The prevailing and most common business model in this industry is B2B2C. So while those of us in the tech industry can focus on just one user/customer, this industry has two separate customers.
The Customer: When referring to customers, industry professionals are normally talking about supermarkets, wholesalers, retailers, convenience stores and distributors.
The Consumer: The end user who ‘consumes’ the brand/product.
Both customer and consumer level data are integral to this industry. Understanding how consumers make purchasing decisions (at scale) can be challenging due to the influence of so many different factors on consumers. The results then need to be converted into what it means at a B2B level. This requires an understanding of how people shop and where.
The data needs to be collected and reviewed for sales insights as often as the ordering frequency, so sales people can use this data to discuss orders, promotions, listings and placement with buyers/decision makers. Then, the decision makers at retailers, supermarkets, wholesalers, distributors, convenience stores etc (you get where I am going with this!) need to be convinced that you have arrived at the right conclusion.
This is one of the reasons why direct to consumer brands have been so successful over the past few years with internet becoming the ‘new’ channel. You can now market (instagram, direct emails campaigns, facebook, twitter etc) and sell your brand on the same channel, and increasingly through the same medium (e.g. instagram). In fact, with Millennials and Gen Z now forming a significant percentage of consumers, with a significant internet footprint, companies should be using this data to understand and gauge consumer demand.
With both these generations so used to instant gratification, we do not rule out the possibility that physical retail will co-exist with e-commerce. At the end of 2020, e-commerce was 21% of all sales, up 44% from 2019 and is still expected to grow.
With the B2B2C model surviving into the foreseeable future, companies will need to understand the consumers who buy their brands and what drives them to be able to sell effectively into the aggregators (supermarkets, convenience stores, wholesalers, distributors, online stores etc). Especially so, as social media, climate change (heatwave one day, storm another, cold waves in places where winters are mild etc) and widespread information availability is influencing consumer demand and purchase intent in unexpected ways.
If you’d like to understand how to better use external data points to sell more effectively, email me on email@example.com.
“We do not consider the purpose of this company to be returning money to shareholders. There is a broader purpose.” – Emmanuel Faber, former CEO & Chairman, Danone
It is hard to miss the news that Emmanuel Faber has stepped down as Danone’s CEO & Chairman. Leading shareholders argue that Danone has underperformed in recent years.
Faber became CEO of Danone in 2014 and has overseen a strategy of diversifying into high growing segments such as plant based foods. Under his stewardship, Danone started the process of getting every part of its nearly $30bn business B-Corp certified – not an easy task. According to their website, nearly 50% of Danone’s global sales are now B-Corp certified and aim to be 100% certified by 2025.
An excerpt from B-Corporation.net reads: ‘Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.’
Essentially, business as a force for good
But does this have to come at the cost of shareholder returns? After all, aren’t consumers looking for more sustainable brands to buy? We live in times when past choices are impacting how we live going forward and this has given rise to a new generation of consumers for whom sustainability is key – in every aspect of their life.
They seek brands and choices that fight climate change, plastic pollution and inequalities in the world. Gone are the days when ‘value for money’ and ‘does what it says on the tin’ were primary consumer requirements.
A study published by Harvard Business Review established that 50% of the growth in the CPG industry came from products that were marketed as sustainable.
So why did Danone’s sales NOT benefit from their initiatives?
One of the key reasons for Faber’s departure was that Danone’s financial performance was not consistent with its asset base.
In 2020, lockdowns impacted sales (6.6% decline vs prior year), primarily since its bottled water brands (down $1bn vs PY) have a significance presence in the on-trade (restaurants, pubs, clubs, bars, cafés etc), which suffered during 2020 lockdowns. But even before 2020, Danone revenues were declining YoY since 2018 (2.78% decline in 2018 vs 2017 and 4.73% decline in 2019 vs 2018).
Why did Danone’s purpose led mission not drive better sales? Is this not what consumers wanted?
To answer this question, we need to ask how many consumers knew that Danone was a purpose led business? Most people I checked this with were unaware of this. The ones who did know, are those of us in this industry.
