42% of the consumers in the US are interested in technology to customize products while 19% cited willingness to pay a 10% price premium for them.
It will be critical for the large FMCG companies to customize both product and shopping experience as smaller brands continue to do so and appeal the customers while largest brands sales growth have remained stagnant.
- Definition / Scope
- Market Overview
- Key Metrics
- Top Market Opportunities
- Market Trends
- Pricing Trends
- Industry Challenges
- Technology Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Distribution Chain Analysis
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
FMCG or Fast Moving Consumer Goods is the largest combination of consumer goods with various product categories that include home, health, and personal care and food & drinks including its marketing, production, and distribution.
Within the US, the personal care segment is expected to witness considerable growth owing to the rise in disposable income of consumers, thus enabling them to spend substantial amount on luxury personal care products.
Categories of FMCG goods are as follows:
- Processed foods: Cheese products, cereals, and boxed pasta
- Prepared meals: Ready-to-eat meals
- Beverages: Bottled water, energy drinks, and juices
- Baked goods: Cookies, croissants, and bagels
- Fresh, frozen foods, and dry goods: Fruits, vegetables, frozen peas and carrots, and raisins and nuts
- Medicines: Aspirin, pain relievers, and other medication that can be purchased without a prescription
- Cleaning products: Baking soda, oven cleaner, and window and glass cleaner
- Cosmetics and toiletries: Hair care products, concealers, toothpaste, and soap
- Office supplies: Pens, pencils, and markers
The FMCG industry accounts one in 10 American jobs and is the largest manufacturing employer in the US. As of 2019, the industry supported around 20.4 million jobs, created $1.1 trillion in labor income and also contributed $2 trillion to the US GDP.
The indirect contribution of the industry is also tremendous where it supports more than 18 million additional jobs in a wider economy that generate $957 billion in labor income and contribute $1.6 trillion to GDP. The additional support can be referred to economic activity in related industries such as agriculture or retail.
Also California is the state with most companies’ presence i.e. 19% of all the FMCG companies operating in the country.
FMCG comprises of mostly personal & household goods, food & beverage and tobacco & alcohol products. In the American economy, FMCG industry is growing at a stable rate and managed to avoid overall volumetric declines.
However, the trend suggests that the physical consumption of products is slowing down as unit volume sales continues to remain flat year-over-year. As of 2019, only rise in overall market value y-o-y was $14.2 billion i.e. 1.8% sales growth in period of a year.
Among the FMCG segments, Food & beverage is growing the most i.e. 6.3% y-o-y followed by fresh perishables at 5.7%. Other segments such as household & personal care is increased at 2.3% respectively. The only segment that encountered negative growth is non-grocery where the sales declined by 1.4% y-o-y.
Top Market Opportunities
Optimizing online retailing capabilities: The consumers are preferring online retailers’ more than physical stores, so the trend has shifted to online retailing. For instance, e-commerce sales in 2019 is estimated to be 8.4% of the total retail sales up from only 7.5% in 2018.
Also, online FMCG sales are projected to grow $36 billion by 2019 up from $8 billion in 2017. Many Food & beverage products selling companies are also developing solutions to simplify logistics and sell & deliver perishable items through online means.
Another trend that is likely to stay is BOPIS “Buy Online Pickup in Store” where consumers are looking for this option especially for grocery items. Any retailer that has online presence and physical store will benefit from the trend.
Thus, FMCG companies have opportunity to increase sales by collaborating with the right retailer and also by selling through multiple channels.
Trusted source of information-Internet: The internet is omnipresent and its emergence is the most trusted source of information over traditional media channels.
According to a survey taken in 2018, 34.4% of the US consumers in 2018 listed the internet as most trusted media, exceeding traditional media channels. In addition, 80% of the consumers in 2019 also agreed that internet is an excellent way to gather information about products they are looking to buy.
In general, household products are the popular category in e-commerce platforms but more lately food and beverage categories such as tea & coffee have also witnessed increase.
Thus, FMCG companies must leverage internet as a means to create awareness among people via advertising and also by sharing information about their products through online marketing campaigns and product website among others.
Exploit the potential of social media marketing: The way FMCG companies market their products is changing as social media has become the new means for delivering exclusive offers, coupons and discounts to target customers.
For example, YouTube is the top social media platform as it accounts 24% of the total social media traffic. In the US, 91% 13-17 year olds and 81% Millennials use YouTube but so do 58% of Gen X too. As of October 2018, YouTube had 17,000 channels with 100,000 or more subscribers and nearly 1,500 with more than a million subscribers.
