Can a shift in power balance help the FMCG sector?

Years ago, the power balance between manufacturers (suppliers) and retailers was skewed towards the former, but with consolidation in retail and the formation of large players like Tesco & Walmart, the power balance favours retail currently.

Imbalance driven by low fragmentation in the sector

In the UK, the large grocers/supermarket chains (Tesco, Sainsbury’s, Morrisons and Asda) had ~67% market share in 2021 according to a survey by Kantar Worldpanel. This collective share is a key driver of the imbalance.

The largest UK grocer

The power dynamic has been shifting since the 2007-08 financial crisis, which saw the rise of discounters and launch of private label brands by the grocers. In 2020/21, the landscape changed yet again, driven by the acceleration in online sales and in sales through on-demand grocery delivery companies. However the change has not been significant enough to balance the two sides.

Zero sum game: Retailer margins or FMCG company margins?

The large grocers and FMCG companies have effectively locked themselves into a zero sum game.

Grocers have been charging their suppliers (FMCG companies) listing fees and slotting fees to ensure they deliver margin growth, while at the same time promoting and selling own label brands (significantly cheaper) alongside their suppliers’ branded products.

This has led to large FMCG companies boycotting certain grocers, which in turn has lost the companies large swathes of their market.

Not surprisingly, the result is a win-lose situation with any moves by either side impacting the other negatively.

While this strategy has previously enabled the grocers to source brands at low costs and provide consumers with a wide range of SKUs at competitive prices, the reliance of FMCG brands on overseas suppliers and of the grocers on just in time ordering to keep costs low, has given rise to unprecedented levels of stock outs in stores, with everyone, including consumers ‘losing’ in this game.

Data as the new battleground

More recently, data has emerged as a key battleground for both players. Retailers these days have a wealth of data around sales, which they currently do not share on a realtime basis with their suppliers. This is usually because sharing data is not part of the retailer’s company culture and they fear a rebalancing of power.

As communication between retailers and suppliers is usually very transactional, even point of sale data for each of the SKUs that the supplier sells the retailer is not shared.

However, the Walmart/P & G collaboration that was launched in 1988 is evidence that data transforms this relationship from a perceived zero sum game into a win-win situation. The collaboration was instrumental in growing the retail sales of P & G brands at Walmart from what was $350 million in value in 1986 to $10 billion in 2017 (interview with Tom Muccio, the ‘father’ of this collaboration, on valuecreator.com). This has also resulted in a better and closer relationship between the two giants.

All Good Diapers launched exclusively at Walmart by P & G

Why is this important now?

Sharing the latest retail data on sales and inventory levels helps suppliers/FMCG companies plan for sales much better, which in turn drives their plan for raw materials and production runs, leading to accurate stocking at warehouses.

This then ensures that any purchase orders placed by retailers are fulfilled in their entirety, eliminating stock outs at retailer warehouses. This collaborative approach can lead to the slow demise of the current supply chain crisis that has gripped the world since 2020.

Collaborations between retailers and suppliers can ensure that the retailer is always in stock, ensuring a win-win situation for all – FMCG companies, supermarkets, their employees and consumers.

Proposition – A ‘P’ added by Unilever’s framework

A proposition emphasises the USP of any product. Crafting a simple, focused and clear winning proposition can be complex and time taking.

A framework to derive your brand’s USP

Consequently, marketers and sales teams strive to extract learnings from the past, and drive bigger and better innovations for the future. A successfully crafted proposition creates an imprint in the target consumers’ minds to the point that they think of the brand synonymously with the product. Example: The brand, Vaseline and the product, petrolatum, Sharpies and permanent markers, Band-Aid and adhesive bandages…

Chapstick and lip balm

The USP may be product purity, awards associated with the product, value for money, a cause that it stands for etc.

For some brands, it involves creating a narrative around the product. Its aim could be to educate the shopper, to awaken an emotional response or a call to support a mission driven cause. Eg: Tony’s Chocolonely, whose mission is a 100% slave free chocolate.

Most companies focus such propositions on their star brands and SKUs. This way, the benefits of customer loyalty and sales could even extend to different, newer versions of the same product resulting in a sales boost of the overall product category.

