Digital disruption is creating new sales opportunities for FMCG suppliers. This quick blog provides some tips for FMCG suppliers to maximise their ROI from their digital spend and evolve their supply chain / business model to meet the demands of customers and consumers.
Disruption is the new normal for the retail industry. Retailers are reinventing their service to meet changing customer demands. For example, Coles and Woolworths offering home delivery plus click and collect for e-commerce, self serve checkouts in store and till free stores from Amazon. Just as retailers have had to ‘innovate or die’ so must FMCG suppliers.
“Brands need to reflect consumers’ wants and needs, and those who don’t will be quickly dominated by those who get it right. It is no longer a case of the big eating the small, it is now a matter of the fast eating the slow.”
Alistair Leathwood, Chief Commercial Officer, Asia Pacific, IRI
Source: IRI’s Retail Outlook for 2019 and Beyond, ‘Staying One Step Ahead’
FMCG suppliers are already increasing their spend / budget on digital marketing. For example, US research by Cadent Consulting Group (2017 Marketing Spending Industry Study) estimates that digital marketing spend has increased from 7.7% of total marketing spend in 2012 to 19.9% in 2017. Also, Deloitte research (2019 consumer products outlook) highlighted that
“With remarkable growth in digital connectivity and technological advancements, the established model of a traditional supply chain—that entails a sequential movement of materials, finished goods, capital, and information through assets and from place to place—is often being disrupted.”
Background
FMCG suppliers normally operate in a number of different supply chains / channels with a variety of different customers / consumers / stakeholders. A quick overview of the relationships that digital marketing should help build include:
Business to business (B2B) – relationships with major retail customers, e.g. Coles and Woolworths. Relationships with specialist retailers, e.g. P&C (petrol and convenience) customers such as 7 Eleven. Also, other channels such as wholesalers / distributors, HORECA (hotels, restaurants, cafes) and QSR (quick serve restaurants).
Business to consumer (B2C) – relationships with consumers that buy your product / service in a reseller such as major retail customers.
Direct to consumer (D2C) – relationships with consumers that purchase your product / service directly from you.
This quick overview highlights that FMCG suppliers could engage with a variety of customers / consumers / stakeholders via digital marketing. Importantly these different target markets have different expectations / demands of FMCG suppliers. To meet those expectations FMCG suppliers need to develop unique digital marketing messages, delivered on the correct platform, for the different target markets.
Tip 1 – customise content for different target markets on different platforms.
B2B (Business to Business)
Digital Trade Marketing
Food Industry Foresight research (Australian Food Industry, February 2018) estimates the Australian retail industry has retail sales of $115B and foodservice sales of $57B. These estimates suggest that most Australian FMCG suppliers will focus on using B2B digital trade marketing to grow their sales in major retailers such as Coles and Woolworths first. Secondly, Australian FMCG suppliers will use B2B digital marketing to grow their sales with foodservice distributors and QSR customers.
Business to business customers, ranging from buyers at Aldi to Subway, all have different personalities and internal processes for ‘buying’ / category reviews. Research by Gartner has highlighted that 77% of B2B buyers find the process complicated or difficult. To resolve this issue Gartner suggest B2B content marketing should focus on ‘buyer enablement’. Buyer enablement is the provision of information or tools that support the completion of critical buying tasks. I agree with this suggestion. Personally, I advise my clients to offer ‘solutions to their customer problems’ rather than sell their product / brand benefits.
Historically these presentations / solutions would be made one on one with buyers. Now these presentations / solutions can also be released to the trade via B2B content. The content should be carefully worded to highlight the problem buyers / categories currently face and the solution being offered. By releasing this content, to the relevant target market, FMCG suppliers can grow their brand awareness with their current and potential customers. Importantly the B2B content can build relationships with many contacts in a customer, not just the individual buyer.
One of the advantages of posting this content online is that it is available for customers to access when they want. Buyers can refer to the information during the buying / decision making process. Also new buyers can access the information to get a better understanding / background about the category. This is an example of ‘buyer enablement’ as outlined by Gartner.
