Future-proofing for consumer business investors

The Fast-Moving Consumer Goods (FMCG) environment is a relentless race against change, driven by technological advancements and a surge of agile competitors eager to disrupt the status quo. Economic volatility, shifting consumer preferences and the formidable bargaining power of retail customers are reshaping the business landscape. Globally, advanced economies are predicted to slow down significantly, with growth dropping from 2.7% in 2022 to 1.3% in 2023. These forces compel FMCG players to not just adapt but also innovate to create and sustain long-term shareholder value.
While factors such as growth, margin and cash flow impact long-term shareholder value, growth has a disproportionate influence on it. Achieving growth, however, is becoming increasingly challenging for consumer companies as the number of untapped markets and unserved consumer segments dwindle. Today, growth requires direct competition for new consumers and the promotion of premium products to encourage existing consumers to trade up. To thrive, companies must identify their strengths and differentiation to create compelling value propositions. For example, Hindustan Unilever’s strong equity across product segments and focus on sustainability and innovation set it apart. With consumers now more informed and empowered by digital platforms, companies must strategically pivot, innovate, and navigate complexity to succeed.
Historically, economies of scale provided significant advantages in the FMCG sector, enabling companies to achieve cost efficiencies, extensive distribution networks and robust recognition. Yet, new technologies, social media and e-commerce have democratised these benefits, enabling agile competitors to challenge established giants with disruption. Large consumer businesses must enhance consumer segmentation with advanced analytics and machine learning to understand better and respond to changing preferences in this evolving landscape.
Strategic Imperatives for Top Companies
To navigate this demanding environment and build long-term shareholder value, top FMCG companies must adopt a multifaceted strategy. The two strategic pillars —refining consumer segmentation and building sustainable competitive differentiation — will enable companies to identify the optimal intersection of where to play and how to win. By focusing their efforts on the most promising market opportunities and tailoring their offerings to meet the specific demands of their target segments, companies can drive sustainable growth and build enduring shareholder value.
u Innovation and agility: Companies should invest in R&D to develop new products suited to evolving consumer tastes. Agility in product development and go-to-market strategies can provide a competitive edge.
u Digital transformation: From optimising supply chains with AI and machine learning to enhancing customer engagement through personalised marketing, harnessing the power of digital transformation can drive efficiency and growth. E-commerce offers significant opportunities by developing a strong online presence and direct-to-consumer channels, reducing reliance on traditional retail partners.
uSustainability & social responsibility: Consumers are increasingly valuing sustainability and ethics. Companies that focus on Environmental, Sustainability, and Governance (ESG) practices can enhance brand loyalty and attract mindful consumers, using sustainable sourcing and supply chains as strategic advantages. In India, 42% of CEOs expect substantial returns on ESG investments within three to five years.
u Cost and value optimisation: While innovation and digital transformation are crucial, cost efficiency is essential for long-term value creation. Optimising the value chain through automation, strategic sourcing and lean manufacturing can boost margins.
u Talent and culture: Fostering innovation and agility hinges on attracting and retaining top talent through robust employee development, promoting continuous improvement and fostering cross-functional collaboration.
Virtues of Being Vigilant
After building a strong strategic foundation, it is crucial to remain vigilant to avoid pitfalls that threaten long-term growth. Simultaneously, investing in robust competitive intelligence systems is essential to anticipate competitors, maintain a competitive edge, and uncover avenues for growth while safeguarding against market share erosion.
u Chasing short-lived, high-decibel trends: The allure of trendy, high-profile innovations can distract companies from their core growth strategies. While experimentation and innovation are vital, it’s crucial to differentiate between fads and sustainable trends.
u Neglecting data-driven agility: Relying solely on intuition or outdated methods is inadequate today. Companies must use advanced analytics and real-time data for informed, agile decision-making, enabling swift adaptation to market changes, operational optimisation and enhanced consumer responsiveness.
u Transitioning from blue-ocean to red-ocean skills: As markets become more saturated, companies must shift from blue-ocean strategies, which focus on untapped markets, to red-ocean strategies, involving competing in existing markets.
(The author, Prasun Kumar, is the head of strategy and program delivery, at Philip Morris International Inc (PMI)’s India affiliate, IPM India Wholesale Trading Pvt Ltd.)