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Ingredients to win omnichannel

Martin Guo

Editor-in-Chief, Kantar China Insights

Retail 03.09.2019 / 11:00

2019 OmniChannel cover

When globally volume growths are so sluggish, how do we grow?

For all retailers and manufacturers around the world, the big question is always the same: “how do we grow when, globally, volumes are sluggish?”

If we look exclusively at trade aspects, the past years have seen the decline of larger formats, the rise of value-for-money models, the boom of e-commerce, and cannibalisation between channels. This is a very challenging environment that is set to continue—and will require a high dose of reinvention to navigate successfully.

Luckily, within this reinvented landscape, shoppers are exhibiting behaviours that retailers can cater for in order to grow. They want frictionless experiences, good pricing and proximity — in the sense that they want a fast and convenient service.

The ascendancy of hybrid retail, the growth in D2C offerings, and the increasing need to meet the needs of urban shoppers, will propel future opportunities for growth within FMCG.

This edition of Winning Omnichannel has found some clear ingredients to include in the recipe for FMCG success.

For Retailers:

1. Provide simple solutions for shoppers, both in product selection and payment.

2. Adapt formats to an ever-urbanising customer base. Find ways to reduce the distance to consumers.

3. Provide an online and offline offer — essential in reaching the maximum number of shoppers possible. E-commerce alone is still not enough, being centred on 'stock up' and replenishment missions for affluent shoppers.

For Brands:

1. Use intelligent technology to drive new purchasing behaviours — through voice-controlled devices with simple, natural and intuitive interfaces, for instance. Brands need to embrace a complete revolution in their consumer interactions, working on how to be listed digitally first, before the physical shop.

2. Go direct to consumers. D2C shoppers are already a relevant target – especially in the UK and China Mainland – and very valuable in terms of FMCG purchase.

3. Display your conscience. Focus on local, natural and sustainable products in order to win the shoppers of the future.

We all know that universal FMCG growth is a thing of the past, and growth is now much more fragmented. In 2018, 96% of growth came from channels outside hyper- and supermarkets.

A new era of retail is arriving. Understanding its makeup must be central to any strategy, and the only way to accurately track developments in FMCG is through the use of in-depth consumer panels.

Below is a highlight digest of this year's full report: 

THE GROWTH OF HYBRID RETAIL (New Retail in China)

The ‘zero growth’ challenge continues to grip the global FMCG industry. It will surprise few to hear that global FMCG sales grew just 2.1% between 2017 and 2018, against a backdrop of declining share of hyper- and supermarket formats.

But there are retail trends and innovations that have dominated the headlines. The biggest retailers are forming alliances to put pressure on suppliers and drive down costs; e-commerce continues its onwards march; discounters are appearing almost everywhere; and hybrid or ‘new’ retail formats are becoming more commonplace around the globe.

These trends point towards one outcome: growth is still possible if you focus on the right channels. 

The Global Picture

For the fifth year in a row – stretching back to 2014 – we have seen the growth of global domestic product (GDP) outstrip that of the global FMCG industry.

While GDP growth has been stable in recent years, growing on average +3.5% per year, FMCG growth has been slowing—from +6% to +2.1% since 2012. The map above may suggest growth in every region, but the data alone does not always tell the whole story.

In fact, 2018 saw a continued slowdown in every market we’ve analysed — other than China Mainland and the US. Positive performance has been driven through e-commerce and discounters in the US, while China Mainland has also seen consistent growth in e-commerce.

EN FMCG Growth Global 2019

In almost all regions, inflation is having an impact. We spoke about ‘stagflation’ in last year’s publication – inflation and stagnant demand for FMCG goods – and that’s a trend that continued throughout 2018.

Africa and the Middle East and LATAM display the highest value growth, but all is eaten by inflation.

DEFINING CHANNEL STRATEGY

The fragmentation of the FMCG landscape continues apace. Across the channels we’ve analysed, there is an obvious divide between those doing well and those struggling to keep up.

E-commerce is far outstripping any other medium — achieving 20.3% growth in 2018, accelerating on its 15% growth in 2017.

Growth has been driven by two elements: the acceleration of both Amazon and the disruptive offers of Walmart in the US, and booming on- and offline integration in China —known as 'new' retail.

Discounters (+5.7%) and cash and carry (+5.4%) are the next-fastest growing channels, in line with their performance last year. The latter in particular has accelerated its growth, up from +4.6% in 2017 — largely driven by growth in LATAM (+18%).

EN FMCG Growth By Channel 2019 new

FORECAST FOR FUTURE GROWTH

The retail landscape has been shaped by growing e-commerce, expansive discounter activity, and local market factors. But what will influence the global FMCG picture as we enter a new decade?

The emergence of the hybrid retail model – also known as ‘new’ retail in China Mainland – has led FMCG growth since 2016 and is unlikely to let up anytime soon.

Hybrid retail is being driven by the increasing forays of pure play e-commerce companies into the physical space, and by bricks-and-mortar retailers attempting to steal occasions from competitors through combined online and offline offerings.

Retailers in China Mainland, meanwhile, are demonstrating that it is not just a combination of channels, but innovation within channels, that can win shoppers over.

Some stores bring the processing and dining experiences in store, applied to produce picked minutes before by the retailer. The ability to create an experience that is bigger than the sum of its parts will continue to be popular with consumers.

EN New Retail Milestone

MEETING URBAN NEEDS

More and more people are living in urban areas – as much as 66% of the world's population by 2050, according to the United Nations – while more than 30 cities across the world currently have ‘mega city’ status (more than 10 million inhabitants).

This is driving growth in formats such as pick-up points, unmanned stores, mobile formats and kiosks.

Urbanisation also highlights the importance of out-of-home (OOH) strategies. Global OOH consumption accounts for 46% of total spend on snacking and non-alcoholic beverages.

Growth Formats for Discounters

In last year’s Winning Omnichannel publication, we reported that Eastern Europe was the most developed region for discounters. This remains the case, but what’s remarkable is that value-for-money models have grown in value share across all regions except Asia.

Things could be very different in Asia by the end of 2019, however, with Aldi recently opening physical stores in Shanghai and planning to open 50 to 100 more in China.

In fact, only five countries across the world have experienced discounter decline—and in most cases losses in value share can be attributed to local market factors.

This universal growth has been driven by large investment in the discounter model and a surge in store openings across markets.

EN Discounter Growth By Region 2019

Shoppers value convenience and price above almost every other factor, so it makes sense that discounters are succeeding by opening new stores that bring their services to more customers.

In the UK, low-price retailers are growing both physically and in value—while premium models such as Waitrose suffer.

In order to maintain their rise in the short term, discounters should continue improving shopper loyalty through better in-store experiences and focusing on high-quality fresh produce. In the longer term, they will need to establish robust e-commerce offerings that will cater to shoppers’ growing demand for convenience and choice.

Forecast 2025

As shown in the chart belowt, we also expect to see the continued rise of channels such as e-commerce (10.1% of total FMCG value share by 2025), discounters (13.4%), and cash and carry (5.1%).

EN FMCG Forecast 2025 By Channel

This is just an edited highlight of the complete report. To get the full copy of “Winning OmniChannel – Finding growth in reinvented retail”, please click here. The complete copy includes in-depth analysis of growth formats for e-commerce, India, USA and Germany FMCG omnichannel market insights.

Source: Kantar Worldpanel

Editor's notes

* To reach the author, or to know more information, data and analysis of FMCG market in China and other parts of the world, please contact us.

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