Moving From Analog To Digital - The Future Of Consumer Goods: Accenture
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The Future Of Consumer Goods: Moving From Analog To Digital.
Disrupt With Digital.
Growth In The Future of
Consumer Goods Will Require It.
Digital is blurring the boundaries between consumers,
stores and consumer brands. This holds major opportunities
for consumer packaged goods (CPG) companies prepared to
radically reshape for the digital world—and clear risks for
those who fail to.
From Nairobi to Nanjing to New use them. Consumers can, and The Digital Consumer:1
York, consumers across the globe increasingly do, compare prices,
have clearly embraced the digital while seeking and sharing opinions • Online sales are growing
world. They have rapidly adapted digitally. Great products are rapidly rapidly by 18%.
to shopping for groceries during amplified across a social media
network, causing spikes in demand. • Online grocery shopping
the daily commute; downloading
So too are dreadful reviews, which is growing and most
books, music or films on the move;
can wipe out a new product launch. prevalent in Asia.
or tweeting, pinning and sharing
their purchasing decisions on social The pace of change has surpassed • 19% of brand purchase
networks. This expectation of all prior shifts in the nature of an decisions are made in
‘anytime, anywhere’ consumption industry: it took just seven years from store. While 81% are
has grown exponentially, bolstered the launch of the internet in the US made from home.
by the rise of a mobile, social, for it to become a mass medium,
cloud-based era of computing. faster than any prior innovation. Today, • 5 billion apps were
digital is ubiquitous. It crosses all downloaded within 6
The rise of digital technology is boundaries: age, geography and stage months of iPhone’s launch.
empowering consumers, shifting of economic development. Kenya, for
power from corporate to the example, leads the world in mobile • eBay® generated over
individual. Consumers and shoppers banking uptake, and Korea has the $400M in sales from
have access to a wider range of world’s fastest broadband network, its iPhone app in the
products and services—and they while six in ten Japanese consumers first full year.
go online with their phones today.2
2
CPG Companies Struggling With
Digital Disruption
While CPG companies are usually We are on the threshold of a dramatic Digital Revolution:
adept at exploiting new trends, and digital disintermediation. It will
although we are seeing some exciting literally re-write the rules of doing We’ve seen this happen in other
innovations in the digital space, business. It will disrupt existing CPG industries: a decade ago, the
we fundamentally believe that the relationships, whether they are with shift to digital allowed low
CPG industry has not yet grasped suppliers, retailers, or consumers. It will cost airlines to steal a mark
the scale of the change ahead. affect all aspects of CPG businesses— from more expensive rivals by
how they are structured internally; making passengers print their
Most CPG companies’ experiments so how they train employees; how they
far are tactical rather than strategic own boarding passes and check
engage with their supply chain and themselves in. Today, digital
responses to the challenge of the retailers; how they create and market
digital revolution: digital add-ons to travel has become the norm.
their products; and how they interact
an existing, analog business. They with consumers and shoppers.
are still primarily focused on digital
marketing, and happen in pockets of
the organization, limiting return on
investment. Of course, as the lines
It’s time to stop dabbling with digital.
between manufacturer, distributor,
retailer and consumer blur, there has
It’s time to disrupt with digital!
been much experimentation with
digital, from both consumer goods
companies and retailers. Nespresso, for
example, has successfully introduced its
own brand boutiques to showcase their
coffee machines and capsules, while
closely integrating these with their
online ordering and fulfillment services
for consumers. Supermarket giant Tesco
has created a virtual store in Korea’s
subway system where consumers shop
by scanning QR codes. And Brazil’s
Magazine Luiza has invited consumers
to create social media ‘stores’ on
Facebook, with the company providing
fulfillment and paying ‘storeowners’ a
commission. Over 33,000 consumers
opened Facebook stores in one month.3
But if CPG companies are going
to enjoy sustained growth into
the future, they need to take a far
more holistic approach that places
the consumer at the center.
