The truth about FMCG in Australia

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. I’d investigate subscription models.

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 challenge for any CEO cares in this day and age is the short term growth in the share price for board and shareholders demand. Given their bonus and options depend on that too, it seems the incentives are misaligned to fight such longitudinal disruptive forces.

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14 thoughts on “The truth about FMCG in Australia

  1. I agree with your thoughts that Australia remains the best “beta site” in the world. Why wouldn’t you test, tweak & refine a product/solution/process with a smaller market like Australia (22M people) knowing it works before hitting US or Europe. I thought the past AFL rights needed a “big picture” solution when they could have brought the likes of Google & Apple to the table to refine their platforms before big pitches to NFL & EPL.

  2. Actually – the AFL really have an old world view. They should be thinking about their own digital channel and sell media direct via media agencies… They would end up generating double their 1.3 billion…

    Absolutely – that is a cracking idea Sean, Australian marketers should going to the USA tech firms and selling their ideas as test markets…

    Hmm – there’s an idea or two in that.

  3. A solid summary of the current situation. As per many other articles, the real risk to this current growth in retailer power and private label, consumers, with a ‘today’ focus on lowest cost will happily trade out of a brand in to private label / control brand. However the risk lies ‘tomorrow’ when, once choice is gone, retailers can be free to push up price like never before, knowing that they control the total value chain.

    Some form of ‘cooperative’ is definitely an interesting idea. Whilst some brands (ie Fosters, Heinz and Goodman Fielder) have played hard line either publicly criticizing the retailers, or in Fosters case stopping supply, despite this feeling like a positive step, the negative outcomes that plague these individual brands post these decisions tarnish any of the initial feelings of strength at the time of making the stand.Ultimately it’s like pitching a tent in front of a skyscraper, and until brands work ourt a way to pool their power, the strategy ultimately backfires in favour of the retailers.

    If we are not going to provide a compelling, authentic, and relevant brand experience, all we will do is end up playing on price, and therefore losing the retail war. With consumers more connected than ever, it’s an exciting time to think about getting off the supermarket shelves and in to their lives, in a far more connected and personal way.

  4. Direct to consumer is the way it’s heading! Great times for logistics/fulfilment organisations to work collaboratively and creatively with brand owners to hook into the e-tailing tsunami that has washed over the higher value consumer goods market … That and creative MLM 😉

  5. But what if the big lesson for these FMCGs is that most consumers couldn’t give a rat’s behind about who puts a name and design on the outside of their soap powder, deodorant, crunchy nut flakes or black fizzy sugar drink?

    If so, then the big ‘losers’ in this are going to be the spin merchants who’ve convinced shareholders that they should be paid six figures to say things like “brand value systems”.

    My guess is that 99% of consumers have no desire to wade through some other less efficient distribution channel than the current model of bringing together 5,000-25,000 different consumer staples under one physical roof where they are all sorted into categories we use (or don’t use) and can navigate pretty efficiently. I don’t see any joy in waiting by the mailbox for my extra-special personalised toilet rolls to arrive by hovertruck.

  6. I totally agree that a large majority couldn’t care less about the Consumer goods they buy. My post is a more about the world of FMCG whose lack of strategy, both product and distribution, is leading to a bleak future.

    In relation to distribution channels – the point is not about manufacturers going direct to consumer (again I agree 100% that no one wants food products deliver individually by mail) but rather some form of aggregation business that circumvents retail entirely. So that people like me, who equally don’t need to waste time going to a supermarket, don’t have to. Instead, we would use smart technology (phones, RFID,s NFC) to get stuff (all of it at once) delivered in an even more efficiently than the current distribution channels…….

    I see you points and agree – mine post is two fold:

    1. FMCG are stuffed in this country because they didn’t innovate
    2. Manufacturers only chance of thriving lies in to ‘collaborating & circumventing’ existing channels. If they fail to do that they will just become plain commodity traders.


  7. I agree – I think all the ‘Smart Marketers’ are exiting the industry as clearly it’s glory days are behind it….

    The fact is simple – if the pillars of the marketing mix are not available, then marketing can create very little value if any.

    Good link,

  8. Great summary and quick questions.

    Do you happen to know any relevant case that multinational FMCG company have tried Australian market as ‘the beta test market’ before hitting US/EU? (product, services.. etc)


  9. 1. “because they didn’t innovate” – i suggest you research this a bit more thoroughly before publishing such motherhood statements. Its not true
    2. collaborating yes, circumeventing existing channels no. Think about it

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