Communication to shareholders AND to CONSUMERS is key
There is a lot of material on Danone’s website targeting investors to convince them of the value a B-corp certification brings to the business. Several corporate and trade articles that talk about their certification and focus on business as a force for good.
Till very recently, the primary purpose of companies was to create shareholder value. So unless shareholders are convinced of the long term value generated by these actions – a business/industry that lives on for generations to come, and building communities and businesses which drive future economic value – they are likely to vote with their feet.
But equally key is to communicate this to consumers.
Unless consumers know that Danone’s brands are from a purpose led company, how can they factor this into their decision making when they do their grocery runs? Danone did this right on retailer e-commerce websites.
But we now know that Millennials & Gen Z prefer grocery shopping at stores. And there is nothing on-shelf, in store, currently.
There is no doubt that companies should walk the talk when it comes to sustainability and not just issue press releases or social media posts around this, without taking actual actions. However, when companies are doing this right, they should shout out loud about it. There are very few key differentiating factors these days and very few topics which generate as much consumer passion as sustainability does.
By ensuring that these initiatives are communicated to consumers regularly, there is no reason why purpose led businesses cannot outperform competition in the short and long term.
We’ve used Danone as an example to illustrate how larger & more established FMCG companies fail to communicate key initiatives, (positively) impacting consumer decision making, with their consumer base. Most large and established FMCG companies are guilty of this.
They communicate these initiatives via back of pack labelling. While this works for brands like Ben & Jerry’s (now Unilever) as they’ve always been mission driven, when brands adopt a purpose driven approach after years of not being purpose driven, they need to communicate this to consumers via on-shelf messaging. Else, how will they know at the point of purchase?
They usually just compare brands on shelf and if there is no communication on shelf, this is a missed opportunity.
If you have any questions on how corporate or company initiatives can be used to drive sales, email me on firstname.lastname@example.org
While it has long been recognised and accepted that with newer generations gaining purchasing power, the long tail becomes even longer. However, what was unforeseen was that the long tail may become mainstream.
There was a Medium article nearly 4 years ago by Willy Braun on this. Willy talks about how the long tail can gain traction (he draws an interesting parallel between Lady Gaga’s initial audience (niche) and her audience now (mainstream).
So it is with the long tail. In his article on Medium, Willy makes a reference to an interesting study by Anita Elberse. She found that viewers watched movies in niche segments due to availability and access, and due to their interest in Cinema. These viewers also watched mainstream/blockbuster movies. Willy concluded that so it is with consumer preferences; that it is availability that influences whether consumers partake of the long tail.
As Willy suggested in 2017, what were considered niche a few years ago – free from, high protein, ethnic flavours, sustainably sourced, plant based etc, while not mainstream, are not part of the long tail anymore due to availability… and the concept of mainstream does not exist within its old definition either!
2o20 has been a very interesting year for breakfast cereals.
The breakfast cereal aisle is the one aisle I skip when I do my weekly grocery shopping. Not because I don’t eat breakfast, but because this segment had too much and too little choice all at the same time. That may sound contradictory.
The choice this aisle offered was purely contained to flavour. You had the usual suspects – vanilla, strawberry & chocolate and then other flavours like coconut, banana & berry. Consumers had too much choice (a minimum of 60 options at the average large format supermarket) and the paradox of choice struck.
People started eating less cereal for breakfast. They were also eating more breakfast bars and picking up breakfast to go from cafes. This was a double whammy for the industry as consumers wanted healthier choices as well – less added (natural or otherwise) sugar in their cereals, more fibre, more proteins etc – which the industry was not prepared for and this impacted breakfast cereal perception & consumption and resultantly, sales. According to a Forbes article in Aug 2019, the average US consumer has eaten 14 fewer bowls of cereal over the last 28 years and according to an article by Kerry in October 2019, US retail sales of cereal was expected to decline by 6% between 2017 & 2022.
In February 2020, before the pandemic brought the world to its knees, CNBC ran an article on the breakfast cereal sector and General Mills’ plan to revitalise this category in the US, the current largest breakfast cereal market . The article started off with a summary of key takeaways and the first was:
‘U.S. cereal sales have gone stale in recent years as consumer tastes change.’