3
Globalization Amplifying The Need
For Digital Capabilities In CPG
Digital strategies are doubly are in rural areas or communities diverse tastes around the world and
important when considering the lacking modern infrastructure. An profitably compete. Digital technology
impact of globalization on CPG estimated 15 million new retail is able to bring products and services
companies. First, the dismantling outlets would be required to reach to communities that it would be
of political and trade barriers these new consumers, which would economically unfeasible to reach
around the world brought new be a significant cost for retailers with a physical store, whether that’s
workers, consumers and shoppers (construction, staff and operations), due to the price of real estate, or
into the global economy. Combined additional supply chain costs for all, a lack of infrastructure and time.
with rapid falls in transport and many new consumers who will
and communications costs, this likely require their localized tastes are To sustain the business they have
provided huge opportunities met and very competitive pricing. and capitalize on the opportunities
for businesses of all types to for growth in this digital age, CPG
prosper in a globalized world. Meanwhile, consumers in developed companies should evolve to a digital
markets are aging and looking to operating model. Leveraging digital
The second factor is the rise of live longer, healthier lives, but they technologies alone will not be
the emerging market middle-class are also cash-strapped, due to the enough. The entire CPG enterprise
consumer (by 2015, there will stagnant economy, and seeking needs to have shared digital
be at least one billion), which is value. Quite simply, leveraging strategies and technologies to enable
opening up a vast new potential digital technology will be the the necessary agility required of a
market. But here many consumers only economically viable way for true consumer-centric approach.
CPG companies to deliver on the
Dramatic Disintermediation
Emerging Market End of Domininance of
Challenge Bricks & Mortar Retail
From Product Digital Media
Marketing Ownership
From Product Mass
Innovation Customization
From Enterprise The Collaborative Business
Boundaries Model—Consumers, Suppliers,
Customers
Geography is no longer the basis
for management and organization
4
The justification for One billion
truly digital operations new consumers
Over the last two decades, consumer by 2015
goods companies have skillfully Leveraging
aligned their businesses to a changing
world. This has led them on a digital
journey from their predominantly technology is
local roots, to boldly reshape their Newly affluent
the only way it’s
operating models and become first emerging
regional, and then global, giants.
market middle economically
Their vision has been rewarded:
every stage of the journey has been class viable to
accompanied by significant growth. compete and
The first stage of the journey saw win in this
companies extend their operations The 15 million environment
regionally and win new consumer
segments in countries adjacent to,
new outlets
or with similar characteristics to, needed to
their home market. They began to reach them
segment consumers by type as well
as geography, to introduce shared
services and outsourcing, and to The next stage of the journey capturing the hearts, and wallets, of
consolidate their manufacturing combined the best of the regional emerging consumers and shoppers
and supply chains regionally. All and global models together to with desirable snacks and drinks,
these measure dramatically reduced create “Super Global-Super Local” cosmetics, toiletries and household
costs and improved margins. The companies. The sophistication of goods, CPG companies have grown
majority of the industry now runs consumer segmentation increased, revenues by almost 7 percent
a regional operating model. and consumer and shopper archetypes CAGR5 in the last two years, despite
A few companies have moved to the were created to drive product depressed global economic growth.
next stage, and ‘gone global’. They development and engagement.
At the same time, unique local However, many firms are likely
focused on global consumer segments, to find that, as globalization
and developed priority global brands products supplemented global
propositions. Only a handful of continues and consumer growth
with target segments stretching increases, their margins and
from Tokyo to Turin to Toronto. They companies operate like this today.
business growth will come under
introduced global operating models, This transformational journey is challenge. It is time for them to
supported by ERP systems, regional associated with increased earnings radically reshape their existing
management and supply hubs, and and profitability in the CPG industry. business models and strategies
shared services. They standardized Global consumer goods companies to benefit from the digital world.
operations, processes, supply have achieved more than double digit Importantly, this isn’t about some
chains, products and marketing, growth in earnings before interest kind of digital façade; it’s a far more
thus cutting costs and substantially and tax in every year since 19954; and transformational change requiring
increasing revenue and profitability. earnings have outpaced sales growth new processes and technology.
in all but the last two years. But, by
5
Figure 1: Digital is a fundamental change for CPG companies and is Wherever each company is on its
equivalent to previous macroeconomic changes journey, the digital world will affect
the future of its business profoundly.
