What is happening in the FMCG sector?
Fast-moving consumer goods (FMCG) are products that are sold quickly and at a relatively low cost. FMCG have a high inventory turnover because of high demand or perishability. During COVID-19, consumers became more aware of FMCG’s impact (environmental and social) and prioritised even more eco-friendly products. Meanwhile, digitisation became a top priority for FMCG businesses.
FMCG’s impact on the economy
FMCG account for more than half of all consumer spending, which is roughly two-thirds of GDP. Investors, businesses and governments consider consumer spending a key economic indicator. Goods include beverages, foods, pharmaceutical and personal care products, and other consumables.
Statista ranks the leading 50 FMCG companies. The top five are Nestle (CH), P&G (US), PepsiCo (US) Unilever (UK) and AB-InBev (EU).
FMCG’s impact on E and S
The Key Sustainability Factors For ESG Evaluations research by S&P found that consumer goods businesses are exposed to environmental and social risks across their value chain:
- Waste management – waste associated with the end of life of the product and its packaging is likely to drive new regulation and result in substantial compliance costs
- Environmental impact (supply chain) – the sector sources its raw materials from the agricultural, mining, forestry, chemicals, and oil and gas supply chains, which have significant land, water, emissions, and pollution effects
- Environmental impact (product manufacturing, distribution and use) – new regulation may incentivise companies to reduce single-use products, switch to low-carbon freight, and develop energy/ water-efficient products and processes
- Fast-changing consumer preferences – expect growing demand for sustainable products, transparent labelling and responsible advertising to continue and to push the industry to transition toward purpose-led brands
- Product safety – manufacturing and use of unsafe products can put the health of employees and users at risk, and result in substantial reputational and financial costs
- Working conditions – manufacturing and distribution of goods and material sourcing rely on a complex, global value chain. This exposes goods companies to human rights breaches
We think FMCG businesses need to see these risks as opportunities. And not only mitigate them but also take advantage of them.
Technology
COVID-19 forced many businesses to close. Traditional operations that did not have an e-commerce solution could not serve consumers online. Digitisation is increasingly becoming a priority for FMCG businesses as customers interact with brands across multiple online and offline channels. Online channels allow them to engage with their consumers directly and provide valuable data.
Innovation is leading to digital supply chains. Organisations have evolved from design-source-manufacture-deliver to dynamic networks. Data from devices move goods from suppliers to consumers. Technologies such as AI, virtual/ augmented reality and robotics enable better decision making.
Regionalisation
The world is transitioning to more relatively independent regional economies, which involves the development of regional supply chains rather than global ones. This is affecting the FMCG businesses too. For more on this, see my previous article.
Final thoughts
These changes offer opportunities mainly for small and mid-sized businesses (SMBs) in the FMCG sector. (As well as SMBs in specialty consumer goods – the rarer or more luxurious ones, such as high quality/ investment wines.) They also offer opportunities for tech start-ups that develop solutions for SMBs or larger businesses in FMCG. Particularly those that help businesses leverage the technologies above to mitigate environmental and social risks across their value chain.
To learn how we can help you take advantage of the opportunities in FMCG and specialty consumer goods:
