Transforming FMCG: Embracing the Power of AI, Retail Media, and E-commerce for Future Growth
Unveiling Five Key Strategies for FMCG's Empowering Digital Transformation.
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The FMCG industry is set to grow at a CAGR of 3.66% from 2024, reaching a market size of $148 billion by 2031. In this competitive landscape, brands are increasingly turning to technology, particularly AI, to gain insights into the ever-changing consumer preferences driven by social media. This post will shed light on how brands can leverage digital transformation to create and market products more effectively, focusing on the role of technological advancements and the people driving these changes within organisations.
1. Increased experimentation with AI to drive 'trend-based innovation'
Rapid product innovation has long been a key trait of successful FMCG companies. With the ever-evolving landscape of consumer preferences being shaped by social media, it is becoming harder for brands to stay on top of the latest trends. The emergence of generative AI technologies is disrupting how brands learn about their user base and how quickly they go to market. By turning consumers into their R&D function, brands feed models with real-time insights from relevant online sources to validate new product ideas and generate market research reports. This approach, known as 'trend-based innovation ', involves using AI to analyse consumer data and predict future trends, enabling brands to stay ahead of the curve. Leading CPG companies such as Nestle, Campbell's, Mars and PepsiCo reportedly use a generative AI platform called Tastewise to achieve this. The adoption of AI in the industry is imminent, with 47% of CPG and retail executives stating that their company plans to increase their investment in AI and machine learning over the next year.
Generative AI text-to-image technology also provides an opportunity to add significant value during concept development and refinement. By speeding up the time to visualise concepts earlier in the design process, brands can leverage customer feedback to iterate much faster. Producing an MVP quickly, without extensive development cycles or the involvement of expensive design agencies, will save time and money. CPG companies should consider adopting generative AI across the early stages of the product design lifecycle to develop tailored products that arrive at market faster.
2. Embed retail media into your growth strategy.
The rise of E-commerce, largely accelerated by COVID-19, has paved the way for a new era of consumers gravitating towards a tailored, omnichannel sales experience. In response, retailers are investing heavily in building diversified media networks. Brands are responding to this trend, with more than a quarter of all advertising spend in the US being in retail media (that amounts to almost $60 billion this year!). The best FMCG companies are the ones integrating this advertisement channel into the heart of their growth strategies.
Retail media encompasses various channels retail companies offer to brands for advertising purposes. These channels may be on-site, such as sponsored product listings or shoppable content, off-site, e.g., social media advertisement, or even affiliate networks, including partnerships with third-party sites that drive traffic through special links or promotions.
The reach of retailers shouldn't be underestimated! A prime example is Walmart and NBCUniversal's new partnership, which allows fans of Bravo's 'Below Deck Mediterranean' to shop directly through Peacock streaming services while watching the show.
Alongside the standout benefit of increased brand visibility, third-party brands who purchase these ad spaces gain access to a wealth of first-party insights from retail companies, often underpinned by loyalty programmes. This data could include their audiences' purchasing behaviours, consumer preferences, and demographic information. Rich data like this can help brands tailor their marketing campaigns to various customer segments.
Our recommendation to brands partnering with retailers is to begin understanding and experimenting with the data obtained. If you are gathering location-specific purchasing data from your customers, you could pilot in-store launch events coupled with geo-targeted mobile ads offering exclusive discounts to nearby shoppers.
To enable such efforts, brands must ensure their technology platforms can harness large amounts of first-party data. This could be done through investing in programmatic advertising and real-time bidding to get the best ROI on ad purchases based on real-time insights. Upgrading to a more advanced CRM system will help enable more personalised customer interactions by providing a centralised '360' view of your customers. Upgrading to omnichannel marketing solutions will help integrate efforts across these new retail media channels to ensure a more cohesive marketing strategy. Finally, leveraging integrated platforms or APIs will also be necessary to provide seamless data exchange between retailer and brand data sources.
By 2027, US retail media ad spending is predicted to reach $109.4 billion, with annual growth exceeding 20%. To continue building brand awareness and reaching new customers, FMCGs should consider the importance of retail media advertisement and how it aligns with their growth strategy. They should also develop their technology infrastructure and assess whether they have adequate capabilities before deciding how much of their A&P budget should be allocated to retail media projects.
3. E-commerce development in emerging markets
In the past, FMCG companies were heavily driven by value growth and passed on price increases to customers in the face of inflation. In a recessionary environment, this is often unsustainable, and we are seeing more consumers move to private-label brands or brands that drive more customer value. As we move into 2025, there will need to be an onus on increasing sales to strike a more harmonious balance between volume and value growth.
