The Future of FMCG

John Bradley writes:

One thing that forcefully struck me in my recent updating Store Wars: The FMCG Battle for In-store and Online Success is that the future for manufacturers and retailers alike will, I believe, be quite different from the past in six key areas

1. Skills Transfer. Retailers now have an irreversible stake in winning mindspace from brand manufacturers through their private label brands. Fifteen years ago, a marketing manager could perform perfectly well by considering the retail trade as one relatively homogenous body. Today, if that manager does not intimately understand the individual strategies of his top ten retail customers, he is doomed. Equally, while a retail buyer could have only the haziest understanding of brand strategies in the past, today, he cannot perform at all without an equally intimate understanding of his own employer’s strategies across their multitude of private label brands.

2. Emerging Markets. It is clear that retailers in emerging markets are evolving at a faster rate, and in different directions to developed markets. Retailing in the U.S.A and Europe did not evolve down a pre-determined path to the logical optimised end-point; it evolved haphazardly due to a combination of changes such as radio/tv advertising and barcoding, supplemented by inspirational ideas from retailers. Aldi and Costco were not inevitable; they were a product of their environments, just like Big Bazaar is a product of the Indian environment.

3. Consolidation. Retailer consolidation is resulting in most key markets being dominated by a handful of major retailers who will account for 60-70% of total sales. To try and maintain relative critical mass, manufacturers are consolidating through mergers or acquisition. 20-25 behemoths will own the vast majority of big brands, flanked by a multitude of medium to large sized private label specialist supplies and a host of small, innovators, filling gaps the giants cannot or will not. Buy or be bought.

4. Private label will continue to gain share. In 2011, the biggest brand in the UK was Tesco Finest. The second largest was Tesco Value. As retailers’ brand building skills increase, so will their brand equities. Brand management and the development of more powerful brands is a core part of their and most other strong retailers’ strategies. Increasingly the onus will be for manufacturers to demonstrate how their brands fit in with and compliment retailer’s brands.

5. Online will continue to rapidly grow, both in terms of market share and also for pre-research into buying decisions. Manufacturers have to adapt to competing for sales in an environment which is both unfamiliar to them and one where they have far fewer means at their disposal to influence sales. One possibility is to structure their online operations vertically, becoming online specialists in those categories where consumers are committed or fanatical about product choice. For example, a Canadian company called BlackSquare built a platform that allows wine producers to sell directly to customers online. They make a higher profit margin on every bottle since they bypass traditional retailers, plus they give shoppers the ability to choose from larger collections. Not surprisingly, direct sales are becoming an important source of revenue for wineries – online sales are their fastest growing profit source.

6. Store size/location. The era of the hypermarket is rapidly coming to a close: having 100,000 SKU’s a 20-minute drive away is no longer a benefit when Sears.com has 17,000,000 you can purchase from your living room. Also, having large stores where half the SKU’s sell one or zero units a week cannot be sustained going forwards. Multi-format strategies of smaller stores more conveniently situated for busy shoppers are essential and victory will go to the retailers who get there first. More of the sales coming through smaller stores stocking fewer SKU’s will add to the pressures on manufacturers’ brand portfolios. Esselunga in Italy, seeing that the majority of their shoppers were time-starved working women, changed to offering 70% fewer SKU’s than their competitors to decrease the shopping time.

7. Yes, I know I said 6. Phone apps will push prices down, and history has shown that when prices go down squeezing retailer margins, there is only one place they can go to in order to restore their profitability: the manufacturer. That’s the one thing that never changes.

A new edition of a crucial title

Since the original edition of Store Wars was published in 1995, much has changed in the fast-moving consumer goods (FMCG) industry, both for manufacturers and retailers.

Many iconic brand companies, such as Gillette and Cadbury, have lost their independence, swallowed up by bigger players, who see size as crucial in dealing with another of the major changes: gigantic retailers. Wal-Mart’s 1995 sales of $93 billion more than quadrupled to a staggering $405 billion in 2010, with $100 billion coming from outside the United States.

This leads to another massive change in the FMCG industry: the rise of emerging markets such as Russia, China, India and Brazil, which have been, and still are, a modern-day Klondike gold-rush for FMCG players, where fortunes can be made and lost. The rapid development of such markets is the prime reason behind global retail sales space more than trebling from 40 million m2 in 2001 to 130 million in 2011.

Many of the tools used by both manufacturers and retailers in 1995 now have dramatically different levels of potency. Television advertising, the mainstay of the branded manufacturer, can now no longer be relied upon to drive retail listings; instead, marketing budgets have been moving to the Internet and social media. Private label, an almost insignificant factor in 1995, has ascended to undreamt-of heights and is the cornerstone of virtually every major retailer’s strategy, in some cases over 50% of their sales.

Behind the tools, the information war has swung decisively in favour of the retailer as the combination of product scanning with loyalty cards has given the retailer almost perfect buying information at the level of individual shoppers.

