Despite being top rated for all my career and aside from promotions, I don’t remember a single year in my career where I was given a pay rise above the rate of the pricing I was either being asked to take or asking others to take. Despite this being a shocking realisation as I step into the world of running my own business it also speaks to a much bigger issue that all FMCG companies are facing- organic volume growth.
Imagine if you take my situation (and I will openly say mine is a very fortunate one) and scale that across the globe across all different income brackets: at some point the employees of the companies making these big brands will no longer be able to afford them or at the very least use them more sparingly. That could cause a significant sea change in the way consumers choose their products.
Recent supply chain pressures driven by a COVID hangover have driven FMCG organisations to take more pricing, more frequently leading to the average UK monthly shop moving from 350 to 500 between 2020 and 2023 a whopping 43% increase over a 4-year period. Worryingly only 30% of FMCG firms have grown volume over that time. The old adage of volume growth has somewhat been lost at the expense of a newly created RGM function (and a very narrow definition of it) and Pricing which as I look at it is a lazy way to drive growth. In fact, it is one that might have devasting consequences for the future- the staple to fund innovation, quality, safety, design and even the journey to sustainability.
That sea change in consumption patterns is already happening as we have seen over the last few years shoppers flocking to the discount channels and is predicted to continue. In Europe Grocery growth is expected at 3.1%, Discounters at 4.8%, in the UK and even more shocking 3.2%- 8.5% ratio in favour of discounters.
At some point though, that channel switching will slow down and people will just begin to reduce the amount they consume (overall no one can argue this is bad for our planet) but it will be bad for the bottom line of a lot of the FMCG firms out there.
My challenge is this: if pricing is the lazy solution to supply chain shocks, then what is the harder solution. Well obviously, supply chain efficiency is the obvious one- but it is governed by too many external factors- not least international politics. My suggestion is real RGM where the goal is Revenue Growth as a whole, not just pricing.
Promotional Efficiency: Estimations for global trade marketing spend on promotions varies between $500-$700bn, with studies showing that at best 50% of these are operating at a positive ROI- that is anywhere between $250bn and $350bn in wasted investment (for context that is the global annual sales of the 3-5 FMCG companies worldwide). Promotions don’t just fail because the mechanic was wrong or the execution was poor, mostly because the purpose for the promotion was not right. Get the purpose right first, then your execution and your ROI will be on point.
Assortment Optimisation: the estimated destruction value in the global FMCG sector could be in the range of $300 billion to $500 billion annually; driven by product failures, promotional waste, supply chain efficiencies, poor portfolio design, non shopper focussed innovation. Good RGM should be ruthless with product portfolio design, it should be done regularly (minimally every year) and every SKU needs to play a key role within the portfolio- whether it be innovation to meet evolving consumer needs, driving category signposting or playing a role in a specific channel to give shoppers more choice.
Excellence in Insights: Promotional effectiveness, Assortment optimisation, understanding your shopper, channel segmentation and investment monitoring cannot happen unless you have your data in the right place. For years large FMCG’s have sat on pools of data that have largely remained disorganised and disconnected- it’s time that companies accelerate in this area. As mentioned early only 30% of FMCG firms have grown volume between 2020 and 2023 compare that to 80% that have grown revenue, if FMCG firms can sort out they data that gap between revenue and volume growth can close and effective true RGM can happen.
Pricing has its place in the FMCG sector growth strategy for the future, I am not arguing against that, simply that there is an inherent risk with pricing as the only lever being pulled aggressively by FMCG firms. It is the lazy way to grow and could have disastrous long term consequences if it continues at the rate it is going and maybe, just maybe we can give employees pay rises that are at least in line with inflation.
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