How do you communicate your value proposition?

These days, the proposition is most commonly communicated on e-commerce sites, whether that is the retailer’s site or one that is direct to consumer.

In store, proposition is often communication through shelf barkers/talkers. Gondola end displays are used as well. 

Stocking hero SKUs near or at check-out counters is another way to augment brand visibility and communicate proposition.

Crafting succesful propositions

So what are the elements of great value propositions? We have 5 for you to consider.

  1. The rule of 3: Propositions that sell more than three benefits often fail as consumers and shoppers fail to see the key benefit. Also, consumers/shoppers start questioning the assertions of the proposition and consequently trust the brand less.
  2. Emotional or mission driven appeal vs functional benefits: Focussing on a brand’s functional benefits commoditises the product and makes it easier for consumers to switch brands. To maintain share and to encourage more consumers to buy your brand, focus on the emotional or mission driven aspects of the proposition. Mission driven brands have been shown to retain market share even in the most challenging of circumstances.
  3. Include consumer and shopper benefits: Often times, the shopper is different from the consumer. For example, when parents go shopping for breakfast cereal for their children or when a woman buys shaving products for her male partner or when a man buys feminine care products for his female partner. It is key for the proposition to appeal as much to the shopper as the consumer.
  4. Sustainable differentiation: Ensure that your proposition remains relevant for the long term as well as the short. If your point of differentiation focusses on the problems of today and is not expected to be relevant beyond a certain period, your brand is likely to lose appeal beyond that period.
  5. The value proposition for your customers (for those brands that are not just D2C): The above 4 elements are often well thought through as a part of the organisation’s marketing and innovation process. However the value proposition for the customer is less thought through and often purely financial in nature. An effective customer value proposition combines both financial and emotional considerations and is often laid out when the customer is evaluating a brand or a SKU for listing at stores.

If you’d like to learn more about crafting successful value propositions for your brands, email me on veena@salesbeat.co

Reducing stock outs of personal care & hygiene brands in store

Last week, we focussed on how to reduce stock outs of food & beverage brands in stores. This week we are focussing on personal care & home care brands.

You may think that personal care & home care brands are immune to these fluctuations as consumer buying behaviour is a result of frequency of use and this remains more or less consistent. However as we saw in 2020, consistency & predictability are of the past. Climate change and the pandemic have forced us to behave in ways we have never imagined. These changes in behaviours and their unpredictability have caused brands to go out of stock in stores as companies and sales people rely on out dated information to inform them of consumer demand.

So how do you go about understanding optimal orders for personal care & hygiene brands? For a start, lets look at some of the key drivers of sales for the different categories:

Skin care brands

If you are a salesperson working for a company selling skin care brands, frequency of use is key to understanding demand. Frequency of use is driven by habit, nature of work, if they are office based, home based or site based etc. Now look at how covid/lockdowns have impacted this. How are people interacting with these brands/products at home and how are they expected to interact with offices/restaurants opening up? How have closures of spas impacted sales of skin care products and brands?

Hair care and colour

This shelf is deceptive. While the shelves look relatively full, several colours have gone out of stock. And when it comes to hair colour, consumers are usually reluctant to switch brands, hair types or colour!

Here is one time when historical sales is a good starting point. If you can get hold of store level depletions data across all colours and brands in store, you can get an understanding of the rough split of past demand for various colours. Now look at the drivers – how your target consumer uses your brand and the associated occasions – at home, work, social etc, and then apply how these occasions have changed during current times and its impact on sales.

Personal hygiene

Personal hygiene brands have been impacted by covid & by lockdowns. We separate the two as both these elements, while linked, drive different behaviours in consumers. While the pandemic itself has driven an increased consciousness of personal hygiene and keeping immediate surroundings clean/disinfected, lockdowns have led to a more relaxed stance toward personal hygiene at home.

While previously, the average consumer would have taken a shower at work after a run, the very same consumer now doesn’t think twice about changing into work clothes to attend a meeting immediately after the run and shower only at the end of his/her work day. Think of how else covid and lockdowns have impacted consumer behaviour directly associated with your brand.

