech

In a constantly changing marketplace it does not matters whether the brand is large or small, being agile is the next step for evolution. The rise of big data, artificial intelligence and machine learning helps CPG marketers to effecting understand and serve their customers. In fact, FMCG is one of the industries that could potentially benefit from analytics and AI as an enabler of competitive advantage.

Enabling digital innovations helps companies to identify customers’ needs, create effective process, optimise personalisation and increase response to insights and actions.

Trends in grocery post COVID Lockdown

Unprecedented disruption due to COVID-19 pandemic has hugely affected Retail and FMCG sectors. Countries went for complete lockdowns with only essential retailers, grocery stores and pharmacies were functional. There is a significant increase of customers shopping online for the first time and retailers embracing eCommerce. In a recent research carried out by IMR/University of Nicosia, 38 percent made online purchases related to products from supermarkets. Grocery retailers have expanded their services to provide pick-up and delivery channels.

Lessons from China [KPMG analysis]

Evidence suggests the impact and nature of a product during the peak of outbreak will determine its future performance. Certain products exhibited higher growth compared to 2019 growth rate. Apart from sanitizer and disinfectants, home cooking and in-home meals products seen increased sales. There are products that significantly experienced drop during the peak and started to recover, these include biscuits and nutritional supplements. Products like skincare, make-up, alcoholic beverages seems to have a decline rate during the peak.

Key areas for effective recovery post lockdown

  • Protecting employees and customers
    A plan to ensure the safety of employees and customers while maintaining business as usual.
  • Securing business continuity and customer relationship
    Retailers are faced with high demand for certain products. They are also have to balance the increase in online delivery channel. Must define a plan to understand the customer’s urgent needs and use those insights to address the needs and define new ways to serve customers in short and medium terms. Need to maintain trust in brand, products and services.
  • Managing demand and supply fluctuations
    It is important to actively predict and manage demand proactively. They should offer short payment terms to keep their suppliers afloat, finding alternative sources of supply and safeguarding in store replacement. The recovery of each brand depends on consumers’ needs, how the suppliers understand and forecast future demands. As budgets for media investment will be limited, it is important to identify who to reach and how to reach them in the most cost-effective way.
  • Transforming business model
    It is time to rethink how to make the business model more efficient and less exposed to shocks. They could transform the office into a remote working team. Deploy e-commerce and create a model that serves the customer better. Embrace digital transformation not just in stores but also in areas such as warehousing, transportation and merchandising.
  • Exploring new opportunities for growth
    Possibilities of new growth avenues like collaborating with a potential supplier company to keep them afloat. Forward integration with Delivery Company to reduce burden on managing demands.