A seismic shift is brewing for FMCG brands in 2016. The supermarket landscape and even the stores themselves are going through rapid changes which could lead to challenges ahead. Opportunities exist but actions need to be implemented sooner rather than later to stay ahead of the competition.
The big picture
Three key factors are currently playing an important role in reshaping the FMCG sales environment in the short to mid-term. Brands need to be adaptive and agile to gain a foothold over their competition.
1. Shelf space is reducing
The plus sized superstores are quickly becoming a thing of the past as supermarkets look to turn more profit per square foot from their space. In-store concessions are springing up at a rapid rate with food aisles being increasingly shuffled into the middle of the store.
In addition, major players have been experimenting with smaller urban store formats in recent years to counteract the saturated out of town market. These new locations aim to expand market share in central urban environments by carrying fewer lines.
2. Price has become king
The rapid emergence and continuing growth of discount retailers
Aldi and Lidl hot on the heels of a long and deep recession has driven price to the forefront of the food shoppers mind. Add to this looming price wars and success is likely to be driven by lower pricing for the foreseeable future.
3. Goodbye to BOGOF?
Traditional supermarket sales methods are coming under additional scrutiny alongside spiralling costs in maintaining these offers.
Buy One Get One Free offers are being increasingly viewed
with suspicion by shoppers and regulators alike, seen as wasteful and not offering good value for money in many cases.
Sainsbury's have already planned to end all BOGOF offers by August 2016 with other retailers likely to follow suit or severely reduce their availability.
So what does this mean?
Combine all these factors together and we must conclude that major supermarkets will soon be forced to reduce the number of lines they carry influenced by both a physical reduction in shelf space and the need to buy fewer lines in greater volume to enable price savings to be passed onto the customer (and support the supermarkets' bottom line).
The drive for economies of scale and purchase power have already started with
Tesco's rumoured to be sizing up Morrisons with further market consolidation extremely likely in the mid to long term.
How FMCG brands can get to the front of the queue
As in-store promotions dwindle in popularity and shelf space reducing, FMCG brands will quickly need to re-evaluate their current balance between ‘Push and Pull’ strategies as their route to sale quickly evolves.
While the future environment is likely to be difficult, these challenges should be seen as an opportunity to progress, especially for smaller agile brands that will be able to adapt to the changing landscape at a faster pace, gaining market advantage while others fall away.
Unless following a purely price led model, FMCG brands will need to create customer demand outside the store to win space on shelves and then maintain position against an increasing number of competitors. Some brands are likely to struggle as shelves will become dominated by either value or premium products if they do not create demand from the consumer.
Planning a fully integrated on and offline media strategy becomes vital to success with geo locational and customer targeting likely to become ever more important as audience communication becomes more refined, personalised and important to a brands success.
Traditional digital KPI’s are also likely to shift as overall brand awareness becomes increasingly important. This will impact on internal measurement strategies with the concept of ‘Success’ redefined in terms of engagement.
And that’s if shelves don’t become virtual
Traditional methods of FMCG purchase are likely to be further challenged as non-food specialists continue to encroach into the UK supermarket sector.
This offers additional opportunities where partnerships and brand associations are likely to become increasingly important to generate sales volume. We are already beginning to see this happening in the UK:
Amazon and Morrisons have already signed a distribution deal with more deals likely to follow; the US market is already pointing to a more competitive future.
An increasingly promising future would be for brands to diversify distribution further outside of traditional channels.
Online shopping and social media growth is starting to drive innovation. For example
Shobr is shortly due to launch in Denmark offering nationwide delivery and door to door service allowing brands to sell directly to their customers.
One thing is for certain, there will be continued digital disruption to traditional sales channels, with increased sales volume likely to be driven through a diversified distribution network.
Brand building and customer communication have never been so important for FMCG’s.
- Tesco ends 24-hour trade in 76 stores
- Shoppers bamboozled by cacophony of supermarket ‘special offers’
- Aldi cuts prices in fresh assault on supermarket rivals
- Is the end of ‘buy one get one free’ multi-buy promotions nigh?
- Goodbye middleman?
- Aldi plans to open more than 80 UK stores
- Is Tesco checking out Morrisons? Supermarket shares rise on rumours that £6.42bn bid might not be far away
- Google takes on Amazon with grocery deliveries