By Gaby Dias, Stefan Rickert, Lydia Rullkötter, and Jens Weng
Introduction
Cash-strapped consumers and volatile raw-material prices are not the only problems facing fast-moving consumer goods (FMCG companies in Europe today. Changes at retailers are bringing ever-growing challenges, especially for brand-name manufacturers:
1. Retail consolidation and internationalization continue to accelerate. In the German and French consumer markets, for example, the top five retailers command 80 percent of the market. At the same time, buying groups are becoming more active and professional. Manufacturers find themselves facing customers with more and more negotiating power as a result.
2. Discounters and value-driven formats (such as no-frills players like Mercadona) are gaining additional market share. This is bad news for brand-name manufacturers, which are generally underrepresented at classic hard discounters and, in most cases, lack a strategy for changing this situation.
3. In most European markets, private labels now account for more than 30 percent of sales. Since most FMCG companies have only combated this trend with tactical promotions, A-brands could lose additional market share, while B- and C-brands risk being delisted entirely.
These trends are not new; nor are they unique to the consumer goods sector. Banks are seeing similar changes. But so far most manufacturers have failed to adequately address them. Instead of adapting their sales and marketing approach to different customers, many apply the same methods to every type of retailer. But there is a price to be paid when FMCG companies offer the same product in the same package size and specifications to both a centralized discounter and a multiformat retail giant. In such cases, the discounter will always strive to command purchasing terms that enable it to offer the lowest entry prices in the market for both private-label and branded products. Because discounters also have highly efficient processes, they are then in a position to offer extremely low prices to consumers. The result is cannibalization: the manufacturer sells more via discounters at a lower margin but correspondingly less at multiformat retailers—and earns less profit as a result.
FMCG companies can escape this vicious circle by taking a five-step approach to customer management. We call the approach “Fit for Europe 2020.” Each of the five steps enables manufacturers to execute a different aspect of customer management.
Download the PDF (at right), which details the five steps:
1. Develop strategies for future growth
2. Reap the full potential of trade investments
3. Implement excellent key-account management and in-store execution
4. View internationalization as an opportunity to create value
5. Build a successful customer-management organization