Sales volume was in decline for the at-home breakfast cereal sector when the pandemic hit. But then, people started working from home, children started schooling from home and breakfast at home became a regular routine. With professionals still working (albeit from home; so, no time for a hot breakfast!), cafes still under lockdowns and takeaway breakfast joints competing for who has the longest queue, breakfast cereals saved the day for all the moms, dads and working professionals out there.
So the pandemic saved the breakfast cereal industry. It was almost as if the pandemic compelled this industry to listen to what their consumers were asking for (clue: no more flavour variations!) This last year saw an almost unprecedented pace of innovation in this sector. Instead of offering a plethora of yet more flavours, brands instead focussed on creating options along the ‘health spectrum’ spanning from indulgent to healthy.
While the new normal may see a drop in at home cereal consumption compared to that in 2020/early ’21, with kids going back to school, the drop may not be as steep as working from home is here to stay… and breakfast cereal also makes a great snack!
So what prompted this blog today? Weetabix just announced indulgent variants of their fibre rich cereal with Chocolate Melts Duo.
A basic tenet of branding is that consumers will not buy brands that do not align with their values. Millennials and Gen Z have given new meaning to this.
A study by IBM found that 40% of all consumers, are purpose driven consumers. These consumers have a global presence with the majority, in Europe, South East Asia and Latin America. To this group, the values represented by brands drive their purchasing decision and they are more willing to change their habits to reduce environmental impact than are value (not to be confused with values) driven and product driven consumers.
Then there is the brand driven consumer (majority in India, parts of the Middle East & Latin America) which makes up 13% of all consumers globally. This group stands out in that while the brand is key, this group is even more willing to change habits to ensure sustainability and reduce environmental impact than are values driven consumers. So 53% of consumers are sustainability & values focussed than 10 years ago when value & product driven brands were predominant.
Leading FMCG brands that were also Certified B-Corp, grew by 21% on average in 2017 compared to a national average of 3% across their respective sectors. (B Corp 2018)
It is clear that to drive growth and gain share, FMCG companies need to adopt AND live values that reflect those of their target consumers.
This makes data paramount for FMCG brands. Data on what consumers want, on consumer values, on the channels they frequent and on the boundaries of operation. Brands need to be developed in line with what customers want, like tech companies do with users, rather than how FMCG companies of old developed brands and then told their customers that the brands were what they wanted.
Historical internal data is the driving force in the FMCG industry. This industry and external data have a contentious relationship. While they use (external) data driven insights to craft marketing & category strategies and to develop new products and brands, their use for (external) data in day to day operations and in sales has been less than optimal.
It is the complex nature of how external data impacts the business, which makes it hard to adopt on a day to day basis in the industry. Today, let us look at data driven insights for supply chain and production.
This process happens primarily through regular risk management meetings/updates by the supply/production planning team. These updates/meetings happen on a periodic basis and are reviewed then for impact on the business and for any action that needs to be taken.
However, we are living the perfect storm – a time when climate change, pandemics, access to information and easy cross border travel are all influencing not just what consumers want but what goes into making what consumers want and how they buy/access it.
It is key, now more than ever, that companies in this industry use external data, that monitors supply chain risks, regulatory compliance and sustainable alternatives to current sources, in everyday decisions much like tech companies do, so they can achieve the same agility in business that the tech industry does and the FMCG industry aspires to.
Did you know that Procter & Gamble pioneered soap operas? While ‘Painted Dreams’ is considered to be the oldest soap opera program (on radio), it wasn’t until P & G launched ‘Ma Perkins’ on radio in 1933 that the term was coined.
In case you are curious, the story revolves around a widow forced to juggle financial and family problems, while at the same time promoting Oxydol, P & G’s laundry detergent.
This was just before WWII. By the start of the war, P & G was producing more than 21 different radio soap operas EVERY WEEK. Another significant event in 1939 was the launch of the TV. Within 5 months of launch, P & G aired its first TV commercial. They also continued producing soap operas for TV. By the end of the war, P & G’s revenues had reached nearly $350m.
