The FMCG (Fast Moving Consumer Goods) industry is undergoing significant changes due to the new normal after the pandemic.
Customers now seek a blend of online and physical retail experiences, which adds complexity to FMCG distribution operations.
With the FMCG market projected to reach USD 15.36 trillion by 2025 (according to Allied Market Research), meeting evolving consumer demands has become crucial.
Digital innovation has presented challenges for the FMCG industry too, especially in managing the influx of data from various sources such as social media, sales, promotions, supply chain, and finance. Alongside these data-related obstacles, the industry faces numerous other challenges in 2022 and beyond.
Let's explore these challenges and discover strategies to overcome them.
What are The Challenges in FMCG Industry?
In the FMCG sector, companies are increasingly driving growth by embracing continuous innovation and adopting new technologies to enhance customer service.
However, there are some significant challenges in the FMCG sales process.
1. Retail execution
Retail execution is the most difficult challenge for most consumer packaged goods (CPG)/fast-moving consumer goods (FMCG) companies. In fact, the average CPG/FMCG company loses more than 20% of total sales opportunity and is at the highest risk of having products removed from retail due to retail execution issues.
One of the most formidable challenges faced by consumer packaged goods (CPG)/fast-moving consumer goods (FMCG) companies is ensuring effective retail execution.
In fact, research indicates that the average CPG/FMCG company loses over 20% of its total sales opportunity and is highly vulnerable to product removal from retail shelves due to retail execution issues.
2. eCommerce is on the rise
Prior to the pandemic, the retail industry was already transitioning towards an online-first business model.
Even well-established FMCG brands with extensive store networks had to adapt by strengthening their online presence through popular marketplaces or their own eCommerce platforms.
However, this shift posed significant challenges for distributors. They had to effectively manage orders originating from multiple channels and ensure that sufficient stock was available at the nearest sales point, last-mile delivery partner, or local store in close proximity to the customer's residence. This complex logistics scenario became a daunting task for distributors to navigate.
3. Fragmented supply chains
Maintaining stable supply chains is imperative for the sustainability of FMCG and retail companies. However, many businesses have faced significant challenges in this aspect, hindering their ability to achieve their desired goals.
To meet customer expectations seamlessly, FMCG companies need to make strategic investments in their supply chain infrastructure. By ensuring a nimble supply chain, businesses can provide customers from all backgrounds with a fast and secure shopping experience.
One effective approach is considering the adoption of a cloud-based supply chain management system, which enables companies to cater to an ever-expanding clientele while ensuring operational efficiency.
4. Big data
The FMCG industry is experiencing a data explosion as advancements in data acquisition, storage, and processing continue to accelerate.
Various sources such as weekly consumer sales, brand tracking, consumer panels, and shopper data from cooperative retailers contribute to this vast pool of information. However, it is important to note that a significant portion, around 95%, of the data generated and sold to marketers and analysts is ultimately irrelevant.
To navigate this data overload, organizations need to be smarter in their approach. They should focus on acquiring only relevant data to manage information costs effectively.
By deducing the correct linkages to consumer behavior, they can leverage this data to develop products, optimize trade management, and enhance communication strategies with consumers.
5. Sales automation
Traditionally, the FMCG industry heavily relied on conventional sales practices. However, in the digital era, the digitalization of field service has become crucial for the success of FMCG brands.
With increasing barriers to interpersonal communication, the prioritization of sales automation through digitalization has surpassed traditional sales approaches.
Additionally, factors such as labor shortages due to migration laws and health concerns have further highlighted the need for ensuring both the efficiency and productivity of the sales force in the FMCG sector.
6. The Internet of Things
The rapid dissemination of information has become the norm, with tweets, TikTok, or YouTube videos capable of going viral within hours. Consequently, organizations must be mindful of the interconnectedness of global markets.
A product that may be unsellable in one developed market due to health concerns can quickly become known in another developing market, thanks to easily accessible consumer information through platforms like Google.
While regulations may take time to catch up with these developments, there is no escaping the reach of information dissemination.
Brands that adapt smart strategies will leverage innovative methods to effectively engage with a global audience while keeping brand communication costs in check. They will embrace the potential of IoT to connect with consumers worldwide while being mindful of the implications and opportunities it presents.
7. Environment and sustainability
Establishing robust consumer relationships hinges on organizations showcasing sustainability across all aspects of their operations.
Yet, the ability to offset rising costs through premium pricing will be constrained, as consumers now perceive sustainability as a fundamental requirement rather than an exclusive luxury.
Within the FMCG industry, an opportunity remains for a trailblazing brand, similar to Tesla, to lead the way in leveraging novel innovations and technologies to advance sustainability efforts.
Unlike other industries that cater to specific consumer segments, FMCG faces the daunting task of satisfying and remaining relevant to a diverse range of age groups. Traditionally, seniors have been the backbone of the industry and pioneers of brand loyalty.
