Start Up Blog

The truth about FMCG in Australia

Posted in entrepreneurship by Steve Sammartino on January 30, 2012

Every industry has its challenges. But few are faced with challenges as deep and far reaching as the FMCG industry in Australia. In fact, these challenges are taking away most packaged goods marketers ability to determine their own marketing mix. The traditional brand building media, such as TV, are becoming less effective. While the dominant retailers are controlling what products consumers get to choose from.

The Evil Duopoly
The two friendly giant of Coles and Woolworths are no longer partners of their suppliers – they are now their biggest competitors. And brand owners need to ask themselves the same question the supermarkets are asking:

Will consumers notice if brand X is removed from the shelf?

Where the word “notice” translates to shift their shopping basket elsewhere.

It seems Coles and Woolworths have no regard for the brands of their suppliers. They don’t have to. There are very few brands that any consumer would move their shopping baskets to another retailer for. And they know it. Coles and Woolworths will continue to delete brands from product categories until they have a little over 3 brands in each category. One of which will certainly be theirs.

It means there are only 2 survival strategies:

1. Be brand leader in the category. Even the number 2 player is not safe.
2. Innovate radically to invent new ways to distribute consumer goods.

The good news is that the technology is arriving that makes direct relationships with consumers possible. Just look at what has happened to department stores. FMCG brands must invent new ways to take control of their brand at the transaction end.

The TV Industrial Complex is evaporating in front of our eyes.

• We can no longer buy an audience on demand.
• It’s no longer a brand built monologue.
• Consumers and are now connected and in control.
• We live in a world of excess supply.
• And it’s harder than ever to differentiate consumer goods.
• Competition and price pressure is reducing margins.
• Advertising is becoming less cost effective as audience attention fragments.

Consumer brands are facing a structural change for the ages. To survive supermarket brands must mean more than being a product at a price point. They need to represent the value systems of today’s consumer.

Which might mean that everything they talk about is one layer outside of what they are selling. And instead be about brand value systems, what they represent, what the brand believes in, how it helps people, the environment, creativity, well being, brings families together and so on.

Unless there is a significant, ownable point of difference, brands cannot just talk about what is sold inside the bottle or the pack. Those that do are destined for commodisation and ultimate the demise of profitability. What brand marketers must do is be part of important conversations with their audience. They need to augment lifestyle even if in a subtle way. It’s only when we do this that we can have a point of view in the new ‘attention economy’.

Brands that have a share of voice in the new media landscape will be ready to participate in emerging distribution channels when they arrive. Because in the coming years technology will evolve to the point where promotion and distribution will merge into the one seamless process.

What I’d be doing if I was an FMCG company in Australia is investing all of my advertising investment in channel innovation – I’d move all that consumer money across. To the boring area of distribution – the area that has been ignored for the past 20 years… Who they sell to. “We’ll just sell to who we’ve always sold to”.  I’d be finding new ways connecting the communication and distribution using smart phone technology, and emerging NFC and RFID technology. I’d be collaborating with other packaged goods concerns to invent new channels, and I’d be working out ways to sell directly to my consumer and circumvent the retailer entirely.

Sure, Australia is a tiny market on a global scale. In fact it is inconsequential to most global consumers goods organisations such as Kraft, Proctor & Gamble, Unilever and co. But what is happening in Australia, is a sample of what is to come in larger markets such as the USA, Europe and Asia. Dominant players like Walmart will continue to call the shots, and eat into suppliers business via backwards vertical integration. If large FMCG companies were smart they’d be using the Australian market as a test case for a new strategy to distribute their products. But that will probably never have for one simple reason: The people that run these companies would never ‘over invest’ in their companies. The only future any CEO cares about in this day and age is the short term growth in the share price for their options and their impending bonus at year end.

twitter-follow-me13

the FMCG strategy

Posted in entrepreneurship by Steve Sammartino on July 7, 2011

As far as I can tell this is the strategy of every large FMCG company – (Fast moving consumer goods – think super market and convenience stores).

Keep prices low. Never take a price rise.

Sell to who we’ve always sold to.

Only make things the factory can make.

Focus on volume, that’s what keeps the factory busy.

Deliver short term quarterly profits.

Innovate incrementally. Flavours, sizes.

Only invest in a brand if there is an immediate return in sales.

Buy media on mainstream channels.

Buy startups who innovate in our category.

Conduct significant research to test ‘everything’. Make all changes research suggests. Safety in research.

Roll out good ideas from one market (Country) in all countries.

And this industry wonders why it fails to grow, increase revenue or attract change agents. As someone who has worked in the space for many years, it’s time someone told the industry to forget everything they think they know. This strategy isn’t working. It’s why companies like Kraft foods have the same share price they had 10 years ago. That is zero capital growth. It’s one example of many large multinationals with a similar financial performance.

