Finally, the Giant Woke Up - FMCGs Go Direct

It’s finally happened. FMCG’s are taking challenger brands seriously. Also pushed by a crash in retail sales and realization that the eternal fear of channel conflict will kill them, FMCG’s such PepsiCo, Kraft Heinz joined Ben & Jerry’s and Coca-Cola in selling direct online to consumers.

Just last month, PepsiCo, the world’s 3rd largest FMCG company, announced it had launched two direct-to-consumer websites – and But why was this big news?

Products from PepsiCo such as Quaker, Gatorade, Sun Chips and Tropicana are basics in many households. However, not many FMCGs have the jump to selling direct to consumers. Many are relying on the decades old comfort blanket of their existing supply chain between manufacturers, retailers and distributors. With such market dominance, many simply didn’t feel the need to take ecommerce seriously.

The rise of the disruptive challenger

With the FMCG’s sleeping peacefully on the pillow of retail, they allowed new challenger brands to sneak in and take their customers. These nimble start-ups ripped up the supply chain rule book. Without any of the bureaucracy or baggage of large organisations they moved at a pace that simply caught the FMCGs unaware. Going from start-up to major challenger in just a few years.

For example, in 2019 Nivea estimated that niche brands now own 40 percent of the European skincare market. CEO Stefan de Loecker stated “The consumer goods industry is in turmoil,” adding “I need to act now”. It’s not just the skincare market where we are seeing this change, we are seeing it across all product types.

Acquisition has often been a favoured defensive tactic of many large FMCGs, but a costly and non-sustainable one. By focusing on the new challengers rather than the market potential, they allowed the gap to grow.

The Corona shake-up

FMCG products by their nature are perfect for the direct-to-consumer subscription model. Everyday products that we buy on a frequent basis, with relatively little thought or consideration. During the coronavirus pandemic we have seen a real shift in customer behaviour. Gone is the weekly supermarket shop, instead replaced by more frequent online purchases of everyday essentials. The disruptive ecommerce opportunity should now be front of mind for all retailers and brands.

But, you can't make money on low item values online?

True, it is difficult to make money on low margin, low item value products online – just look at Primark’s reluctance to sell online. That’s why PepsiCo's move in creating the website is a clever one. By pooling together a wide selection of their everyday brands in one place they are able to offer customers a wide variety of products. Increased assortment equals higher basket values, and the creation of a shopping destination for each purchase of our everyday essentials.

Finally, let’s not forget the value of a direct relationship with your customers. Owning the relationship with the customer is not something FMCGs have been able to do offline. Each year spending millions on market research and focus groups to get into the mind of the customer. Something that direct-to-consumer brands get almost instantly via Instagram shares and likes. FMCGs have really missed the opportunity for one-on-one dialogue with their customers. Missing out on the chance to create meaningful interactions and a loyal community.

In the coming months we should expect to see a significant shift in the market as the FMCG giant has awoken to the potential of direct-to-consumer ecommerce market.

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