By 2025, the global FMCG industry is projected to reach around $15 trillion. But despite these green projections, the environment is changing and not all segments will perform equally. One way for global brands to the face the future of FMCG is by understanding the evolving threats and consumers around them.
The traditional FMCG model was simple. Companies required strong relationships with major high street retailers, strong brands, mass marketing, and great products. But across the world, the market is facing complex changes. Growing channels of
e-commerce, small disruptors, and new high street discounters are changing the game. In order to survive, winning brands need to keep up with consumer behavior at the speed of the Web.
In this post, we will discuss a few of the numerous challenges facing traditional FMCG retailers today, highlighting examples including, small disruptive brands, e-commerce giants and discounters. Why are they starting to win market shares over the age-old model and how are they successfully connecting with consumer needs?
Let’s dive in!
Threats facing traditional FMCG brands
1. Brick & mortar meets E-commerce: Amazon
Grocery is officially the fastest growing e-commerce category in the US, UK, and China to name a few. Just 2% of food and beverage sales occurred online in the US in 2019, amounting to $19.89 billion, and by 2021 that figure is projected to double. According to the Food Marketing Institute and Nielsen over 70% of US households will be purchasing grocery goods online by 2022.
The slow but steady pace is a clear indication that more consumers are overcoming online food shopping as a major barrier to adoption. The challenge is replacing physical shopping experiences with high standards of not just quality and delivery, but customer centricity. Understanding consumer behavior through e-commerce data is what will ultimately steer the conversion process.
And it's giants like Amazon that are driving innovation through acquisition. Whole Foods Market was acquired at $13.7 billion, not to operate brick & mortar stores, but to understand grocery segment insights in order to convert more consumers online. A major strategy was converting their existing 100 plus million Prime members to online grocery shopping through exclusive membership and discounts. Innovating ahead of your competitors with e-commerce is one of the best ways to guarantee your share of growth.
#Amazon spent $13.7 billion at Whole Foods I know what it feels like, I've shopped there too— Mark Lewis (@MLewisLawyer) June 16, 2017
We stand on the edge of a shift in traditional retail and the convergence of offline and online shopping where grocers need more information on their consumers to keep up with rapid change.
2. Disruptive brands: Dollar Shave Club
It has never been easier to create, manufacture and distribute a new product. Dollar Shave Club is part of the the rising wave of direct-to-consumer brands, succeeding where its competitors have failed. Traditional FMCG brands are marketing on a mass scale with no clear focus on their tribes, or their unmet needs, so how can they learn from the success of smaller brands?
Niche brands are able to win over market shares for several reasons. They’re small enough to adapt to the environment around them with speed and flexibility. Secondly, today’s consumers are moving away from inauthentic mass marketing. DSC tapped into the unsatisfied needs of razor consumers by offering an alternative in terms of marketing, price, convenience, and distribution, by creating a seamless customer experience from start to finish.
Social channels are a vital component of smaller digital native brand. DSC leveraged their channels to connect with consumers through quirky, authentic and relatable content that tribes can identify with, making sure to harvest the feedback insights. After all, it was a 90-second YouTube video that turned them into a billion-dollar company.
Health and beauty brands have been at the forefront of innovation and the adoption of new technologies, in both online and offline channels. DSC includes a mandatory, customer questionnaire in their buying process to collect consumer data on individual profiles. Creating this database of consumer insights is an excellent way to innovate and create personalized products that target consumer needs with predictive technology.
Research conducted by Epsilon found 80% of consumers were more likely to make a purchase when presented with a personalized experience. Brands of the future need to innovate, reconnect and understand the need for personalized customer experiences.
Source: Dollar Shave Club questionnaire
Four key ingredients led to their $1B acquisition by FMCG giant Unilever in 2018:
- Direct to consumer service. A seamless buyer experience from start-to-finish, tapping into the consumer demand for convenience.
- Subscription model. Effortless replenishment of products at home, that influences customer retention.
- Personalization. No more buying, testing and wasting products. Consumers can answer a quiz and identify the products right for them.
- Marketing feedback loop: Every customer reaction is met with a response. Company-wide access to data analytics that pinpoints wins/losses, customer data tracking, and email activity.
Its only by deeply understanding your consumers habits and expectations of products, that successful innovation can take place. Social media intelligence is a must-have tool for to conduct market research today.
3. Retail discounters
The final threat we’ll be discussing is the rise in retail discounters. But first, what is a discounter? In the beginning, as the name suggests, these stores sold a variety of mainly name-brand goods at a discounted, usually single price point. If you’re in the UK you’ll be familiar with older stores Poundland and Savers Health & Beauty, or in the US, 99 cent store and K-Mart.