The purpose of this second edition is to come to the aid of FMCG professionals, both manufacturers and retailers, to put into context and perspective the key events and changes which have taken place within their industry since the mid-1990s. This book will also be invaluable to academics and students who wish to better understand the shifting dynamics within the FMCG, retail and consumer-facing industries.
We shall see that much has changed at the operational level, and we will dig deeper to uncover and highlight the underlying strategic factors of these changes, while demonstrating how they should now be applied in the new reality of the twenty-first century. With over 100 examples and case studies from dozens of markets, we present the most comprehensive insight into the modern-day FMCG industry.

taken from the introduction to the new edition

Going for Gold

As the Olympic Games get underway in London, millions of viewers from every country on Earth will be glued to their TV screens urging on their team. But for the sponsors of the XXX Olympiad, it’s the battle for consumers which will be occupying them just as much as the competition for sporting success – and perhaps even more so.

Never in the history of the Games has so much been invested in corporate sponsorship. Lucrative deals struck with the London organizing committee by some of the world’s best known brands are expected to boost sales on an unprecedented scale during the coming weeks and months, with Top Olympic Partners such as Coca-Cola, P&G and Visa sinking hundreds of millions of dollars into the Games for a four-year commitment they hope will see a massive return.

It’s not a new idea – what ever is? In fact Coca-Cola have been an investor in the Olympics since 1928, and McDonald’s since 1974. What has changed in the last half-century is simply the scale. The same is true for that essential partner in marketing – broadcast media. Although the 1936 Berlin Olympics were the first to be televised, it was the BBC who paid 1000 guineas (£1050) in 1948 to become the first official broadcaster. But of course,  the numbers game has changed exponentially: it’s estimated that half a million people watched the 1948 London Olympics on TV; for the Beijing Games of 2008, the British audience alone topped 41.1 million  – including those watching on the Internet.

In Britain, sponsors and the organizing committee have gone to extraordinary lengths to clamp down on infringements on intellectual copyright, which extend from the slogan ‘London 2012′  to the Olympic rings themselves. Stories abound of shop displays being confiscated, and a ban on some clothing designs in order to prevent ‘brand hijacking’. Even Lord Sebastian Coe, who is in charge of the committee, has been confused, unsure whether spectators can enter the stadium wearing the logos of non-sponsors. And in a survey yesterday, it was reported that most Britons aren’t fully aware of who the official sponsors are.

Our guess is that by the end of the Games, they will be. After all, that’s the nature of marketing – if you ain’t heard of us yet, you sure as hell will have done by the time we’ve finished.  The Olympics is a two week sporting festival, but the potential sales bonanza will ripple through the markets for months and years to come.

Top 10 reasons for taking part in Storewars

  • Storewars has been run more than 700 times & has been attended by more than 15,000 management executives in over 40 countries
  • Storewars has been repeatedly used by blue-chip multinational manufacturers & retailers for over 15 years
  • Storewars trains participants to understand the dynamics of the modern trade environment and to instantly apply knowledge & skills in their daily work
  • Storewars models the market on two levels: supply and distribution, examining trade issues from both retailer & manufacturer perspectives and helping both sides to drive a profitable partnership
  • The teams of manufacturers and retailers hold several rounds of live negotiations about the complex trade terms on which to buy or sell their stocks, thus practicing various ways to achieve mutually beneficial cooperation
  • Storewars compels participants to use a full range of management & communication skills to achieve concrete objectives in a competitive but risk-free environment
  • Storewars was developed using actual sales & marketing data from manufacturers & retailers across multiple markets
  • Storewars was developed at INSEAD business school, #4 in Financial Times Global MBA Ratings 2011
  • Storewars is supported by original cutting edge research as presented n the best-selling book ‘Store Wars: The Battle for Mindspace & Shelfspace’
  • Storewars was tailor-made at the request of major multinational manufacturers looking for a targeted tool to help them work optimally with increasingly powerful retailers

About the Book

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Store Wars: The Battle for Mindspace and Shelfspace was first published in 1995. This fully-revised edition retains all the strengths of the original, including a comprehensive approach to the complexities of the consumer and retail market, and the interaction between FMCG retailers and manufacturers.The book has been thoroughly revised and updated, and contains four main sections dealing with the following subjects and themes:

  • leading FMCG companies and brands, including Coca-Cola, Unilever and P&G
  • marketing and branding strategies in Western markets
  • leading retailers such as Wal–Mart, Tesco and Carrefour
  • developments and expansion over the last ten years

Further chapters describe the interaction between retailers and manufacturers, including competition for end-consumers and trade marketing. A final section looks at the all-important emerging markets, considering the retail landscape in the major developing economies, the expansion of major FMCG brands and western retail chains, challenges related to distribution, and FMCG marketing in those countries.

Store Wars also discusses the impact of the present global crisis on the consumer and retail markets, as well as predictions and prospects for the future

About the Business Programme

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Storewars is one of the world’s most sophisticated total business simulations used by the leading FMCG manufacturers & retailers in over 40 countries. It is a unique management development program that examines the interaction between suppliers and retailers.

Storewars participants essentially run an FMCG business; and while managing the firm, its strategy and its resources, they develop an intuitive understanding of business, its functional elements and ways to achieve a strong profitable position in the market by establishing win-win cooperation.

Practising business decision-making and negotiation skills is relevant to every businessperson. In the course of the Storewars simulation, participants are provided with substantial authority and responsibility, since the team must act on their decisions and live with the consequences.

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