Different platforms, e.g. Facebook vs LinkedIn, are used by people for different reasons. Personally, I advise my clients to use LinkedIn to build B2B relationships with relevant content for their target market. If you supply multiple channels it is possible to build different profiles (business pages) for the different channels. For example, a grocery page, distributor page, HORECA page etc. Your customers can then follow this page to get the latest information / insights from your team. If you buy scan / panel data you could use this data as a basis for regular market updates to explain what is happening in your category.
Tip 2 – B2B content should focus on solutions to your buyers’ problems on the correct platform (normally LinkedIn).
B2B Sales
Due to improvements in technology it is now easier to manage B2B relationships online. For FMCG suppliers they can offer online portals that allow customers to log into their account to place orders, view prices, view order history etc. Historically only major retailers, e.g. Coles and Woolworths, and Tier 1 suppliers could afford these portals. Now FMCG suppliers can develop the portal (software) in house or use a third party provider.
These ‘self-service’ portals can dramatically decrease the administration time for both the FMCG supplier and customer. Historically to access this data customers would call make a phone call, send an email requiring the FMCG supplier customer service team to find the information and then respond. This could be a very time-consuming process. Now all the data is accessible online – simplifying the relationship.
These portals also offer FMCG suppliers the opportunity to communicate directly with their B2B customers. Information such as new products, promotional pricing etc can be displayed on the portal.
Tip 3 – Use B2B software, e.g. customer portals, to improve your B2B relationships
In other markets it is common for FMCG suppliers to use B2B platforms to sell product / access new customers. Alibaba (Chinese B2B platform) is probably the best known example of a platform created to connect business buyers with potential suppliers. Australian FMCG suppliers can list their products on Alibaba. The Alibaba group also has B2C platforms such as tmall.com. I am aware of some sites, e.g. AnyAU, eworldtrade, that offer a similar service for Australian businesses. Personally, I don’t think these sites currently offer the same sales opportunity that Alibaba does for Australian FMCG suppliers.
Tip 4 – B2B platforms, such as Alibaba, offer Australian FMCG suppliers new sales opportunities
B2C (Business to Consumer)
Some Statista statistics highlighting the size and growth of online sales in Australia include:
Online sales of US$21,224m in 2019
Forecast growth rate of 6.2% (2019- 23)
80.8% penetration / 20.3 million users in 2019
These statistics highlight that Australian shoppers are shopping online now more than ever.
Australia Post ‘Inside Australian Shopping Online, February 2019’ report also highlights that Australian consumers are becoming more responsive to online promotions. The report states:
“With Black Friday / Cyber Monday now the biggest online shopping week of the year, it’s clear that shoppers have adjusted their habits in search of the best deals.”
Create consumer demand online
Numerous reports have highlighted how technology has changed grocery shopping behaviours. For example, the 2018 Connected Commerce report by Nielsen stated:
“It’s undisputed that internet availability, mobile technology and digital innovations are redefining consumers every interaction and will continue to enable and disrupt many aspects of consumers’ lifestyles into the future.”
This change in shopping behaviours has created another sales opportunity for FMCG suppliers. Rather than just using in store tactics (off locations, price promotions) or traditional print media (catalogues) suppliers can now ‘sell’ to current or potential consumers online. Suppliers can create online communities, e.g. Facebook / Instagram, and use these platforms to grow their sales. A simple example is posting when your product is on price promotion in major retailers such as Coles and Woolworths. Another simple example is posting when new products are ranged by major retailers like Coles and Woolworths.
Suppliers can also create brand websites to ‘sell’ their products / brands. The websites should engage with current and potential consumers to grow brand loyalty. The website should also enable current and potential consumers to purchase products in store. For example, on a website you can have a ‘store locator’ to let consumers know which stores near them range your product. Another example is having links to major retailers websites so consumers can buy your product / service on their e-commerce site or in store.
Tip 5 – create in store demand for your products / brand by informing potential and current consumers about your brand / ranging / price promotions etc in major retail customers.
Another major reason potential or current consumers research your products / brands online is for information. As stated by Supply Chain Quarterly:
“Consumers’ requirement for complete product transparency is often a minimum expectation in today’s connected world with on-demand access to product information (including ingredients list; source of ingredients; place of harvest; production process; presence of GMOs, hormones, and antibiotics and other undesirable chemicals; movement of goods through the supply chain, and so on)”
A simple way to provide this information is with a FAQ (frequently asked questions) page on your website.
