New vs. Old: The Changing Tides in the CPG/FMCG Industry

August 22, 2016

Last month, The Economist had an interesting article on the challenges faced by large fast-moving consumer goods (FMCG) / consumer packaged goods (CPG) companies. It pointed out that large CPG companies in the US lost three percentage points of market share from 2011 to 2015 and in emerging markets, local competitors are a “growing headache.” According to the article, upstarts are seeing increasing success against their larger competitors due to lower barriers to entry (online promotion and e-commerce play a big role in this!), the declining effectiveness of traditional television advertising and local competitors that are more attuned to their customers’ needs.

In 2015, $3.3 billion was invested into private FMCG/CPG firms, up 58% from 2014 and 638% since 2011.

While the article painted a picture of doom and gloom for larger players in this space, the big companies aren’t standing still. You don’t get to be an 86-year-old (Unilever), 130-year-old (J&J), 144-year-old (Kimberly Clark), or 179-year-old (Procter & Gamble) company—to name several examples—without the ability to successfully navigate a constantly changing landscape.

To that end, Unilever recently announced the $1 billion acquisition of Dollar Shave Club, which gives it an entry into the shaving market as well as significant direct-to-consumer expertise. More importantly, according to this Bloomberg article, Unilever acquired expertise in a company that has rapidly built a strong brand by leveraging clever marketing to establish strong relationships with men.

If that prowess can be used with other Unilever brands, the benefits of the acquisition may prove to be far greater than just revenue from the e-commerce shaving business, which exceeded $150 million in 2015.

That acquisition puts Unilever into direct competition in the shaving market with Procter & Gamble (P&G), which had previously established a Gillette Shave Club to counter Dollar Shave Club and other competitors such as Harry’s in the shaving market.

P&G is working to further enhance its direct-to-consumer initiatives with the “Tide Wash Club,” an online subscription service for Tide Pods capsules, and “Tide Spin,” an Uber-like service “in which customers in parts of Chicago can use a smartphone app to order laundry pickup and delivery from Tide-branded couriers.”

Time will tell how the direct-to-consumer initiatives of the large consumer goods players will work out, and whether new competitors will continue to chip away at the established companies’ market shares. There may be some things that the “old guard” can learn from the newly created consumer brands, and the efforts of Unilever and P&G show that they’re not only aware of the shifting trends, but they’re doing something about it. Some examples that we’ve seen include:

  • Using non-traditional digital marketing and sales channels to build a brand
  • Using offbeat marketing and social media to connect deeply with consumers
  • Collaborating with authorized retailers to share customer data and create joint marketing campaigns
  • Leveraging direct-to-consumer e-commerce initiatives to get closer to customers

But, there are some things that the upstarts could learn from the more experienced companies as well. Considering that on-time delivery for some of these companies once involved ensuring that the transportation had enough hay and water, the fact that they’re still in business today shows their ability to adjust to new market conditions and adapt to the changing retail landscape. It should be fun to watch as the market continues to evolve and the new and old vie for the hearts and minds (and stubble!) of today’s consumers.

 

Blog post by Mike Shapaker, Vice President & Managing Director at ChannelAdvisor