Being behind on consumer trends has cost the CEOs of Nestlé, Starbucks and Nike their jobs in recent months.
Getting up to speed should, in theory, be easier now. After five highly abnormal years that included the Covid pandemic, supply chain challenges and double-digit pricing to offset unprecedented levels of inflation, the fmcg industry can once again concentrate on building brands and exciting consumers with compelling innovation.
However, the backdrop now is more challenging than before Covid. Consumers are more cautious due to record-breaking inflation, which has hurt disposable income.
Nestlé has said low-income US consumers have suffered a 50% cut to disposable income in recent years. Understandably, therefore, these consumers are hunting for value for money or real differentiation. Companies that haven’t been ‘polishing their brands’, and that lack clarity on their real competitive advantage, are being found out. Consumers are voting with their wallets like never before.
P&G has been the poster child within the fmcg industry of differentiation. The company defines its competitive advantage as ‘irresistible superiority’ – in layman’s terms, that means that if you win in the key vectors consumers care about, you win market share most of the time.
Imitation is the sincerest form of flattery, and this strategy has been widely copied by peers. Unilever’s growth action plan is anchored on ‘unmissable superiority’ across its top 30 brands, which account for three-quarters of its group sales.
However, P&G has raised the bar higher, so that only 30% of its portfolio is now viewed as superior versus 80% previously. This is partly because it wants to ensure the organisation does not become complacent, but also because the bar for what consumers consider differentiated goes up when disposable income is squeezed.
With growth soft in many categories, winning market share becomes crucial. All players are thinking the same, so the temptation is to promote more heavily to drive volume and share. However, this is often a ‘zero-sum game’ and rarely builds brand equity in the long term.
Differentiated innovation that cuts through with consumers is the only sustainable way to grow share. This is tougher to do in food than health and personal care, where science can be the real point of difference. This is why Unilever is shifting its portfolio from food to health and personal care and doubling down in areas such as prestige cosmetics and health & wellbeing.
Surprisingly, consumer trends in the US have been weaker than in Europe. We suspect this relates to higher grocery inflation in the US, which is outpacing wage inflation. The rollback of stimulus payments also seems to have hit low-end US consumers particularly hard.
Even fast food operators in the US are cutting menu pricing to remain relevant, as consumers eye savings that can be banked from eating at home, where the cost is a quarter of eating out. Momentum in scratch cooking, which accelerated through Covid, has continued as consumers seek savings. One positive consequence of changing consumer behaviour is that food waste is down.
Healthy eating is also on the increase. It is really starting to matter to consumers in both Europe and the US. Danone has said there is an uptick in consumers in developed markets looking for healthy options.
Whether this is down to GLP-1 or the ultra-processed food (UPF) debate, it seems growth is accelerating for categories such as yoghurt and kefir. Danone recently rolled out Activia kefir in the UK and has made an offer for the leading US kefir player Lifeway Foods. Internet searches for protein are at an all-time high, and companies are reacting by offering more SKUs where ‘health’ is the central selling point. However, consumers do not want to compromise on taste and clean labels, which still top their list of priorities.
More than ever before, consumers have myriad choices in food. Trends are changing fast and channel shift is accelerating, while further gains in e-commerce are continuing to break down barriers to entry. Smaller players and private label are offering compelling alternatives to the large-cap branded players, which makes it imperative for CEOs running the big, listed fmcg players to be laser-focused on being consumer-centric and delivering flawless execution every day.
Spend on both promotion and advertising must have clear returns to ensure investment is going into the right places and has the biggest ‘bang for buck’. Ultimately what matters most is having a product portfolio and suite of innovation that is ahead of where the consumer is going. Playing catch-up rarely works. Leaning into the most differentiated brands is also crucial.
The problem is this work has also never been more difficult, as some of the top fmcg CEOs are finding out.
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