FMCG manufacturer market conditions are tough. A new retail landscape is evolving which requires fresh strategies. Brand and category dominance cannot solely be relied upon as sources of competitive advantage to maximise profit. FMCG manufacturers must reassess where to play and how to play.
The new retail landscape is characterised by acceleration in the shift in power to the retailer. Features of this landscape include:
- Increasingly hostile grocery environment that is embarking on a series of initiatives to increase share of the profit pool and reduce the number of supplies (e.g. two brands per category)
- Growing penetration of Private Label products that subverts established brands
- Roll-out of food service alternatives within retail premises, such as In-Store Bakeries, that challenge the traditional customer value proposition
Where To Play
Iconic brands and market leadership are important but they do not always translate into profits. Profitability is determined by a range of factors, often highly specific to a category or channel.
Future Profit Mapping starts by asking where the most lucrative profit pools are being generated and who is sharing in those profits. For example, analysing the share of the profit pool between a retailer and an FMCG manufacturer for a category provides stark evidence of who holds the power in the relationship and who has been winning and losing share of the profit pools.
Future Profit Mapping also analyses the growth trends to determine how those profit pools will change over time. Growth trends are linked back to underlying drivers that are observed in each category or channel.
The outcome of this analysis is the ability to 'look through' a category and channel to understand where profit has been and will be made. Refocusing attention on profit rather than just revenue, at a granular level, provides an enhanced lens for FMCG players to answer the question of where to play.
How To Play
Once the most lucrative profit pools are identified, the next question asked by Future Profit Mapping is how to tap those profit pools. This is not about re-applying the same tried-and-true strategies that have worked on other categories and channels. This is about developing go-to-market strategies from the perspective of a nimble new market entrant seeking to attack highly profitable segments.
The result of this profit-focused approach can yield innovative go-to-market strategies for new and existing categories - innovative new channels can provide superior profitability while traditional channels, where bargaining power has been lost to the retailer, may be worth exiting altogether. For example for an existing manufacturer, Private Label may be the most profitable way to enter a new category, while moving down the value chain to Ingredient supply could be the best way to maximise profit in others.
With the rich market data developed in Future Profit Mapping, the earnings impact of go-to-market opportunities can be quantified. Ultimately, we work with our clients to assess and prioritise these strategic opportunities that result from Future Profit Mapping. These initiatives are designed to be clear and targeted so that client teams can execute them independently.
In an environment where top-line growth opportunities are limited, strategies that focus on improving the bottom-line, beyond mere cost cutting, deliver meaningful shareholder returns.
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