Latest report: How should the FMCG industry become multichannel?
Amazon is preparing for a full on push into online grocery in the EU, after having laid the ground and quietly launched the service two years ago, by leveraging their marketplace operation to its fullest potential. The pureplay is undoubtedly pursuing the right strategy, as online grocery is taking off all over Europe, with a renewed effort by the leading retailers in 2010/11 to capture sales migrating to the online channel.
This raises the question of how the FMCG industry should react to these latest developments. After all the internet offers many possibilities to reestablish a meaningful relationship with customers and regain control over pricing, promotions and brand presentations – without having retailers involved. We believe that the FMCG industry has to become multichannel. Having an online presence also enables manufacturers to engage in market research and launch effective loyalty solutions.
Launching a FMCG online presence now is especially vital, as many retailers have started to use their private label propositions as a key differentiator from the competition, rather than just a way of boosting their margins. This means that repelling the private label push from retailers will only become harder for the FMCG industry in future.
Naturally, going online demands of FMCG players the development of new skills set and capabilities relevant to the online world and it also involves some difficult negotiations and diplomacy to keep existing relationships with retail partners in balance. After all turning into a direct competitor from having previously been a partner is not an easy step to communicate.
That said we also predict that more or less every manufacturer will have transactional online capabilities in future, as this is what consumers demand nowadays. Much of this will also be driven by cross border demand. In other words: online will be the new normal for the FMCG industry, as it is for retailers already.
FMCG companies now have to become multichannel in the developed markets for another reason also. As overall growth slows due to tough macroeconomic conditions, online will become an incremental sales driver. Customers will come to expect transactional online capabilities, and if those are not offered they will simply turn elsewhere to the competition.
FMCG companies have four strategic options to go online.
First, FMCG players can go for a comprehensive proposition, vertically integrating their operations including the running of physical flagship stores supported by transactional sites.
Second, they can outsource their online operations. Third, they can run their own brand or company based transactional websites. The fourth strategic option – and perhaps the best solution - is the marketplace option. A marketplace is a platform provided by a third party that guarantees wide customer reach. It also reflects the reality of how consumers shop for groceries online, they need an aggregator to be able to shop all their groceries in one place. Moreover a marketplace operation allows FMCG companies complete control over prices, ranges, discounts, coupons and promotions.
If the marketplace focuses on FMCG products, the leading FMCG players could come to an arrangement, where the industry runs the marketplace operations via a third party. This independent, third party player could establish firewalls concerning confidential information between competitors. Such a marketplace, if properly set up, would create a powerful tool to combat the online grocers and the private label threat.
The FMCG industry should act now, before the competitive advantage players such as Amazon have built up with their marketplace operations is becoming impossible to bridge. The demand to act becomes especially acute, as the leading retailers are now also expanding into the marketplace space such as Otto in Germany, Tesco in the UK and Carrefour in France.
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