Improve Margins Double Size Increase
Through Cost of Business Profitability The path ahead is challenging. But it
Reduction also offers the prospect of stronger
revenues and profitability for those
10s companies that can successfully
Digital Market
00s of One enfranchise new emerging market
New
Consumers
consumers and digitize their businesses.
90s Margin
Global
economy Reach
Scale
Leverage
Autonomous
Local Regional Global Super Global/ Digital Fluid
Super Local Disintermediation
Figure 2: Processes and Technology have to evolve to support the journey in each step
CPG Push Ecosystem Leverage Consumer Pull
Relationship &
Real Time
Experience
Driven
None
First
Interactive
Movers
Enabling Capabilities
Very Few
Front-end
Companies
Process
Driven
Archetypes Some
Companies
Most of the
Consolidated Industry
Back-end
Package
Driven
Few and Far
Between
Fragmented
Local Regional Global Super Global/ Digital Fluid
6 Super Local Disintermediation
Evolving To A Digital Operating Model
Moving to a digital operating model will involve a
fundamental rethink of corporate structures, customer and
consumer engagement, product development, supply chain,
marketing and sales.
1 Organize by consumer
and market archetype
rather than geography.
For CPG companies, structuring their to succeed. Given the sheer number
business operations geographically of different markets, it is necessary Defining Commercial
made sense in a world of high to understand where groups of Success Models:
transport and communications markets share the same commercial
costs, and limited globalization. In success model and organize by • Capability assessment:
today’s era, companies will need to these Market Archetypes. Assesses the importance
structure their businesses in socially of key commercial
and economically coherent groups, CPG companies can determine the capabilities—route to
such as types of consumer and commercial success model required market, pricing, portfolio,
route to market, to be successful. to win in each market or market- trade promotion, distributor
For Consumer Archetypes, this type, typically through evaluating management, and marketing
might include groupings of culturally capability, channel, and KPIs. Markets investment—in each market
similar markets—so Australia grouped can be grouped according to their
attractiveness (size and growth) • Channel assessment:
with the UK (similar language and
and the complexity inherent in maps out the route to
customs), rather than nearby Indonesia,
their route to market structure and market in each country
for example. More radically, they
should structure themselves and general maturity and stability.
• KPI assessment: Highlights
their propositions around distinct the core KPIs that are
Similar markets and consumer
consumer groups, such as working applicable to measuring
segments are not always geographically
mothers, or the recently retired. performance in specific
contiguous. Both these routes will
require fundamental organizational markets
When it comes to delivering the
capabilities required to win in the change. Companies will need to
local market, there is no one size fits organize their systems and processes,
all and not every market requires the supply chains, distribution, sales,
most advanced capabilities in order branding and marketing activities
around these archetypes.
9
2 Expand into online
sales—through eRetailers
and/or directly through
eCommerce.
3 Ensure integration
throughout the value
chain to enable a seamless
shopping experience.
Much of the growth in retail today is product ranges beyond the capacity The integration of physical and virtual
in convenience or impulse shopping of a physical store. And they have cut shopping experiences, across the
and non-store business—including costs and passed some of the savings lifecycle of a product, continues to
online, via mail order, and TV. For on to the shopper in reduced prices. develop rapidly. This is making the
example, Asia has been progressive in previously intangible aspects of how
selling outside traditional bricks and As a result, they have taken a bite consumers discover and value goods
mortar retail—being the first to accept out of the profits of traditional far more valuable—from how they are
mobile payments. Although online sales retailers. This is why, despite the paid for, delivered, used, and disposed
are still a relatively small part of the rising profits in the CPG industry over of. This demands that these fragmented
market, their compound annual growth the last decade, profits at bricks and aspects of the value chain can no
rates of 18 percent are far outstripping mortar retailers have stagnated. longer be arm’s length processes:
that of urban retail sectors and This retail revolution is not so much they need to be integrated with the
shopping malls.6 With lower costs and the disintermediation of retailers, but manufacturer’s brand. Nespresso’s
greater flexibility, so-called etailing the disintermediation of the physical market strength is partly wrapped up
will lead the way. But in turn, this will store. Tesco, for example, has halted in its tight integration of all these
disrupt the traditional structure of the construction on new stores. Retailers aspects, ensuring a seamless consumer
industry, as CPG companies discover are developing their own online and experience from its concept stores,
new opportunities to sell direct to virtual offerings, and integrating to its online fulfillment channels,
consumers, and build relationships them with their stores to drive to its dedicated support lines.