Many of these channels are operated by YouTube celebrities who often endorse products; everything from cosmetics, fashion, diet and exercise, beverages, and technology to travel and entertainment.
As 60% YouTube users in the US have cited that they would follow advice on what to buy from their favourite creator, being on YouTube will play an important role in driving business of FMCG companies.
Customer relationships are now digital-centric: With consumers spending, on average, almost six hours per day on digital media. Digital channels continue to be the single source of most retail growth and will soon influence most retail purchases.
By 2022, e-commerce is expected to account for 17% of total retail sales (ranging, by category, from 4% in grocery to 66 percent in electronics), while an additional 41% will be driven from digitally influenced offline sales.
The shift to online sales, coupled with rising labour costs, puts pressure on store economics. However, due to new options such as, the “buy online, pick up in store” option, omni-channel trend has evolved where all channels are connected and together these connected channels are boosting FMCG sales.
The millennial effect: A recent 2019 survey has found that millennials are almost 4 times more likely than baby boomers to avoid buying products from “the big food companies.” And as millennials particularly research before buying, they rely on word of mouth and resist direct marketing from the companies.
They are also more inclined towards newer & smaller brands which are better or more innovative, and they prefer not to shop in mass channels. In line with that, small or challenger brands operating in the market target these millennials with more tailored offers which in turn entices these generation people.
This is the major reason, small or new brands in the market are succeeding more than the existent incumbents. Also, these brands are providing products at relatively cheaper price and this aligns with values of “Millennials” who choose to spend carefully.
Initially, FMCG companies were operating through a different business model which proved to be successful for them but since then and now only little change has been witnessed in the industry.
FMCG companies at past were able to earn reliable revenue growth and gross margins above 25% of non-branded players, they built relationships will mass retailers which helped them gain access to consumers and also aligned their supply chains.
However, this long successful model of value creation has lost its effect at present.
The household care products sub-segment for instance, dropped from the sixth most profit generating sub segment to the tenth measured by economic profit.
Food products, long the most challenging FMCG sub segment fell from 21st place to 32nd. As a result, FMCG companies’ growth lagged behind the S&P 500 by 3 percentage points from 2014 to 2019.
The major issue is lack of organic growth. From 2014 to 2019, FMCG industry grew organic revenue at 2.5% slightly behind global GDP growth. In addition, companies with more than $8 billion in annual revenue grew at only 1.5 percent—half the growth rate of companies with sales of under $2 billion.
This difference suggests that large companies face a serious growth penalty, which they are not making up for through their slight EBIT expansion. Organic growth matters in the. FMCG industry as companies that achieve above market revenue growth and margin expansion generate 1.6 times as much TRS growth as players that outperform only on margin.
A major challenge for FMCG companies lies in engaging with the customers and influencing their journey on connected devices across multiple touch points ranging from initial research to end-purchase decision.
In compassion to other industries, FMCG companies have been particularly backwards to harness the power of internet to influence consumers. In 2018, the digital ad spend by FMCG was estimated to be around 8.7% compared to automotive (12.7%) and financial services (12.2%) respectively.
In the US, for every $0.56 spent in the store is influenced by consumer’s digital interaction. Thus, FMCG companies will be greatly affected if they do not increase digital engagement of consumers.
Ecommerce giants such as Amazon have grown its merchandise value at an astounding rate of about 34% per year from 2014 to 2019.
The retailer has intense impact on the consumer decision journeys across categories forcing FMCG companies to re-write their channel strategies and channel management approaches including how they assort, price, promote and merchandise their products.
After Amazon’s push on its own private label, other retailers in the US are also starting to follow the trend. This will affect FMCG companies greatly as they will lose their share in the retailers market as the retailer would give first priority to their products.
- Engage consumers with wearable technology:
Wearable is definitely an untapped market for the FMCG companies as it is estimated that by early 2020, 86 million US adults will be users of wearables in addition, wearable electronic devices will offer revenues of $61.7 billion.
In the US, some FMCG companies are finding creative ways of utilizing wearables. For instance, a beverage manufacturer recently experimented with micro-chip fitted, smart-cap bottles and sweat patches that digitally provide athletes continuous updates on how much to hydrate and thus, use their product.
- Data through IoT (Internet of Things):
The volume of data generated through connected products continues to increase around providing opportunities for companies’ and also increasing consumer expectations.
Most FMCG companies have started to embrace digital but have long way to go, especially in adopting truly data-driven marketing and sales practices. Some FMCG categories, particularly home care, is being transformed by the IoT technology converting some product needs, like laundry, into service needs.
