By Nicolas Votano,
Frost & Sullivan
Fast-moving consumer goods (FMCG) companies are shaping their growth more than ever through constant innovation and the implementation of new technologies to serve their consumers better.
This traditional sector is at the heart of powerful industry convergences. Traditional value chains are impacted by transformative Mega Trends, disruptive technologies, and new business models that will reshape them faster than expected.
Five strategic pillars will support the FMCG industry in the next five years: digitization, personalization, sustainability, deglobalization and new business models.
Digitization is amongst the most disruptive trends for traditional FMCG players. From R&D to distribution, each building block of the value chain will be deeply impacted. AI, data analytics, IoT, robotics, machine learning, RPA and additive manufacturing are advanced technologies that will reshape FMCG research departments, factories, warehouses and stores while enhancing customer experience and engagement. These technologies will optimize internal processes and automate redundant and low value-added tasks. They will strengthen client intimacy by leveraging data to provide perfect custom solutions to billions of clients.
Hence, there will be a major structural shift from mass production to mass personalization in the industry. For decades, personal care and food and beverage players have served their clients with a mass-market mindset. Yet, a large part of their product portfolio is related to intimate and personal factors like skin and hair type. The quest for personalization is redefining industry standards. Microbiome-based technologies, predictive data analytics, DNA and RNA-based diagnostic help formulate and produce the most adapted solution for all of us. This need for personalization is creating huge challenges for traditional FMCG players. The impacts on sourcing, supply chain management, real-time production, packaging, distribution, marketing and sales processes are critical.
Consumers of the future will expect digital, personalized, but also sustainable products. Sustainability is already part of FMCG CEOs’ agendas. The industry is focused on innovating, producing, and developing sustainably. Carbon abatement strategies, alternative materials and feedstocks, natural ingredients, green packaging and socially responsible products will continue to structure the sector in the next five years. However, sustainability relative to this industry is complex. The next generation of consumers expects greener products but is not ready to pay a premium for this new standard. Also, the expectations for product performance will remain high. This market paradox is a massive technical and economic challenge for the industry. The question becomes: how can we triangulate performance, sustainability and cost in the same product? A lot of key players are already working on it.
Digital disruption comes with the emergence of several disruptive business models that are reshaping the industry. The financial fundamentals of major FMCG firms are well-known: high volumes, strong brand power, solid relationship with physical retailers, and giant sizes enabling economy of scales and cost optimization at each step of the value chain. With the digital era, industry fundamentals are questioned and less protective of traditional players. Barriers to entry are falling, and creative digital startups are targeting this industry and threaten the biggest historical players. Business model innovations are everywhere. Online subscription business models, data-centric marketplaces and direct-to-consumer approaches are just a few examples.
Emerging FMCG players focus on data, customization, customer engagement and experience to balance the financial power of top traditional players. They are building communities and clubs to engage their “members” on a long-term journey. The objective is to build sustainable growth leveraging recurrent business models and revenue streams. The vision is to deliver custom solutions with added value services enhanced with digital platforms. Just selling a product is no longer sufficient. Once consumers are on board, the next business objective is brand affection, customer retention and product democratization.
Finally, since January 2020, the COVID crisis has forced traditional FMCG players to question their global supply chain strategies. Deglobalization trends pushed the industry to reinvent classic mass-market approaches centered on volumes and cost reductions. In the next five to 10 years, critical challenges like supply chain resilience, local sourcing strategies and risk mitigation with backward and forward integration will need to be addressed and secured.
While working on your 2025 innovation roadmap, think about these five strategic pillars: digitization, personalization, new business models, sustainability and resilience.
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Nicolas Votano, is currently an Associate Partner and Global Client Leader at Frost & Sullivan, focused on fast-moving consumer goods (FMCG). Nicolas previously led the firm’s Global Accounts Strategy, leveraging his extensive sales and consulting background to cover diverse industries including microelectronics, medical devices, manufacturing and health and wellness, among others.
Nicolas speaks fluent English, French and Italian, and has worked in Italy, France, the United Kingdom and the U.S., thus bringing a true international perspective. His specialties include corporate strategy, sales, sales management, and sales training.