Tip 6 – ensure your online content answers potential or current consumers questions.
Business Partnerships
Statistics for online grocery sales in Australia indicate that sales are growing significantly. Reported results (Power Retail) include:
Online grocery shopping in Australia +39.7% (12 months to Oct 18 – Nielsen)
Woolworths online grocery sales +26% (Q1 FY19)
Coles online grocery sales +30% (Q1 FY19)
“The online grocery landscape is likely to continue its rapid growth as Australians get more comfortable with the experience, and certainly as Amazon expands its offering,”
Alfredo Costa, head of retail at Neilsen.
Historically FMCG suppliers have focused on in store tactics, e.g. packaging, planograms (POG) to drive sales for their products / brands. Today FMCG suppliers need to partner with their major customers, e.g. Coles and Woolworths, to ensure they are ranged online and that online tactics are used to drive sales. For example (pic below) when I searched for Coca Cola on Woolworths website it highlighted a consumer promotion.
Coca Cola ‘Game Day Party’ Promotion on Woolworths website (May 2019)
There are also fan sites such as Aldi mum, that provide similar opportunities to engage with potential and current consumers online.
Another example of an online tactic to drive sales are retailers’ social media accounts, e.g. Facebook and Instagram. These accounts give FMCG suppliers the opportunity to showcase new products, promotions etc. For example, this is a link to a video of Jaden Smith, in store, informing customers that Just Water is now available in Woolworths. Video was on Woolworths Facebook page.
Globally many retailers are using / developing new technology to personalise the shopping experience. In the future this tech / apps will become more important for FMCG suppliers to grow sales with major retail customers. For example, Amazon is offering their software, Amazon Personalize, for businesses to use. Another example is Apricart. Forward thinking FMCG suppliers are already partnering with their major customers to ensure their product / brand is ‘suggested’ on the retailers app.
Tip 7 – utilise major retailers online promotional tactics, e.g. websites, social media pages and apps, to drive sales.
D2C (Direct to Consumer)
Roy Morgan research, (Inside FMCG, March 2019) highlighted more Australian grocery shoppers want to buy online. Unfortunately, the offer is not strong enough so about 600,000 buy online each month whilst 5,000,000 are interested to buy online.
IBISWorld Senior Industry Analyst Tom Youl, in a Retail World article (February 2019) summarised the underlying issue as:
“Consumers’ trust in online grocery shopping has taken time to develop. Australian consumers have demonstrated a desire to check the quality of food items before a purchase, particularly for fresh produce. Consumers typically only shop online for low-value and bulky groceries.”
“These trends greatly constrained revenue growth, despite a steady rise in the proportion of Australians who purchase groceries online. However, the introduction of click and collect services has opened up the market.”
This research highlights there is an opportunity for FMCG suppliers to potentially develop a D2C consumer business model. Nespresso is a good example of a D2C model. I suggest to clients they firstly investigate the logistics to serve individual households. Past experience has highlighted logistics (shipping costs and temperature control) to be 2 major barriers to launching a D2C business model in Australia today. Some businesses, e.g. Nespresso and Hellofresh, have been able to overcome these barriers.
Changes in technology, supply chain and shopping behaviours offer grocery manufacturers an opportunity to increase sales by developing online D2C models, possibly with subscription pricing. My blog ‘Grocery Manufacturers should consider an online B2C model to increase sales’ provides more details.
International research has highlighted the potential of D2C models. For example, Deloitte research (2019 consumer products outlook) highlighted that in 2017, D2C sales increased by 34 percent and represented 13 percent of all e-commerce sales.
Tip 8 – investigate the option of launching a D2C model to meet the changing demands of Australian consumers.
Summation
Disruption is the new normal in FMCG. Retailers have already had to innovate or die and so must FMCG suppliers. Changes in technology have empowered consumers and shopping behaviours have changed. FMCG suppliers need to embrace technology and change their business models to meet the new demands of both customers, e.g. Coles and Woolworths, as well as consumers to maximise sales.
“Retailers and manufacturers need to have a 360-degree of consumers’ digital and physical buying habits, which enables them to deliver personalisation,”
Alistair Leathwood, Chief Commercial Officer, Asia Pacific, IRI
IRI’s Retail Outlook for 2019 and Beyond, ‘Staying One Step Ahead’
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.