For instance, Amazon is becoming the pioneer in utilizing the technology across grocery buying journey which is being reshaped by IoT especially through automatic replenishment.
- Predictive analytics:
For instance, one FMCG company based in the US is mining massive database of historical point-of-sale and promotion data and combining it with real-time data from social media and weather forecasts to predict daily demand by store and optimize assortments and promotions to maximize sales.
Another company, P&G recently announced that it would be increasing its analytics workforce by almost 4 times. The company clearly believes that the way information is used in the business world is fundamentally changing and sees analytics as a core source of competitive advantage in the coming years.
In each grocery market that the discounters enter, they grow to secure market share of 20% or more. For instance, Aldi & Lidl have grown at 5.5% between 2014-2019 and are now targeting the US market for further growth.
Discounters attract customers with curated offering of approx. 1000 fast moving SKUs sold at prices 20% below mass grocers and still gain healthy returns.
But due to over-discounting, the products sold in the market is sometimes perceived as cheap by customers which hampers the reputation of the company producing it.
Other Key Market Trends
42% of the consumers in the US are interested in technology to customize products while 19% cited willingness to pay a 10% price premium for them. It will be critical for the FMCG companies to customize both product and shopping experience.
For instance, for food and beverage companies, additive manufacturing is becoming a technology which they could use to customize the end product. Additive manufacturing using edible materials allows food manufacturers to explore the customization of their mass-produced and in many cases commoditized products.
Some of the benefits of edible advanced manufacturing include, product differentiation, product customization, direct to customer relationships among others.
In near future, the technology could further create advancement in food manufacturing such as unique formulations for dietary needs, customized nutritional supplements etc.
Another trend that is prevalent in the market is mass merchant squeeze where retailers are continuously witnessing flat revenues every passing year.
This pressure in turn is forcing merchants to become tough trading partners; as a result they are pursuing more aggressive procurement strategies, including participating in buying alliances; being more vigilant about SKU proliferation; and decreasing inventory levels. And finally they are also seeking out smaller FMCG brands and strengthening their private labels.
Market Size and Forecast
- As of 2019, the global FMCG market was valued at $11.1 trillion and is projected to reach $15.3 trillion by 2025 with CAGR 5.4% during the 2020-2025 period.
- North America is the dominating region in the FMCG industry around the world and within North America, US is the leading country market. As of 2019, US FMCG market is expected to account 0.73% of the Global FMCG market i.e. at $815 billion dollars as of 2019.
- The food and beverage segment is the largest with market value of $725.2 billion or 89% of the market.
- Personal & household care market accounted 5% of the market or $40.7 billion in market size.
- And finally, 6% of the market is occupied by the alcohol & tobacco products and other non-grocery items at market value of $48.9 billion
- As of 2019, the overall FMCG global market is expected to rise at CAGR 5.4% during 2019 to 2025 period.
- The US FMCG market is expected to rise at 1.8% annually until 2025. By 2025, the market size is expected to reach $919 billion.
- The Food & beverage segment of FMCG is forecasted to rise at CAGR 5.3% during 2020-2025 period.
- The Personal care market is expected to rise at CAGR 6% during the same period and
- Other non-grocery items, tobacco products & alcohol are expected to rise at CAGR of 8.5% respectively.
Distribution Chain Analysis
- Direct consumer relationships: FMCG companies are continuously increasing the use of technology to create direct relationships with their consumer segments. The consumers are becoming more conscious of price than brand. The proportion of consumers that have returned to branded goods is also lower after previous recessions. Engaging directly will consumers allows FMCG companies to retain them and improve insights on what consumer needs which in turn leading companies to target products and promote them well in the market.
- In line with that, many companies have found ways to of directly to consumers by offering those online services in addition to just products. For instance, Kraft created a service through website and app which is much like a social network of culinary experts or people who are generally interested in cooking to share their recipes. Another player, J&J Baby Center also provides an online community platform where parents can share advice and product recommendations.
- Among the FMCG companies in the US that are studied, 40 companies found 10 different methods to interact with consumers on social media throughout the product decision-making process. Those techniques included, monitoring blogs, social networks, direct engagement, targeted marketing, and new-product introductions among others. For example, Coca- Cola observes what consumers are saying about tis products in real time. Coke was also the first brand in the world to reach 50 million Facebook “likes”. The direct to customer channel thus requires complex set of technology solutions which is new to FMCG sector but with more companies leveraging the channel, it is set to become one of the most significant channel for promoting products in the market.
