Start Up Blog

What FMCG marketers should do

Posted in entrepreneurship by Steve Sammartino on March 16, 2011

Known as the most innovative industry for much of the commercial world from the 1950’s, consumer goods have got caught napping.

Retailers are cutting their lunch through some classic backwards vertical integration – that is, making the products their suppliers make.

So my question is this, why aren’t the global fast moving consumer goods companies taking on the retailers at their own game? What they should do is simple. Develop a consortium of supermarket suppliers and buy a supermarket chain. The missing link in their marketing mix – distribution control. They need to get back some control at the retail level or the long term picture is one of reduced shelf space, and more retailer erosion of their business. Consumer goods companies need to compete with their retailers in the same way the retailers compete with them.

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5 Responses

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  1. Andre Sammartino said, on March 17, 2011 at 1:07 am

    You’ve sort of answered your own question. These FMCG companies are ‘global’. If they bought (or, heaven forbid, tried to set up one from scratch) a supermarket chain in one country, they would pretty quickly find themselves cold shouldered in a wide variety of other markets. Even one or two retail chains in biggish markets walking away would presumably nullify any gains made in the initial forward integration attempt.

    (and that’s ignoring the lack of capabilities a FMCG firm would have in actually running a retailer, the labour force, and the coordination challenges required in building the sufficiently broad consortium of suppliers).

    But I do agree that FMCG firms need to worry about the supermarket backward integration. The firms are losing shelf space, and also seeing considerable dimunition of value of their huge marketing/brand spends (as supermarkets build greater legitimacy for their private brands – and develop some of their own marketing acumen).

    • Steve Sammartino said, on March 21, 2011 at 10:03 am

      I don’t think FMCG companies would find themselves cold shouldered…. If that were true why didn’t it happen to the first retailers who started selling consumer goods? Its essentially the same thing in reverse. Secondly, in the last 20 years FMCG core competency is very much in retailing. It’s what they do, it’s where 70-80% of their work force invest every hour of their work days. At all different levels: distribution, warehousing, supply chain, account level, field level. They are ‘retail experts’ now because the concentration of retail chains has forced them to become experts. Often they know more than the retailers themselves in shopper behaviour, category dynamics et al, and the retailers make simple ‘trading and margin’ decisions.

      Surely there is a way for the suppliers to collaborate and compete in a much better fashion than they currently do…. over to you.

      Steve.

  2. Terry said, on March 21, 2011 at 2:58 pm

    It’s far more in the interests of fmcg companies that there should be a number of different retailers and competition between them. If they tried to compete with the retailers and failed, they’d have damaged a relationship that’s symbiotic at present.

    The best fmcg companies are indeed spending huge resources to become retail experts, but they’re using those learnings as a bargaining tool in trade negotiations with retailers.

    “Let us show you how you can improve your total business” they say. Not surprisingly, their recommendation will have a disproportionate advantage for their brand.

    Terry

    • Steve Sammartino said, on March 21, 2011 at 4:46 pm

      I’ve long held the belief that Woolworths and Coles (aka the friendly giants) are left alone by the ACCC and anti-trust law because they are Australian owned. Which in tern means that Australian superannuation funds are the main beneficiaries of their ‘monopoly like’ behaviour.

      Certainly the lack of competition is the driver behind this issue and blog post. But I do believe their retail expertise could leveraged another way.
      Steve.

  3. Fay said, on May 10, 2014 at 1:30 am

    I really want to know about the trend of FMCG in Australia,.
    As FMCG companies in Australia, what ethical issues that they are facing ?
    For examples,is there enough GDA information for their packages to show to consumers? especially for the biggest FMCG company–nestle, do they have any reactions to follow the GDA?


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