However, their demands have evolved in response to the pandemic, gravitating towards products that are uncomplicated, reliable, and safe.
To meet these objectives, FMCG companies can simplify their offerings by making subtle adjustments to ingredients, reducing the use of chemicals, and incorporating more natural components in both food and non-food items. Simultaneously, the needs of the current generation must be considered.
There is a growing pressure on the FMCG market to be "cool" enough to attract and retain millennial customers, who are exposed to a plethora of technological advancements and global products.
Striking a neutral position becomes crucial, which can be achieved by constantly adapting strategies, embracing digital transformation, and ensuring easy accessibility to their offerings.
Overcoming Challenges in the FMCG Industry
Navigating the FMCG industry's challenges requires strategic decision-making to identify effective solutions that can yield a competitive advantage.
Executives within FMCG companies must possess the ability to make accurate decisions, ensuring the selection of appropriate strategies that address the industry's complexities.
Therefore, to overcome the diverse challenges in the FMCG industry, consider implementing the following strategies:
Digitization is a disruptive trend that significantly impacts traditional FMCG players across the entire value chain. From research and development to distribution, various components undergo profound transformations.
Advanced technologies such as artificial intelligence (AI), data analytics, Internet of Things (IoT), robotics, machine learning, robotic process automation (RPA), and additive manufacturing play a crucial role in reshaping FMCG research departments, factories, warehouses, and stores. Moreover, they enhance customer experience and engagement.
By automating repetitive and low-value tasks and optimizing internal processes, these technologies drive efficiency gains. They also enable FMCG companies to leverage data for personalized solutions, catering to the unique needs of billions of customers, thereby enhancing client engagement.
2. Mass personalization
The FMCG industry is undergoing a substantial structural shift from mass production to mass personalization. Traditionally, players in personal care, food, and beverage industries have adopted a mass-market approach to serve their customers.
However, a significant portion of their product portfolio pertains to intimate and personal factors, such as skin and hair type. The growing demand for personalization is reshaping industry dynamics.
Embracing personalization poses significant challenges for traditional FMCG players. It impacts various aspects of their operations, including sourcing, supply chain management, real-time production, packaging, distribution, marketing, and sales.
Adapting to these implications becomes crucial in order to meet the evolving needs and preferences of consumers.
3. Equality in multichannel
In recent years, businesses have been striving to achieve fairness in pricing, promotions, and discounts offered to their customers across different sales channels. As the value chain undergoes restructuring, it becomes imperative to carefully evaluate the contributions made by each link in the chain.
The concept of "multichannel sales equality" is crucial to ensure that consumers do not perceive inconsistencies in the prices they pay for a product based on the purchase channel or geographical area.
By establishing equitable pricing practices and maintaining consistent customer experiences across all sales channels, FMCG companies can foster trust and satisfaction among their diverse customer base.
4. Personalization of promotions
Modern retailers have been seeking greater profitability from FMCG companies to offer enhanced promotions to their customers.
However, the FMCG sector needs to carefully assess the ramifications of increased discounts in modern retailing on the broader distribution system as well. Balancing the objectives of profitability and maintaining a robust distribution network becomes vital for FMCG companies to navigate this landscape effectively.
5. Superior quality control using business intelligence
Product quality has a significant impact on both short-term costs and long-term revenue. Business Intelligence (BI) plays a vital role in identifying the root causes of poor quality through comprehensive analysis of the production line and quality processes associated with product development.
By leveraging BI systems, FMCG companies can detect patterns, predict failures, and identify components that require repair and maintenance during low-impact periods.
This enables them to enhance the overall quality of their finished products. The ability to delve deep into potential failure causes empowers FMCG companies to proactively address quality issues and ensure customer satisfaction.
6. Agile business models
The rise of omnichannel experiences has led to the fragmentation of traditional delivery models into multiple variations. With technologically savvy customers whose preferences are constantly evolving, FMCG companies are actively exploring and experimenting with innovative delivery models.
Leveraging analytics, FMCG companies can analyze customer profile data and success factors to identify the most efficient and effective business models.
By embracing a highly flexible and dynamic delivery model, they can optimize sales costs while meeting the evolving needs of their customer base. This agile approach allows FMCG companies to adapt quickly to market changes and maintain a competitive edge in the industry.
The FMCG and retail industry is undergoing significant transformations in the upcoming decades, far surpassing the changes witnessed in the previous century. This presents an opportunity for leading players to differentiate themselves and stay at the forefront of customers' minds.
To achieve this, it is crucial for FMCG brands to offer exceptional products and implement creative loyalty programs that set them apart from the competition. This is where Tada can provide valuable assistance.
Tada specializes in designing tailored loyalty and reward programs that enhance both customer retention and channel partner's loyalty. Our expertise extends to partnering with renowned FMCG brands in the region, helping them elevate their loyalty initiatives. Request our free demo now to discover how we can support your business.