- Demand Driven supply chain management: FMCG companies are increasingly relying on demand-driven supply chain systems to lessen inventory levels, progress service performance and reduce stocks from running out. In line with adopting this approach, companies have started to integrate real-time demand data with traditional forecasts to develop a system that identifies the amount of inventory required at a certain time. They are also sharing this data with consumers and distributors to manage the entire supply chain of the products.
- For instance, one FMCG company based in the US was able to create around $377 million in benefits and improve on-time delivery from 97% to 99.5% over 3-4 years by adopting consumer-driven demand planning as well as integrating its manufacturing and logistics systems with best consumer integration solutions.
- Another large grocery retailer in US led a predictive-ordering pilot work together with a FMCG company and drove 15% growth in same-store sales by improving assortment of products and eliminating stock-outs completely. Retailers have also invested in technology initiatives that are way ahead of their FMCG counterparts. Thus, if FMCG companies are to benefit from the trend of data analytics and managing the supply chain of their products, they must collaborate with retailers, which could in turn increase sales of their products.
Brands are exploding all along the FMCG sector and multiple brands are capitalizing on the millennial preferences and digital marketing to grow rapidly.
Although, these brands are small and are difficult to track but the market study reveals than more than 4,000 of these small companies have received a total of $9.8 billion funding in past 10 years’ time period and $7.2 billion of it in past 4 years alone.
The US retailers are the ones taking notice of small brands and retailers are giving those small brands double their fair share of new listings. Small brands are also becoming a new source of products (because they are different) that can help drive margins.
Despite these brands sell at premium prices, retailers are ready to incorporate them as they are increasingly becoming popular among mass consumers. As a result, small brands are capturing 2-3 times their fair price and largest of the brands in the market remain flat or have declined in sales growth.
Some of the factors that have led to disruption of small brands in the market include, high margins, strong emotional engagement, a value chain that is easy to outsource, low shipment costs as a percent of product value, and low regulatory barriers.
Especially the beauty & skin care product categories are the ones that are growing the most. For instance, some digital challenger brands in the category already represent 10% of the category market and are growing 4 times faster than rest of the category products.
The rise of more local competitors that will in turn reshape the FMCG market still has tremendous growth potential. They are likely to generate new consumer sales of $11 trillion by 2025, which is equivalent of 170 P&Gs.
These local competitors are likely to aggressively offer relevant products acquiring local talent. In contrast, large FMCG companies in the market will require to move away from their fairly centralized decision making models and harness Local relevance, proximity to the consumer, and speed will become more important drivers of competitive advantage than consistent execution.
Key Market Players
As of 2019, in terms of geography US hosts more of the top 50 than any other country i.e. at 18. Top 50 combined total sales revenue totaled $1.09 trillion and the major driver of this growth can be given to merger & acquisition effect in the market. In the US, the top 5 FMCG companies include following:
- Johnson & Johnson is a US based company manufacturing personal care goods, medical devices and equipment, plus pharmaceutical products. It has a substantial presence in more than 60 countries.
- Procter & Gamble is acompany that is globally recognized as the top brand operating in home and fabric care, as well as personal care for the whole family. It owns a large number of household names like Gillette, Ariel and Pampers.
- Coca-Cola Company: It is a manufacturer and retailer of soft drinks, concentrates and syrups. It’s best known for its flagship product Coca-Cola, which was invented in 1886 in Atlanta, Georgia. This brand is so iconic that it also sells merchandise with company branding.
- PepsiCo: An American corporation headquartered in Harrison, New York. It specializes in the manufacturing, marketing and distribution of a variety of snack foods, drinks and various other products. A long-term rival of Coca-Cola, it has managed to thrive alongside it.
- Philip Morris International: A cigarette and tobacco manufacturing company headquartered in the US. It operates and owns 46 production facilities and provides six of the world’s top international brands in more than 180 markets. One of these is the world’s biggest cigarette company, Marlboro.
Other notable players in the market include:
- Kraft Heinz
- General Mills
- Colgate Palmolive
- Altria Group
The US demographics is changing along with the global growth trends. By 2025, the world will be different economically and Asia will be driving the most growth due to urbanization and burgeoning middle class.
In addition, the millennials attitudes will affect the existing strategies of the FMCG companies, the US centric model that many companies in the market have followed up till now will not be successful in future. New markets will drive consumer spending requiring companies to identify similarities and uniqueness.
Overall, millennials are the richest generation in the US and FMCG companies will need to align their product values with the values of those generation to truly influence them.