(Interesting fact: Neil McElroy, one of the marketeers behind these innovations, later became the US Secretary of defence. He also pioneered brand P & Ls in the CPG industry.)
Getting back to ad spend, very similar to P & G, Coca Cola launched one of its most effective campaigns around the same time, during the Great Depression – The pause that refreshes. During the first year of this campaign, sales is said to have doubled. And then WWII happened. Coca Cola continued its ad spend during this time, and the then company president, Robert W. Woodruff even declared that any American soldier could get a coke for 5 US cents, regardless of its actual price.
Coca Cola’s ads during this time focussed on the softer sides of conflict; on Coke’s ability to bring people and nations together. The ads showed American soldiers drinking Coke and laughing with British, Soviet, Polish, Brazilian & Chinese soldiers, with a caption around ‘ Have a coke’, with messaging around solidarity.
Fast forward nearly 80 years, we have another crisis and the two companies have diametrically opposite strategies for ad spend.
The Coca Cola company has decided to suspend all its marketing activity in several of its markets during Covid.
Here’s a direct quote from The Drum on what drove this decision, “We’re being … mindful about the right level of brand marketing and new product launches given the consumer mindset across market,” Quincey told investors yesterday (21 April). “We’ve developed and determined that in this initial phase there is limited effectiveness to broad-based brand marketing.” “With this in mind, we’ve reduced our direct consumer communication we’ll pause sizable marketing campaigns through the early stages of the crisis and reengage when the timing is right. These plans will vary from market to market with our earliest reengagement focusing on the recovery in China.
At the same time, Procter & Gamble is investing in marketing during this period.
Again, a direct quote from The Drum, “We need to work hard to ensure that we maintain mental and physical availability to the greatest extent possible, so that those consumers return to their beloved and trusted brands – which are ours – as they’re more fully available.” “There’s a big upside here in terms of reminding consumers of the benefits that they’ve experienced with our brands and how they’ve [met] their family’s needs, which is why this is not a time to go off air.”
We, at Salesbeat, think P & G’s approach is more likely to succeed in the medium to long term. Once lockdowns ease and Covid passes, consumers will remember who have been with them through this crisis. As the saying goes, ‘Out of sight, out of mind’.
What we are going through currently is a war after all, only this time with an invisible enemy.
There are several conflicting opinions on which consumer packaged goods (CPG) brands will emerge stronger after this pandemic – those that are start-ups or those backed by large companies. While direct to consumer (DTC) brands are thriving, large brands, especially those in the personal care, home care and hygiene sector, are indeed seeing a spike in demand due to their credibility. This has led to empty shelves at supermarkets, where some of these brands have run out of stock.
As most large companies rely on just in time manufacturing (or as close to it as possible) to keep their working capital efficient, they are currently working on alternative plans to source and manufacture their products. And this will delay them, more than this will delay start-ups.
While start-ups are also facing the same problem, they do not need to adhere to the same processes for approval of new suppliers as do the large corporates behind large brands. This pandemic will be a true test for large CPG companies who have been focussing on driving agility in their organisations.
So, on the supply side, start-ups are likely to have their suppliers lined up vs the large companies.
On the sales side, CPG companies seem to have furloughed most of their sales teams during the epidemic, regardless of whether they are start-ups or well-established large companies. However, we have noted that these companies have retained a skeletal sales team, usually senior commercial/sales directors.
At start-ups, these senior salespeople have as strong a relationship with buyers as do their teams. However, at large companies, senior directors have evolved into more people managers than active salespeople. This, combined with a start-up’s natural agility, has resulted in most start-ups maintaining their relationships with buyers at supermarkets while remaining relevant to consumers through social media.
Large companies, however, have less contact with buyers and their social media strategy has not changed significantly from before lockdowns.
Once lockdown lifts, there will be a race to the finish line with brands in fierce competition with each other to make their annual targets, or finish as close to annual targets as possible. It will be critical to ensure that all orders are captured and that there are no disruptions in supply chain. Any and all feedback on brands from buyers will need to be acted on according to consumer priority and communication between sales, marketing, supply and finance will be key.