The increasing market saturation in developed markets is a big obstacle to achieving this. FMCG companies should look to other geographies, such as emerging markets, where the world's top 55 FMCGs have, on average, 24% lower market share than in developed markets. It is forecasted that 64% of the $1.4 trillion retail e-commerce sales growth from 2022 to 2027 will come from emerging markets. These numbers underscore a substantial growth opportunity for FMCGs looking to tap into these markets and expand their presence.
However, a few obstacles have prevented this gap from being bridged. Emerging markets are highly fragmented across traditional, modern, and e-commerce channels; consumers have different preferences, and domestic infrastructure problems have forced FMCG companies to rethink their strategies for entering these markets. There are promising tailwinds in these regions, though, driven by innovation in areas such as mobile-first e-commerce, integrated mobile payment solutions and a push towards social commerce. To capitalise on these trends, FMCG brands should first consider how to balance global vs regional innovation.
FMCGs should consider if their organisation design is set up to leverage diverse regional expertise. A 'team of teams' approach could be an option, allowing some devolution of power to regional hubs staffed by condensed groups of local specialists. Cross-regional knowledge sharing can then occur, enabling each regional area to benefit from the organisation's knowledge base. Regional centres of excellence could also work closely with local R&D facilities to drive innovation in product development. By following these principles, you can begin to navigate cultural nuances, local regulations, and laws in these regions.
4. Retail media advertisement as a lever for improving in-store brand activation
In recent years, online e-commerce channels have received a lot of focus on using digital tools to drive targeted advertisement and sales. Now, brick-and-mortar stores are increasingly taking advantage of technology to try and keep up. After all, the online audiences of FMCG brands still represent less than 20% of their total customer base. This means they must find new ways to meet their customer base where they shop. Improving in-store brand activation through retail media advertisement, for example, through digital signage, offers great potential, given the variety of available avenues to meet in-person shoppers.
The CMS platforms which underpin these screens are becoming more intelligent and offer the potential to provide more data-driven advertisement. They can respond dynamically to external factors, such as local weather data, through real-time integrations to promote certain seasonal products. The introduction of 'scan as you shop' initiatives offers further in-store touchpoints for brands to capture shoppers' preferences and behavioural trends. In real-time, shoppers can then receive personalised promotions or advertisements. Supported by shopping data from 21 million Clubcard users, Tesco's connected stores campaign is a success story for brands looking to capitalise on in-store advertising opportunities. SmartScreen now broadcasts attention-grabbing messages that reach shoppers at the front of 502 Tesco Extras and Superstores. Successful FMCGs should consider their customer base's behaviours and implement strategies to improve in-store activation using retail media.
5. Fostering a digital-first organisation
Access to real-time insights across a business is excellent, but their true worth depends on maintaining well-structured teams that can act on them effectively. We have discussed how FMCG companies can leverage AI and retail media advertisement to learn about their audience and overall market trends. One question remains - what organisational changes are required to allow a company's people to stay agile and respond dynamically to market changes and internal ways of working?
A 2018 IDC study found that while organisations invested trillions in modernising their businesses through technology investments, 70% of these initiatives failed because there wasn't a supportive data culture to embed them. In response, we have seen an increase in companies recognising the Chief Data Officer (CDO) role as an essential business function. By combining technical knowledge, functional context and sector experience, they bridge the gap between company leadership and the IT departments. Among responsibilities such as overseeing the company's data strategy, defining data governance, and driving new revenue-generating streams, their most important role is to create and lead the organisation's data culture. By doing this, they can begin to work with the rest of the leadership team to bridge gaps, break down silos between departments and integrate data-driven decision-making into crucial processes such as business planning and product innovation.
CDOs and the leadership team should work closely with human resources and operations to ensure this culture permeates the business. We are currently seeing this manifest in several ways. One example is creating internal data and analytics working groups that have been piloting Gen-AI applications. These teams can draw on their experiences when using these new applications, share knowledge with colleagues, and drive new workplace learning and development (L&D) practices.
However, as they are more than just L&D, the HR function must work hard to help embed new ways of working. A key structural change for enabling data-driven decisions across a business will be setting up teams to allow for cross-functional collaboration. Traditionally, teams such as sales, customer service, product development, and supply chain logistics have operated in silos and with minimal data accessibility between them. As organisation structures evolve and integrated data platforms become the norm, roles and ways of working will shift significantly. The competitive FMCG companies will implement these new technologies and support those impacted along the way, ensuring that they thrive in a new data-driven environment.
References:
FMCG Market Report: Size, Share & Forecast | 2031 (skyquestt.com)
What the Tech is onsite vs. off-site advertising? | The Current
Retail Media: Why and How Are Brands Using It? | qinshift.com
Significance of E-Commerce Investment in Emerging Markets | Euromonitor.com
Why FMCG brands want to invest in in-store retail media | Retail Voice | Retail Week
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