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The fast-moving consumer goods (FMCG) industry is going through a substantial transformation. Due to the ongoing COVID-19 pandemic, it is now driven by a digital revolution that has completely altered the shopping experience for consumers.
The World Economic Forum had predicted that by the end of 2020, Asia's (gross domestic product) GDP will overtake the GDP of the rest of the world combined. By 2030, the region is expected to contribute roughly 60 percent of global growth. This will see new levels of value and innovation from FMCG players. As eCommerce and increased internet penetration have upended traditional sales models, globalized trading brings in a new age of supply chain volatility.
Here are seven key FMCG trends we anticipate will play a major role in shaping the industry in Asia in 2021.
During an economic downturn or in the current case of a pandemic, fixed costs like rental, fixed salaries, utilities and other overheads, can threaten a business’ survival or severely limit its options. To emerge from such a crisis and overcome the next one, companies must make their cost structure leaner and more flexible.
They can do this by transforming fixed costs into variable costs through a process known as variabilization. Converting fixed to variable costs is an option to reduce your need for money and most fixed costs can potentially be converted into a variable cost.
Outsourcing is one method to help your business focus on what you do best. Instead of having equipment, people or other resources as fixed expenses, you can outsource these to an external partner who has the expertise and can focus exclusively on the outsourced areas while doing it more efficiently.
An example is to outsource sales, marketing and logistics aspects of the business to save operational costs. By using an experienced and trusted partner to handle these areas, the company can focus on product innovation and the development of quality products.
The COVID-19 situation has elevated consumers’ entry into the digital world. When the pandemic hit and shops around the world had to close their doors, consumer behavior changed as well. As they were either restricted in their movement or chose to stay home to stay safe, more consumers, especially over in Asia, went online to cater to their food supplies and living necessities.
Frost & Sullivan said that the number of online transactions for groceries and takeaway food in the region grew by between 50 and 400 percent from March to May this year, with some players witnessing their gross merchandise value increased by at least 50 percent over the same period.
A survey by Facebook IQ, the social network’s insights unit, showed that Baby boomers and Generation X had increased their online shopping expenses during the pandemic. It is not just the established regional platforms like Shopee and Lazada that benefited, increased competition from localized players like Sendo in Vietnam as well as Tokopedia and Bukalapak in Indonesia continue to attract consumers due to their localized content and ability to attract local businesses which were previously not on eCommerce.
GlobalData stated that consumers in Asia Pacific are switching from big-ticket items to the affordable luxury realm. Affordable luxury is often characterized by consumers looking for the status associated with value without encountering the high price tag.
For the FMCG sector, this can mean that people are turning to buy affordable, splurge-worthy products to treat themselves such as a small piece of premium chocolate like Ferrero Rocher. This is a simple and smart way for people to reward themselves without overspending especially in these cash-conscious times.
The pandemic has disrupted and exposed vulnerabilities in supply chains. Plant closures and changes to operating procedures, including socially distancing workers, have contributed to reduced production and labor output.
Taking the food industry as an example, as markets moved to minimize further virus outbreaks, many had implemented more protectionist trade policies including limiting food imports. According to the World Bank, food protectionist policies will lead to a decrease in global food exports of between six to 20 percent and global food prices increase between two and six percent. It added that further import and export restrictions could boost food prices by as much as 18 percent.
As businesses strive to realign their supply chain operation to ensure the health and safety of staff while keeping operations running, DKSH’s Total Quarantine Solution (TQS) effectively ensures that distribution centers can remain operational and safe for workers and customers. Learn more about TQS at Keeping your supply chain workforce safe during COVID-19.
As companies battle their way out of this crisis, they will need to adjust to the change of the environment and new ways of working. New technologies and automation will mean companies will be fighting for the best talents in the industry.
As businesses continue to alter their operating processes, most will be prioritizing digital transformation, pushing the demand for talent with skills to implement the change and those with the skills to deliver services in these new ways. They will have to look at in-house talent, identify skills that are missing, align around what is needed most, reskilling and recruiting.
Forward-thinking FMCG companies need to think about the “next normal” and how they should operate once the virus-control measures are lifted. As noted by McKinsey & Company, the trends observed in Asia amid the prolonged recovery and the “next normal” are:
McKinsey & Company also expect to see important channel shifts to a smaller food-service sector, retailer consolidation and the rise of value retailers. Having an agile business continuity plan in place that enables companies to pivot strategies quickly is key to managing future disruption.
Converting fixed costs into variable costs is not a new or unique concept. However, in this present situation, it is a possible approach for FMCG businesses to survive and thrive. By reevaluating their business operation, identifying weaknesses and strengths, anticipating future crises and finding ways to outsource selected activities to a more proficient partner, FMCG companies will be better equipped to sustain their position in the marketplace and to compete in these challenging times ahead.
Reach out to us for any further insights you may have on the FMCG trends ahead in Asia.