The FMCG market is rapidly evolving, from marketplaces and quick commerce to subscriptions, and digital consumers have more ways to shop than ever before. Whilst some might brush off the transition to online as short lived driven by COVID, research from Accenture shows that market changes had well and truly begun before the pandemic hit and it has only accelerated the shift since.
In the United States alone, from 2013 – 2019 more than US$17B in annual sales had shifted from large consumer goods companies to nimbler digital players - and these smaller brands captured two thirds of industry growth. In the next 5 years it is predicted that the top 20 consumer packaged goods (CPG) companies will grow five times slower than their smaller category competitors.
Digital alone isn’t driving the shift, with consumers' appetite and preferences also changing when it comes to the type of products they are consuming. An example of this is that we are seeing the rise of healthier eating and premiumisation in food categories. Equally, those selling niche propositions centred on a specific purpose and personality are thriving, but there is little doubt that digital is also leading to the decline of larger brands as digital levels the playing field for smaller more innovative brands. Larger brands are struggling to transform in the face of change, with legacy manufacturing processes and established traditional routes to market – pivoting is not easy.
Why FMCGs and CPGs need a different strategy
As smaller more nimble brands increasingly win share and accelerate growth, CPG and FMCG brands need to start seriously considering the role of digital and eCommerce beyond gimmicky campaigns activations that drive temporary uplift in sales.
Supermarket retailing is evolving quickly: In a supermarket context, what is often not well understood is that the online shopper is also, in the vast majority of cases, an in-store shopper. A recent report by Cartology titled the Cartology Customer Playbook has found that 30% of all grocery shoppers are now shopping across both online and in-store - and this has major implications for those brands squarely focussed on the in-store shopper. What’s more, whilst many consumers still shop in-store, online discovery and research is at an all time high. In August 2021, 2.7 million adult Australians spent 8.3 million hours on leading supermarket websites and apps, and 61% of Woolworths’ online customers are researching online and buying in-store (ROBIS) within four days. For brands looking to influence buyer behaviour, brands need to think about the path to purchase and how online influences decisions. Still today many leading FMCG and CPG brands are under-cooking their investment in online grocery environments due to it being classed and considered as bottom of funnel activity despite the fact it is having significant impact on instore sales.
Consumers are buying everywhere: Marketplaces are growing at 2x the rate of other eCommerce channels, and quick commerce is anticipated to become 10 – 15% of the grocery eCommerce market by 2025. Digital subscriptions for everything from toilet paper to coffee and meal kits are also at an all time high. For brands to remain relevant and maintain share, operating within a wider ecosystem is becoming a hygiene factor as the grocery and health and wellness sectors disaggregate.
For many consumers, convenience trumps all else: While the instore experience is appealing to some, for many others convenience is the biggest driver of choice which is driving growth in online. Numerous reports both locally and globally point to the growing portion of consumers who choose to buy groceries online because of convenience. Recent reports from PYMNTS and Mercatus show 76% and 73% of consumers respectively buy groceries online for the sake of convenience and ease.
Evolving in the face of change
Don’t assume you will get your fair share: Whilst it's tempting to go after the new and shiny channels, it is important not to neglect the core. For many large FMCG and CPG brands, supermarkets still represent the lion-share of revenue and its wrong to assume that your brand will naturally command its fair share online. Getting into the basket and onto lists that power repeat purchase is vital, as is improving discoverability through search and remaining in stock.
Diversify your strategy: For FMCG and CPG brands there isn’t a one size fits all playbook. Your eCommerce strategy will vastly depend on the nature of the product portfolio - for instance those with perishable or fresh products or those selling impulse items will see more relevance in certain eCommerce domains vs others. The key is to understand the ecosystem that your customers are leveraging, and adopt a more diversified strategy that is appropriate based on your category and range. Pepsico is one brand that is effectively adopting a diversified eCommerce strategy to tap into demand across an array of distribution channels. Pepsico’s eCommerce strategy encompasses two direct to consumer sites – snacks.com and pantryshop.com, distribution via online pure-play channels like Amazon and Walmart, optimising its eCommerce presence with traditional grocery channel retailers as well as focussing on “on-demand” delivery services.
Be prepared to explore new business models: While many brands are looking to drive growth through line extension, it is not enough to effectively serve the evolving set of consumer needs. CPG and FMCG brands who are serious about growth need to think beyond their traditional business models to thrive. Accenture data shows that 85% of the $20 billion in global VC funding in the CPG industry between 2014 and 2020 went to direct or platform-enabled business models that will re-shape the industry inline with changing consumer needs and expectations. Whilst serving the core is important as it will fund future growth, FMCG and CPG brands need to consider the ways in which consumers now prefer to engage and consume and the business models that underpin those shifts.
Challenge innovation timeframes: Innovation is not new to CPG and FMCG brands – but when it comes to digital and eCommerce the minimum benchmarks they set to achieve early on are important. In a world where brands need to build new capabilities, forge new partnerships and unlearn assumptions, it takes time to evolve. Building digital and eCommerce capability for many will be a 3 – 5 year journey before material returns are realised. Brands who commit to the process and stay the course, learning and evolving as they go, are most likely to build sustainable change that delivers material outcomes for the organisation.
Did you know that we work with some of Australia's most loved FMCG and CPG brands to build robust digital and eCommerce strategies? If you need a hand, get in touch with us to chat about how we can work together.