FMCG stands for Fast-Moving Consumer Goods, and it is a sector defined by products sold quickly at relatively low costs. This means FMCG companies rely mainly on the combined profit of large quantities of goods sold. The more and the faster these are sold, the higher the profit. For big manufacturers, hundreds, even thousands of products can be taken off production lines in a minute. The FMCG industry is often categorized into four segments as follows:
From a consumer’s point of view, FMCG products are relatively inexpensive and needed almost daily, such as food, drinks, and other household necessities. This means these products should always be available in stores and markets near residential areas. As the result, big FMCG corporations don’t sell their commodities directly to end-users but instead use a network of retailers to deliver products to customers. Thus, there will be a lot of logistics involved in the transport of goods from the producers to distributors, from the distributors to retailers, and then from retailers to customers.Due to this industry’s nature of high sales volumes and a wide network of retailers, distribution is a crucial operational stage, and also a costly one. Logistics managers are always under heavy pressure to minimize expenses in this department.
Just like its name, the FMCG industry is a fast-changing one, and it often follows major global trends such as in economics, healthcare or technology. Experts at McKinsey & Co. have identified the five dominant forces which will drive changes in the consumer landscape in the next 15 years.
From the above table, we can see some common themes:
Middle-class consumption will increase rapidly while the population keeps aging, this will in turns lead to rising labor costs.
Personal consumers will demand more convenience and focus on their shopping experience, not just the quality of the final product.
Even more people will own connected mobile devices and rely on them to manage their everyday activities, including shopping.
As consumers are becoming increasingly used to the convenience provided by their smart digital devices, which are almost always within their reach, service and product providers nowadays also have to get on this technology bandwagon in order to keep existing customers and attract new ones. For both busy young people and less-capable senior citizens, the newly discovered convenience of online shopping has been extremely helpful.
Asia continues to be a leading market for retail consumption. While local brands still dominate this region, it is also attracting many overseas corporations to set up offices here in order to take advantage of a high-potential consumer population.
Today, Asia accounts for the largest number of smartphone users globally, at over 50 percent , while internet access growth in Asia-Pacific is expected to remain at about 7% through 2019 . As this tech-savvy generation continues to grow and dominate the consumer population in Asia, even traditional grocery stores nowadays have to innovate themselves and digitize operation.
Innovation in FMCG: most widely used software systems
Taking into consideration all of the above characteristics and trends, most FMCG corporations these days have been adopting several technological solutions to different parts of their business operation. In the past, it seems companies used to prioritize the use of technology in design and development of the products themselves only. For example, “Coca-Cola, The Hershey Company, and Lowe’s have invested in SU Labs, a program at Silicon Valley’s Singularity University that, according to its website, helps companies‘ experiment with emerging technologies . . . before they’re ubiquitous." However, companies nowadays must digitize not only back-office functions, but consumer-facing functions as well .
First of all, with large quantities of products, FMCG companies often have several warehouses with rows of floor-to-ceiling shelves where different items are stored in separate sections. A digital warehouse management system (WMS) will help managers locate, track, and inventory stocks efficiently. For big corporations with a wide range of different product lines and brands, keeping track of warehouse stocks and movements will be a difficult task using traditional methods. With the assistance of a WMS, managers will have much better visibility and improved control of their inventories, as well as higher accuracy.
On the highly dynamic sales front, businesses which have too many salespeople will often find it difficult to manage them effectively. Managers need to keep track of individual tasks, orders, and customer information, as well as to share them internally in order to coordinate between people and teams. A Sales Force Automation software (SFA) will not only help each salesperson to organize their everyday tasks better but also make it possible for sales managers to monitor team activities and delegate jobs seamlessly. Data input and report generation will be automated and cloud-based.
However, a truly successful business operation does not stop after a new customer is acquired or an order placed. As today’s discerning clients are always searching for a holistic shopping experience where quality and convenience are highly prioritized, the delivery stage has started to play a major role in defining a brand’s image. Many busy millennials – today’s largest group of consumers – no longer want to physically visit stores or markets to buy everyday items such as food or detergent. They want these products sent to their doorsteps while they are working to save time and energy. A dynamic last-mile delivery management system will make sure your perfected product reach its consumer as quickly and cost-efficiently as possible. While route optimization software are not new in developed economies, it is not yet as widely used as it should be in the emerging Asian markets. This is mainly because this region’s transportation systems have unique attributes which often further complicate a delivery person’s job. The best last-mile delivery management software will take in account special local characteristics, such as the prevalence of motorbikes in Vietnam, to generate optimal delivery routes and keep managers up-to-date with each trip in real time. More deliveries will be made in less time and labor costs will be minimized as the result.
FMCG: Updated Forecast For 2019 And Further Future
If FMCG companies are trying to make strategic, critical and near-future decisions, it is important to understand the future market trends of their businesses. Market forecast, thereby, is obligatory to enterprises. Here are 7 elements which are affecting FMCG market in 2019 and are expected to drive the picture of this field in the next coming years.
1. Growth of e-commerce
The year 2019 has witnessed a dramatic increase in sales from e-commerce. People from all genders and ages purchase via e-commerce sites. Significantly, by 2020, e-commerce revenues are expected to exceed USD 4 trillion. With the current growth rate of four-times faster than offline sales, by 2022, FMCG e-commerce is forecast to make up around ten to twelve percent of global FMCG sales, creating a USD 400 billion opportunity.
(Source: Business Insider)
2. Consumers demand product convenience
More and more people are chasing on-the-go lifestyle making the demand for convenience a big trend in 2019. That’s why people spend a greater appetite for convenience food & drinks that are ready-to-consume and a strong desire for restaurant-quality food at home will affect growth in this sector.
3. Greater focus on healthier products
The trend for ‘clean’ food continues, inspired by the whole society with greater awareness, interest & understanding of wellbeing. There will be a greater influence on health and wellness products, many of which combine research on nutrition and longevity with traditional, ancient therapies.
4. Greater disposable income and more consumers in Asia
GDP increases will undoubtedly impact FMCG markets in 2019. Developing countries such as Vietnam and Indonesia, and countries with a growing middle-class, such as Thailand, are bringing more consumers, with more cash to spend. The Organization for Economic Cooperation and Development (OECD) forecast this will lead to a billion new consumers by 2020 spending between USD 10-100 per day.
5. Millennials become big FMCG influencers
Millennial consumers are seeking for new brands that sell innovative product lines, also, they have their own distinct FMCG demands. They prefer to share information about the products with their peers online and are much more influenced by them than a mass-brand channel approach. Along with the popularity of e-commerce among millennials, there will be a golden chance for smaller brands & digital challenger brands in 2019 that resonate with millennial consumers online.
6. Changes in the consumer mindset
Consumers are more aware of how sustainability relates to products across the whole supply chain, from the sourcing of ingredients to the packaging since they want to make sure about the origin of what they buy.
7. Demand driven by population density
The population landscape in 2019 is being dominated by post-retirement FMCG shoppers. Take Japan as an example with many predictions that the over-60s will take up 37.3 percent of the population by 2030. Other rapidly aging populations include Vietnam, Thailand and Sri Lanka which will create a rising tide of silver consumers. They tend to seek for green, environmental factors as well as the concept of responsibility and accountability. Air pollution, health of the land and agricultural regeneration will also be in the spotlight.