Vitamins and supplements

Here’s another category that has been directly impacted by the pandemic. Consumers are more concerned about their immunity now and this has in turn benefitted the vitamins and supplements category. To understand the increase in demand for specific vitamins/supplements within this space, consider what the consumer uses the vitamin/supplement for, consumption occasion, consumer age etc

Diapers/Nappies

Here’s another category like hair colour where consumers are unlikely to switch brands and they definitely will not switch sizes! But you can get an understanding of demand by looking at number of births for a start and then at whether day care/play-schools are open or closed.

Now that you know the key drivers and you have your consumer persona from the marketing team, put them together to get an understanding of consumer demand and depletions in store. And before you ask me, these are real photographs taken just last weekend.

If you’d like to discuss any of the drivers of categories in more detail, feel free to email me on veena@salesbeat.co

Reducing stock outs in stores

This blog focusses on how sales people can reduce out of stocks at supermarkets by considering their target consumer behaviour over the last year and how likely this is to change.

Due to the sheer volume of out of stocks we’ve seen on shelves in the last few weeks across several supermarkets, we’ve decided to focus on how FMCG sales people can reduce out of stocks of their brands at their customers’ stores.

Breakfast category

This is a common sight at most grocery stores now. Popular brands and flavours out of stock on shelves and in retailer warehouses. And when customers switch brands as a result, this is highly likely to result in loss of share. How can this be prevented? Keep the consumer in mind when discussing orders with buyers. What are your consumers doing now? How do you/your family eat breakfast now? On the go or at home? How can this impact sales of your brand and should you be discussing larger orders as a result?

Milk alternatives, sugar & sweeteners

These are the shelves you never expect to see low on stock (except during panic buying) in the normal course of events. We take it for granted that your local store always has milk/milk alternatives, sugar and honey. However, since consumer habits underwent a radical change during the pandemic, more people make coffee/tea/their beverage of choice at home now instead of making/buying at work or on the go. This has driven a higher rate of sale of this category. Sales people working for brands within this category should take into account how many of these out of home consumption occasions have been replaced by at-home consumption. And their brands share of those occasions.

Condiments & Carbs

These are photographs from 3 different stores. You may wonder if these are stock photographs from 2020, but these were from different supermarkets just this last weekend (8/9 May). While some of you may attribute some of this to Brexit (Olive Oil & Pasta), the rice, frying oil and Asian condiments are not imported or packaged in the EU and so Brexit should not have an impact. When selling brands/SKUs in this category to customers, consider how consumers have been eating during the pandemic. Are they expected to continue this behaviour or will lockdowns easing have an impact?

Confectionery & snacks

Confectionery and snacks have seen varying impacts during the past year. While brands in the mint and gum category have seen a drop in demand, the remainder of the category has seen a significant rise party due to stress eating and partly due to substituting holidays for treats. As lockdowns ease this is the one category that is likely to see a swing in demand. Consider consumer motivations and drivers for this category when discussing orders. More social occasions = more mint/gum sales. More social occasions = drop in sales of snacks as well. However, home/office working also has a significant impact on sales of snacks. The quantum of change for each brand depends on the brands, their consumption occasions and how many industries/companies decide on a return to work vs continuing remote work.

Beverages

Non-alcoholic & alcoholic beverage brands have experienced stock outs over the past few weeks/months. While some of this may be attributable to supply chain constraints around aluminium cans, why are the same products in bottles not available in greater quantity? Why not use the empty space for the same brand in other formats/packaging? For brands not constrained by this, why limit sales to pre-pandemic levels? Consider how your target consumer has changed his/her way of consumption over the past year and how likely it is to change.

The pandemic has forced us all to behave and consume products differently over the past year. This has now become a habit and habits do not change easily. So if you are a sales person selling FMCG products that are not in any of the above, think of the impact of the last year on the brand/product. Has the consumption occasion changed? If so, how has it changed? For example, consumers buy and use more cleaning products and personal hygiene products now than they did before the pandemic. This is now an ingrained consumer behaviour that is unlikely to change in the medium term.

Not unless there is another significant event that forces us to behave differently.