FMCG companies not adapting quick enough to technology-driven changes
In recent years, we have seen the gradual demise of the big brands that traditionally dominated the FMCG landscape, the ones who built their businesses on the strength of their brands and scale. Now, more than ever, with data-aware retailers, innovative start-ups, new agile business models, digital sales channels and technologies, these advantages can no longer secure their future.
The World Economic Forum and Accenture estimate that digital transformation in consumer industries represents a US$2.95 trillion shift in value, but big brands have struggled with the link between digital transformation and financial performance.
In the pursuit to maintain share and the bottom line, big brands have acceded to major retailer pressure and at the same time reduced investment in product innovation and marketing, and cut costs often with the loss of jobs. Exploration of new operating models and investment in digital transformation rarely feature as part of any strategy.
In this new era, brand owners need to focus on the critical drivers of long-term success with brand equity, innovation and agility being at the core, according to Chris Wong, managing director of digital factory-to-shelf distributor PAVÉ.
Industry strategists now advocate a shift from vertically-integrated to networked business models using specialist partners in a “plug-and-play” type structure. These partners are experts in their respective areas and deliver greater efficiencies and visibility through their use of digital technology.
“This shift requires bold leadership and no doubt has risk, but the risk of not changing is much worse over the medium to long term” Wong told Inside FMCG.
Digital in an FMCG context is usually associated with a new consumer sales or marketing channel but less understood is how it applies to business performance. Technology advances in the areas of business intelligence and analytics provide unprecedented visibility and insights in real time to rapidly identify issues or opportunities. Process automation can now perform what were labour-intensive tasks in an instant, substantially reducing costs. In the not too distant future, predictive analytics and AI will be the next wave of technology that will drive business success.
“What if you could visualise your product depth by store on a map of Australia or New Zealand? How about visualising field sales team activity against scanned distribution results or automatically matching promotion invoices against planned promotions, ready for payment?” This is now all possible, Wong says.
“How do brand owners begin this journey? It starts with identifying the core business functions that provide a competitive advantage. Do you need to manufacture? Do you need your own sales team or to process orders and manage supply chain? Most brand owners would conclude that brand marketing, category analytics, product development and in some instances, manufacture are at heart of their business. Upon completing this exercise, most companies would end up with a structure quite different from what they have today.”
“Next comes the evaluation of whether specialised partners can perform other functions as good or better and cheaper. This should not be an assessment based on price alone, but of current and future capabilities and digital transformation plans,” Wong says.
“Now with a focused core business, it is a journey of digitisation covering data capture, data warehousing, process automation, business intelligence and analytics which is a multi-year journey.”
“PAVÉ is already on this journey and has delivered substantial savings and value for its major clients.” Wong says, “For Australasian businesses, New Zealand is a great market to start the journey with its small size, market complexity and high cost to service.”
Chris is managing director of PAVÉ, an Australasian provider of factory-to-shelf sales and distribution services that combines deep industry expertise with advanced digital technologies.