So far the consumer goods industry has been quite lucky. They’ve been insulated from the effect the web has had. But this is all about to change. The squeeze is about to come, and unless they reverse their strategy over the last 50 years, the future is not bright. In fact they need to flip everything they currently do:

The new FMCG strategy (for those who want to thrive more than survive)

Innovate so that price is not an issue. Make stuff people will pay a premium for.

Open up new channels of distribution. Over invest. Compete against their retailers.

Make things people want. Focus on the design of the product, not compiling it. (Manufacturing)

Focus on revenue. Ignore volume. Remove it from all tracking and all documentation. Report everything in dollars.

Do not give the market forecasts. Report results on year end only once.

Innovate dramatically. Embrace failed launches. Most fail anyway, so get more to market.

Invest in brands without expecting a short term revenue boost.

Build your own brand media channels.

Set up startups in your category. Put them in a skunk woks facility. Different space for a new culture. Then sell the startup to your competitors. Do it again.

Do not do market research. Only research what can be done & know how to do it. Invent the future for the audience

Sack all global marketing & innovation teams. Innovate locally.

This wont happen in any large FMCG company ever. There is too much to protect. Things like reputations, executive bonuses and careers. But 10 years from now every FMCG will be asking what happened, just like information industries and the car industry did. The change is coming whether they like it or not.

twitter-follow-me13


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.

twitter-follow-me13

Maxibon Manchew – Radvertising

Posted in entrepreneurship by Steve Sammartino on March 2, 2011

This is the best advertising I’ve seen so far this year. Really love the concept and the execution. Made me hungry.

If you’re going to advertise your startup then I reckon we can learn something form the radvertising above. And the lesson is this:

Don’t get lost in the middle. Go as close the edge as possible. Make outrageous tongue in check claims and be hilarious, or be 100% authentic and truthful. Everything in the middle of either of these two extreme edges is simply, wallpaper.

twitter-follow-me13

New on line supermarket

Posted in entrepreneurship by Steve Sammartino on August 1, 2010

I’m developing a new website which is an on-line supermarket. Here’s some of the features I’ll be building into it in terms of usability.

If you want to place an order for milk, you must first look at all the items you don’t want to buy. They will pop up on the screen one by one. You’ll have to click past all of them. Then the milk will pop up after you’ve seen every other product for sale to click on. But after this, you then must click past all of the goods for sale again. The same ones we already showed you. When you want to proceed to the checkout, we’ll make you wait for maybe 5 or more minutes and show you many of the items you already saw on screen, again, just in case you changed your mind. If you decide to shop late at night at our on line supermarket, only one person can buy at a time, because we will restrict our ‘server’ so that all of our customers cannot buy their supermarket items simultaneously. This is because we will be trying to save a few dollars on serving people. A few people might leave and go somewhere else, but it will be a great expense saving idea.

Sounds pretty ridiculous right? Well, this is defined as ‘retail strategy’ in the physical supermarket world. Maybe it’s time they re-thought how they do some things. Right now there is tremendous opportunity for smart startups in the retail space employ on-line usability best practice to show some dinosaurs how it’s done.

twitter-follow-me

Johnny Walker brand story

Posted in entrepreneurship by Steve Sammartino on July 19, 2010

The high ground for any brand is the story. It’s what we should be aiming for. A brand where part of what people buy is the is the history, or to be part of a tribe. Johnny Walker has put together a great new campaign where they tell their story. It’s a 6 minute time investment worth taking.

Some things worth thinking about with the Johnny walker story:

  • It’s a long copy format. 6 minutes plus. Something which can’t be done on TV.
  • It circumvents the negative connotations with success and globalisation. The personal effort and history makes financial success more palatable.
  • It gives detail about the product, range and brand that just wouldn’t be possible in shorter media formats
  • It’s sharable. Easy to send to friends, worth talking about.
  • It’s eyeball worthy. Well shot and executed.
  • It’s the idea. Ideas are king again, not media. Any brand with a story, and a small level of film / web expertise could have done it.
  • This is clearly Radvertising

What does this mean for startups? It means that a large part of what we talk about should not only be how we got here, but why we are taking this journey. A story they can live vicariously through.

twitter-follow-me

New York Series – Coke is ‘not’ it

Posted in entrepreneurship by Steve Sammartino on March 4, 2009

All cultures differ in terms of what is acceptable commercial behaviour. It’s become clear to me that the US has a stronger lassie-fare attitude when it comes to consumer goods and product claims.

coke-plus

Coke with Vitamins!

The government allows this folly, and then wonders why there is an obesity crisis. More like an Intelligence crisis.

Startups – Don’t just make stuff people will buy, make stuff you can be proud.

twitter-follow-me

Follow

Get every new post delivered to your Inbox.

Join 901 other followers