The FMCG industry has had a long history of generating reliable growth through mass brands. In 2010, the FMCG industry was responsible for creating 23 of the top 100 global brands and had grown the total return to shareholders (TRS) by almost 15% per year for 45 years. However, shifting consumer behaviour, retailer consolidation, and the rise of hard discounters is placing increasing pressure on this traditional value-creation model. As a result, in 2016, 62% of FMCG companies missed their revenue growth target, and most of those companies were not first-timers, as 59% of the brands in question had missed 4 of their last 8 top-line quarterly targets.
FMCGs must re-evaluate their go-to-market strategy, especially in emerging markets and embrace an agile digital-first operating model that increases market share and drives sustainable growth.
The traditional FMCG business model is not enough anymore
The FMCG industry generated tremendous growth in previous decades with a value creation model that involved:
- Building mass-market brands, which achieved reliable growth and gross margins of 25% on average over non-branded competitors.
- Cultivating relationships with distributors and mass retailers that provided advantaged access to consumers.
- Entering developing markets early and actively dominating categories as consumer purchasing power increased – this strategy generated 75% of revenue growth in the sector.
- Designing operating models for cost reduction and consistent execution, keeping SG&A costs between 4 & 6% of revenue.
In recent times, however, this model has lost steam with top-line growth slipping in most subsegments. Large food-and-beverage manufacturers, which account for about 50% of total category sales, have remained stagnant with an average growth rate of only 0.3% per year. In contrast, midsized companies expanded sales by 3.8% and small companies by 10.2%.
FMCG brands are stagnating due to a lack of technology adoption
The growth of major FMCG brands is slipping as the traditional model is being disrupted by technology-driven trends. Over the last few years, companies with a net revenue of $8 billion and higher grew at only 1.5% (55 percent of global GDP), while companies under $2 billion grew at twice that rate, showing that large FMCGs face a serious growth challenge.
Important trends that have disrupted the traditional value-creation model are:
- The explosion of small brands: Smaller consumer-goods companies are growing rapidly, being fueled by over $9.8 billion in venture funding over the past 10 years, and capitalising on millennial preferences and digital marketing. These brands are often hard to spot as they sell through channels not covered by the data the industry has historically relied on heavily, making them invisible to larger brands until it’s too late.
- The disruption of mass-retailer relationships by e-commerce giants and hard discounters: E-commerce giants like Amazon and hard discounters like LIDL are fuelling a fierce business-model battle in retail and mass merchants are feeling the squeeze.
- Amazon, Alibaba, and JD.com grew gross merchandise value by an unprecedented 34% between 2012 to 2017. Meanwhile, in Latin America, over 22,000 smaller merchants have been forced to close, while major FMCG brands have lost 7 – 10% of their market share to discounters.
- The rise of digital: Digital is revolutionising how companies learn about and engage with consumers. Traditional mass channels and marketing standards are rapidly becoming obsolete as digital tools increase the volume of data collected each year, boosting brand capabilities but also consumer expectations.
While many FMCGs have started to adopt digital technologies, there is still a long way to go, especially in embracing truly data-driven marketing and sales processes.
Key growth drivers for FMCGs
To effectively drive growth in this competitive retail landscape, FMCG brands must adopt a new model that places digital at its center. We have identified 3 main drivers for FMCG brands that are essential to driving growth and increasing market share.
- Fast-tracking technology adoption: To remain successful, brands must invest in understanding their customers to segment and prioritise initiatives. With granular POS data and syndicated consumer data, you can segment customers in multiple ways and understand what’s important to them, enabling effective communication and allowing you to deliver the right product, at the right place, at the right time.
- Uniting all industry stakeholders: The current landscape of the FMCG industry is about reinventing relationships, hence, manufacturers, retailers, and suppliers must be open to collaboration. This requires in-depth insights into the entire distribution chain with expanded availability of customer data, allowing a deeper and more nuanced understanding of market movement. This way, brands can identify and eliminate potential bottlenecks, reconfiguring the traditionally fragmented distribution chain into digitally agile and efficient value chains.
- Leapfrogging new category creation in developing markets: To capture the $11 trillion potential growth in emerging markets, FMCGs must excel in digital execution. Your brand needs strategic, data-driven decisions in sales and marketing, combined with a route-to-market strategy that incorporates traditional, omni, and e-marketplace channels.
Achieving all of this is not an easy task, and so, this is where RedCloud comes in.
Grow your brand with RedCloud
RedCloud is partnering with FMCG brands to change the way you do business. With the world’s first open commerce platform, we unlock the value of the entire distribution chain, transforming existing industry relationships into potential data points.
Now, brands can access POS data in real-time and understand the micro-consumption patterns in the market to make strategic decisions to drive growth. Sales and marketing teams are no longer in the dark, as campaign performances and shifting demand patterns can be analysed in real-time to generate actionable insights – insights that are invaluable to penetrating new markets.
With RedCloud, your brand can finally compete by leveraging innovative technology to improve profitability and drive market share.
Contact us today to see how we drive business growth and improve revenue by up to 25%*.