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FMCG: consumers’ purchase behaviors are increasingly different

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In our last article, we showed how new tools, based on “data”, allow large FMCG groups to keep up with market developments and consumer expectations. In today’s article, we reveal the effects of the evolution of the FMCG (“Fast-Moving Consumer Goods”) market on consumers’ purchasing habits. A recent study (August 2019) by the University of Chicago unveils an unexpected phenomenon: the rise of niche consumption.

The average annual growth of abundant consumer goods companies (FMCG) increased from 4.5% in 2007-2012 to 0.4% in 2013-2018

Leading organizations under pressure

Let’s start by painting the picture. First, there is a decline in the growth of abundant consumer goods companies (FMCGs). They rose from 4.5% in 2007-2012 in average annual growth to 0.4% in 2013-2018. This is the logical consequence of consumption that is no longer increasing and a hegemonic situation challenged by younger and more dynamic brands. The major FMCG brands lost 2.4 percentage points of market share in the United States. In the case of Unilever, for example, 50% of the business sectors are facing a decline in their market share.

In such emergencies, we logically find the path of market research and go back in search of a distended link with the consumer.

Let us now turn to the factors that explain this critical change in the FMCG sector.

We buy less and less like our neighbour

This is THE main conclusion of the University of Chicago study: our shopping trolley is less and less like that of our neighbour. This very general conclusion is expressed in two ways:

  • the concentration of household spending on a few products
  • dilution of expenses by product

While these two conclusions may seem contradictory at first glance, in fact, they are not. Households concentrate their spending on a few products, but these products are increasingly different between households.

12 years of consumption under the microscope

To reach these conclusions, the two authors, Brent Neiman and Joseph Vavra, analysed 12 years of consumption data from 170,000 American households. The analysis of 700 million transactions enabled them to determine a new econometric model explaining these consumption patterns. From a methodological point of view, the use in the study of the Herfindahl index, a concentration index generally used by the American authorities to detect (and combat) the emergence of situations insufficiently competitive (oligopolies). It was actually the first time I came across a marketing study.

More and more niches in the food sector

Products launched by Molino Spadoni at SIAL 2018

Products launched by Molino Spadoni at SIAL 2018.

The phenomenon of the multiplication of niche products is particularly visible in the food sector. If you follow our analyses of this market, you may remember some of the marketing trends we identified. The one for sensational foods at SIAL 2018 confirmed that the usual products are available in more varieties. As several magazines have titled it following the publication of this study, the consumer wants more and more kinds of ketchup. During our visit to SIAL 2018, we had, among many examples, spiced up Spadoni pasta with Teff flour or those flavoured with turmeric and ginger. This trend towards “diversification” is also visible on the most popular products (oils and vinegar) that retailers put on the shelves to revitalise a department and increase margins.

new tastes in the Ponti vinegar range

The new tastes in the Ponti vinegar range, new developments that perfectly correspond to the phenomenon of “variability” that can be observed throughout the FMCG sector.

Ultimately, companies of sometimes small but dynamic size innovate and bring new products to market with limited resources that consumers appreciate, get used to, and force significant brands to follow the trend. This is a circle that is not necessarily virtuous for the company, since the blockbusters of yesterday, those who made a company profitable and attractive to investors, see their dominant position attacked. Armed with new tools to study the market and be as close as possible to trends, the major brands are, in turn launching new varieties, reinforcing the fragmentation of consumption and the creation of niches.

Jean-Christophe Hubert

The Belgian Jean-Christophe Hubert (pictured here at SIAL 2018), launched Millesime Chocolate, a start-up that has made the “bean-to-bar” its trademark. It is typically a niche product that a large multinational could only have launched with great difficulty.

 

What impact for the significant FMCG brands and retailers?

This phenomenon of niche creation, which brands implicitly reinforce, inevitably leads to higher research, development and marketing costs. The cost structure of the FMCG giants puts them under pressure, and we must expect a drop in their profitability which will lead, in the medium term, to the search for savings and therefore to significant redundancies.

On the other side of the spectrum, this situation also creates new challenges for retailers. In a world where the consumer wants more and more choices (but where consumption is no longer increasing), how can we offer more and more varieties in a space with fixed limits (the shop)?

I think that beyond the 5 retail trends we had already talked about at the beginning of the year, this one may also appear soon.

Image: shutterstock

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Author: Pierre-Nicolas Schwab

Pierre-Nicolas est Docteur en Marketing et dirige l'agence d'études de marché IntoTheMinds. Ses domaines de prédilection sont le BigData l'e-commerce, le commerce de proximité, l'HoReCa et la logistique. Il est également chercheur en marketing à l'Université Libre de Bruxelles et sert de coach et formateur à plusieurs organisations et institutions publiques. Il peut être contacté par email, Linkedin ou par téléphone (+32 486 42 79 42)

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