The model today is a far cry from just low and discounted name-brand goods. Strategies evolved over the years to appeal to a larger consumer base and began resembling the experience of supermarkets and grocers. Discounters are now using price promotions, loyalty programs, stronger advertising and store redesigns that put them ahead of leading supermarkets.
Global retail discounters include the likes of Lidl, Aldi and Costco and have become real alternatives to consumers across different demographics, capturing a large amount of market share. BCG predicts discounters worldwide will increase their number of store locations by 4.4% a year through 2020, compared with just 2.9% of mainstream supermarkets, and with even faster expansion in Eastern Europe (more than 30%).
Source: Nielsen Discounter Database
To make matters worse for FMCG supermarkets, cheaper, private label products have exacerbated name brand competition in discounter stores.
What should global FMCG brands focus on in the future
The main question is, can FMCG giants rival the present and imminent threats before them? Senior managing director of consumer goods at Accenture, believes groups need to be more open to risk. Like Dollar Shave Club and other direct-to-consumer brands, large scale companies should exploit their scale to conduct consumer data analysis. Innovation in digital technologies will produce returns in the long term through meeting modern omnichannel consumer needs. The mass consumer market needs to be reinvented to reconnect with modern consumers of tomorrow.
What's important is remaining competitive in areas that are of primary concern to your customers. Cheaper discounters are successfully taking the market share on products that aren’t highly differentiated. Alternatively, larger supermarkets can focus on high price point areas such as customer service seafood, butcher and fresh produce counters. Using consumer insights to understand which products and departments actually matter to consumers will give you an indication of where to place an investment.
Consumers aren’t in search of the cheapest products, they want their needs to be met with quality, a clean environment, good customer service and above all, a price that represents the fair value of these components combined. And like smaller brands, it’s time to understand consumers away from the mass marketing lense. A variety of consumer insights allow you to target the right people with the right offering, influencing product innovation, product categories, store design, and overall customer experience. We call these consumer groups tribes or micro-cultures of consumption.
Listen to your consumers: Tesco
One of the easiest ways to hear your consumers is through social media listening. The UK's largest FMCG retailer Tesco, just became the first supermarket to launch diverse skin tone plasters. Now available in light, medium and dark shades the innovation was all down to a viral tweet spotted in April 2019.
A man in the US garnered over 100K retweets and over half a million likes on his emotional response to a plaster, that finally catered to his skin tone after 45 years. A small but genuine innovation that's making headlines today.
It's taken me 45 trips around the sun, but for the first time in my life I know what it feels like to have a "band-aid" in my own skin tone. You can barely even spot it in the first image. For real I'm holding back tears. pic.twitter.com/GZR7hRBkJf— Dominique Apollon (@ApollonTweets) April 19, 2019
Identify your 'tribes'
One FMCG giant shifted its attention away from generic demographic targeting towards “smart audiences”. Using more than 1 billion consumer IDs, P&G is building audience segments to conduct “propensity marketing with people who have similar characteristics” or simply put, target marketing to different interest groups, or what we’re calling tribes.
Moving away from generic targeting e.g women aged 18 to 35, it created over 350 specific smart audiences including millennial professionals, first time washing machine owners and first time mums.
By targeting these tribe subcategories with specific messaging and marketing campaigns, it helps serve the right people and their specific needs, at the right time. Overall, targeting tribes has managed to improve P&G’s entire business strategy, streamlining its innovation pipeline to save valuable time and money. You can find the full case study in our previous post.
No matter what industry you’re in, we can work with you to understand your business needs and find actionable consumer insights.
Make better decisions with social media intelligence
Social listening is an incredibly useful way to hear your competitors and more importantly hear your audience. One of the first places to exploit your size is the mass consumer insights in your social channels. Don’t think like a start-up, become more consumer-centric instead.
Using basic social listening, companies can:
- Monitor campaign performance
- Track online reputation
- Discover and assess influencers
- Tailor their language to suit their audience
- Manage company crises
Going beyond simply monitoring your mentions and engagement, social media intelligence can help to make informed strategic decisions about marketing, product development, and much more.
Social media intelligence allows brands to:
- Track and understand customer tribes
- Track brand equity in detail
- Detect emerging trends and opportunities
These functions offer brands actionable intelligence, allowing them to offer their customers more of the things they want and need. If you’d like to talk about what social media intelligence can do for your brand, get in touch - we’d love to hear from you!