You may be thinking that it sounds like large companies will need to start operating like start-ups and you’d be right in thinking that!
Much like the brands that won after wartime (the ones that remained relevant and available to consumers during those times), the brands that win after lockdowns end will be those that maintain a presence at stores, maintain their relationships with buyers, and maintain or even increase their presence on social media.
So what is the future of retail as it pertains to groceries?
We believe that brick & mortar stores, whether they are supermarkets, convenience stores or even open air markets, are here to stay. Online grocery stores will take more share from brick & mortar stores. However, they will co-exist.
Total grocery revenues will be almost evenly split between online and brick & mortar stores. Customers will use grocery stores to explore and discover new brands, and buy fresh groceries and meat.
Companies will use brick and mortar presence to signal brand credibility to customers and to encourage trial. Just like D2C brands are now building their brand identity selling directly to consumers, there will come a time, when brand identity is built at brick & mortar retailers and consumers will look to establish brand credibility at stores.
Deliveries are becoming less of a pain point as an increasing number of stores offer delivery service to customers once they buy their groceries at stores. There will be fewer brick and mortar grocery stores in the future as their revenues will not justify the rent on the space.
Additionally, there will be fewer stores in prime locations, further lowering the rent paid annually by these retailers. The reason they currently have stores in prime locations is for convenience (of their customers). But online shopping is likely to be the more convenient choice of the future, whether it gets delivered or whether it is picked up from a convenient location. This would leave a higher margin for retailers than they currently have.
The winners in this space will be:
the ones who can get delivery of fresh produce right. The greatest concern/barrier for customers buying online is fresh produce. Online grocery stores and brick & mortar stores that have an online presence should build a reputation for delivering high quality produce consistently to encourage repeat purchases and new customer sign ups
the stores that can offer a ‘pick-up at store’ option for those who shopped online or the online stores (like Amazon fresh) that offer deliveries within an hour
the brick & mortar stores that can offer busy households a painless shopping experience without queues, like Amazon Go. This combines the convenience of buying online with the experience of buying at stores
the ones who have an online presence combined with brick & mortar stores
Watch out for this space next week to understand what led us to these conclusions!
A month or so ago, I sent out a survey to understand the future of grocery retail across the globe. We got more than 300 responses from 25 countries and across ages ranging from 20 until 70+. Super appreciate everyone who replied. Thank you!
Everyone talks about how online buying is on the rise and that one day, everyone will be buying their groceries online. We wanted to get a better understanding of why everyone saw online grocery buying as the future and whether all countries around the globe felt the same way, so we could set our users up for success.
We intended to leave the survey open for just a week initially, but seeing some of the initial responses, which were very contrary to expectations, we decided to leave it open for response for a couple more weeks, which turned into a month.
So what did we see? We’ll be posting 3 blogs about the results:
The first will be on what is happening now
The second on what we see as the future from the results we got
The third will go into why we came to that conclusion
71% of our respondents buy their groceries from Supermarkets. Just 2.9% of our respondents buy their groceries online. The remainder 26% said they shopped both online and in stores regularly.
Of the 2.9% who responded that they only shopped for groceries online, the bulk of respondents were in the 50-70 age range. We were expecting these respondents to be much younger – Gen Z respondents to be specific. Or even late millennial respondents.
But when we dug into why we saw these results they made sense.
It turns out that most of Gen Z enjoy the grocery shopping experience. They prefer going into stores to get what they want. As the current working culture turns more to remote working and flexible working, it does indeed make time for the Gen Z respondent to go into stores to shop on a weekly basis. Also, they feel they need to touch, feel and see the actual product on shelf.
Most millennials have a preference for shopping at stores and topping up online.
The previous generations, in contrast, had far less time because of their commute into work and due to the squeeze on time, you see more respondents who shop both online and at stores. Online for convenience and stores when they had time.
Also, we found that respondents in the 50-70 age range found it far more convenient to buy mostly online due to mobility issues.