EXCLUSIVE – The forces of change for FMCG and retail



Carat Australia presents its latest report on FMCG & Retail in an exclusive three-part series for AdNews. It is the first of the series.

FMCG & Retail are extremely broad categories made up of many different subcategories and brands. Rather than trying to capture the nuances of each layer, the focus of the report is more to help marketers understand the key trends affecting all buyers, so they can navigate their brand over the years. to come up.

This article begins with an overview of the market, then explores seven specific forces of change, from transparency to localism to private label.

A snapshot

The last twelve months have been tested for most of the FMCG and Retail brands. Consumer purchasing behavior was quickly disrupted by COVID. Fluctuations in supply and demand have created additional challenges to overcome. Brick and mortar stores took a hit, especially during the immediate lockdown. But online sales have exploded for many, and those who were already on their digital transformation journey were in the best position to stay ahead of the competition. FMCG products generally fared well, especially with panic shopping and time spent at home. In the end, there was a myriad of experiences for brands. The lingering uncertainty around COVID and the economy suggests the landscape will continue to change rapidly – those who are far-sighted will be rewarded.

The landscape is complex, affected by forces of change both fast and slow, some large-scale and others emerging. This next section explores seven.

  • Brands are rethinking the role of physical stores (# 1) and payment platforms (# 2) as digital technology rapidly evolves
  • Consumers expect more transparency from traditional brands (# 3) and expect them to offer new ways to pay (# 4) such as online marketplaces, subscriptions and buying immediate, payment later.
  • Australians also place greater importance on the local (# 5) as they become more community aware.
  • Private labels see growth (# 6) as many buyers tighten their portfolios after difficult year
  • Consumer brands are preparing for the future by borrowing tactics from direct-to-consumer brands (# 7)

1. People choose the local

A difficult year has brought communities in Australia together, making them think more about where they spend their money. The love of the local is everywhere. Australian Made asked us to choose local businesses; Popular movements like Buy From The Bush and Empty Esky have echoed these calls; and the Prime Minister told companies to be “patriotic” and support Australian workers. 89% of Australians now agree that more essentials should be made locally (source: Roy Morgan) and brands are flagging their provenance to meet demand. eBay has created an “Australian Made” hub to make it easier for local manufacturers of all categories to grow their businesses online. Local is an important part of the value equation for many consumers, and local brands shouldn’t be afraid to shout where they come from or the brands they offer.

2. Brands adopt private labels

Private labels have steadily gained market share in recent years, and the frugality induced by COVID is driving even greater growth. Many FMCG categories have low retention and differentiation rates, making them a ripe target for private labels (source: HBR). Aldi is a brand backed by strong private label execution; its “ghost” brands mimic popular brands, capitalizing on their familiarity and training consumers to think less about the brand name they want and more about the product they need.

Despite the success of private labels, consumers still prefer brands, so they should continue to invest and build equity in their assets to expand their advantage. The best-known brands are ultimately the most chosen.

3. The influence of DTC brands

The influence of direct-to-consumer brands has flourished by cutting out middlemen and traditional FMCG brands are taking note. 57% of FMCG brands say they are exploring DTC capabilities (source: Deloitte) by testing new distribution approaches (like subscriptions), acquiring DTC brands (like Unilever and Dollar Shave Club, and P&G and Native deodorant) and launching pop-up experiences (like July Luggage). There are many potential benefits for brands; new distribution channels can bypass wholesale relationships (creating greater margins) and they can gain a closer relationship with their customers and data. However, they must be careful not to preserve their own traditional brands, as well as their relationships with retailers.

Take the time to study DTC entrants and their business models – traditional brands may have opportunities to sustain their distribution and communicate better with their customers.

carat - cover July 2021 retail report

4. Rethink physical stores

As e-commerce skyrockets, physical retailing suffers from reduced traffic, rent wars and store closings – but it is far from dead. Nordstrom (US) differentiates itself from its exclusively online competitors by introducing smaller, merchandise-free “local” outlets that offer key services such as online pickups, style advice, tailoring and clothing. the beauty. Burberry (China) used its WeChat app to improve the in-store experience. Shoppers can book appointments, interact with screens, play music in the dressing rooms, and unlock their personal “rewards” avatar. Online specialists like Casper (mattresses) and Harry’s (razors) partner with Target (US) to create in-store pop-ups to reach new audiences and let them see and feel their products .

Physical retail is extremely valuable for traditional and new online brands, and should be designed to work in tandem with e-commerce.

5. Discovery and payment platforms converge

Bottom-of-the-funnel channels are evolving – they look beyond sales and prove that they are often valuable spaces for discovery too.

Afterpay and Klarna are two fast growing examples; both prefer to be defined as holistic marketing solutions, and not just as BNPL (Buy Now Pay Later) services. They allow brands to reach new audiences through their apps (users can browse retailers, share wishlists, and access deals) and through retail events (like Afterpay Day) – an engaging proposition when two million Australians use BNPL, a number expected to double by 2023 (source: Mozo)

Facebook (and Instagram) can play a similar role. Its deployment of ‘Shops’ capability turns it into a large-scale payment platform, but it retains its value as a discovery environment. See marketing platforms as partners not only as payment solutions and showcases, but as instruments to reach new audiences and generate interest.

6. Transparency becomes widespread

Big brands take transparency seriously in all its forms, from ethical supply chains to sustainability commitments. Special purpose brands (like Patagonia, Everlane) have long touted transparency, and it is gaining traction among mainstream brands as a way to gain competitive advantage, guard against reputation risks, and earn higher prices. . For example, an MIT study suggested that people would pay 2-10% more for products with greater supply chain transparency.

Some brands acquire B Corp certification to prove their transparency to consumers. B Corps is continuously committed to working for “reducing inequalities, lower levels of poverty, a healthier environment, stronger communities and the creation of higher quality jobs with dignity and purpose” and pays a membership fee. annual. Over 250 Australian brands are B Corps, including Bank Australia, Aesop, T2 Tea and Koala, and the number is growing; Australia saw a 12% increase in submissions in 2020. Brands should aim to be as transparent as possible, but it must start with the company and its internal practices to avoid the risk of backlash.

7. New ways to pay

People have more ways than ever to pay for what they want, thanks to new retail and digital payment technologies that are reinventing old approaches. People shop from online marketplaces (like Gumtree and Facebook), through subscriptions (like Amazon Prime), buy now-pay later programs (like Afterpay), and point-of-sale systems without contact. The principles behind many of these trends are not new. People have a long history of buying second-hand furniture, paying cable TV subscriptions and telephone bills, and using old BNPL programs. But technology has scaled them up, made them even more convenient, and made them more modern than credit or rest. Test alternative purchasing methods and offer a range of options to your customers; don’t give people a reason not to choose to buy your brand.

Do you have something to say about this? Share your perspective in the comments section below. Or if you have any news or information, drop us a line at adnews@yaffa.com.au

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