For decades, strong brands and product innovations were the recipe for success in the consumer goods industry. More recently, tried-and-true traditional distribution models in emerging markets accounted for three-quarters of revenue growth, but a new era has since dawned that requires a new strategy.
Large FMCG brands and distributors now recognize the need to embrace digitalization, as it speeds up and shifts the market, with 60 percent of CEOs surveyed saying they plan to transform their organization within the next few years. The reasons for this are obvious, as online providers in the CPG industry recorded 34 percent growth in the past six years, while conventional companies barely grew by 0.4 percent. The smallest outfits in the industry currently benefit the most from digital marketing and digital distribution channels, accounting for over half of industry growth.
However, to digitally transform their companies, FMCG industry leaders must embrace a new breed of transformation to build a sustainable competitive advantage while avoiding common mistakes that companies often make when attempting to lead transformation initiatives.
Most FMCG digital transformation initiatives will eventually fail
FMCG brands and distributors realize the need to digitally transform their companies, as 38 percent of industry leaders say they aspire to generate 50 percent or more revenue within the next few years from digital technologies and services, which is 40 percent higher than the present number. Two-thirds of companies also state that they expect the digitization of core business processes will be (or is already) essential to maintaining economic viability.
Digital transformation can unlock significant value when rightly implemented. However, this is not an easy task, as there have only been a few successful cases of digital transformation and many notable failures from otherwise high-performing companies. Research shows that 70% of digital transformation initiatives fail to reach their stated goals due to a lack of employee engagement, inadequate support from management, poor cross-functional collaboration, lack of accountability. Furthermore, sustaining the impact of a transformation initiative requires a major company-wide mind and behavior shift – something that only a few leaders know how to achieve.
Only a holistic approach can lead to successful digital transformation
While digitization is inevitable, business leaders need to accelerate the rate and scale of transformation as only 8 percent of company leaders say their current business model will remain economically viable if the industry keeps digitizing at its current course and speed.
Successful digital transformation programs will require business leaders to embrace the idea of holistic change in how the business operates as traditional transformation approaches deliver sub-optimal results. To deliver extraordinary change that builds sustainable competitive advantage, brands and distributors in the FMCG industry must see digital transformation as a business-model transformation that cuts across all parts of the business, including the sales and marketing processes, route-to-market, and distribution chain model. This is the only way to remain relevant in the digital economy and take advantage of the enormous growth opportunity in emerging markets.
Another key learning point for FMCG brands and distributors is that digital is transforming industries into ecosystems, upending the fundamentals of supply and demand. A McKinsey study shows that digital ecosystems could account for more than $60 trillion in revenues by 2025, which is more than 30% of global corporate revenues. Businesses that successfully adopt digitalization will have the scale to reach a nearly limitless retailer base, and benefit from frictionless distribution chains. The rise of digital platforms that allow industry players move easily across market borders is disrupting the traditionally manual distribution model with the key benefit of aggregating incredible amounts of data from distributors, wholesalers, and retailers to generate detailed, data-driven insights.
To successfully drive digital transformation, companies must strive to establish key digital infrastructure made up of people, processes, and tools that enable the successful execution and sustainability of results as opposed to cost-cutting or short term, tactical improvements as the main compass for change.
Drive digital transformation and increase distribution chain visibility with RedCloud
Digital transformation has the power to directly affect sales and increase revenue, with a Nielson study showing that 60 percent of FMCG sales can be affected at the store level. Unfortunately, large FMCG brands and distributors have only 20 percent visibility into their distribution chain, and virtually none at POS, as opposed to the 90 percent visibility needed to address key points of volatility where costs and revenues are at risk, such as out of stock situations at retailers’ which causes an annual loss of $1 trillion.
According to an IBM C-suite study, 84% of distribution chain officers have stated that a lack of visibility across the distribution chain is the biggest challenge they face, which has to led to inefficiency and waste. Digitizing the distribution chain will save FMCG manufacturers and distributors significant resources, reduce wastage and increase revenues.
RedCloud is the world’s first integrated commerce system that unlocks the value of the distribution chain, leveraging on existing industry relationships to connect manufactures, distributors, and retailers digitally. Our proprietary solution enables the real-time data capture and integration delivering end-to-end visibility across the value chain. Brands and distributors can see in real-time, which of their products are in highest demand, where the demand for their products is, who is buying the products, and why sales are increasing or decreasing.
With syndicated geoanalytics data, sales teams can adjust inventory allocation to the areas of high demand to maximize growth opportunities while marketing teams can implement targeted, automated communications to drive retailer engagement and increase order velocity. RedCloud is the partner you need to digitally transform your distribution chain from a manual, inefficient model into a hybrid, agile digitalized model that delivers up to 25% increase in revenue*.
Schedule a demo today to see how RedCloud is transforming the FMCG industry and empowering over 1 billion merchants in emerging markets by connecting them to the digital economy.
*Statistic based on research conducted by Oliver Wyman.