with them, more than ever before. traffic and interest across channels. In a survey 7 Accenture undertook
In the past, CPG companies have If retailers can’t insulate themselves last year into consumer expectations
relied on bricks and mortar retailers to from digital disintermediation; and habits, 8 out of 10 consumers
sell their products. But in the digital nor can CPG companies. What is said that the ability to pay for their
world, digital retailers will be king. happening today in retail will happen goods anytime-anywhere-anyhow,
Urban retail sectors and malls have tomorrow in consumer goods. and the ability to arrange delivery
been among the first to feel the sharp CPG companies need to act now at their convenience, was important
end of digital disruption. Etailers to adapt their business model. to them. This means that tangential
have come into their market. They capabilities—such as payments
operate without the overhead costs of processing, and customer order
physical stores. They carry extensive management and delivery—become
core to the delivery of brands.
104
Build engaging, relevant
and customized brand
relationships with
target consumers.
The moments of truth are Marketing departments have long
converging, and to achieve the kind been expert in the art of monologue: From Monologue To Dialogue:8
of seamless experience consumers endlessly highlighting a brand’s merits
and shoppers want, CPG companies to consumers. Now they need to learn • A Brazilian department
will have to have a presence at every the art of dialogue; they need to store, C&A Fashion Like,
stage of the shopper’s journey—from find the points of intersection between has created clothes hangers
initial product discovery, to purchase, what they want to say and what a that display live data on the
delivery, first usage, and so on. They consumer wants to hear, through number of ‘likes’ a product
will need to engage with and manage multiple channels. Content needs to be receives on Facebook.
their whole value chain—outside customized, timely and continuously
• Nestle created Marktplatz
their enterprise, as well as within it. relevant to individual consumers.
in Germany in 2011
And the blurring of the boundaries The digital world enables, and now allowing shoppers to
will also encourage CPG companies demands, engagement through rate their products.
to sell directly to target consumers. numerous interconnections between
• Having launched a popular
This is a development that lends the consumer or shopper, product,
Stain Solver website for
itself primarily to upmarket brands, brand, retailer, digital and social
its Vanish brand, Reckitt-
as consumers and shoppers will have networks. There’s a great opportunity
Benckiser took the concept
a limited appetite for shopping for here. CPG companies get the chance to
a stage further with a ‘tip
commodity items from multiple sites. build direct relationships with target
exchange’ Facebook page
Direct-to-consumer consolidation sites, consumers. But there are significant
where users share their top
such as alice.com in the US try to get challenges too. In the digital world,
stain removing tips.
around this issue. Other manufacturers the consumer and shopper will decide
are trialing eStores and subscription whether to engage or ‘consume’
services for bulk or repeat purchases. any given piece of marketing. If
Together, they have the power to
the content isn’t engaging and
create personalized engagement,
relevant, it will be disregarded.
based on a 360° view of consumers’
Achieving a personalized digital digital interactions that will allow
relationship with individual companies to anticipate shoppers’
consumers and shoppers will require tastes, habits and expectations.
investment in automation, technology
and analytics. They can take
relationships beyond transactional.
115 Expand product ranges
as the constraints set by
physical space decrease. 6 Enable consumer
co-creation, allowing
individuals to customize
their chosen products.
The size of stores, competition among Companies used to exploiting the
CPGs for shelf space, and supply chain mass market, will have to learn to
costs has limited product ranges. This exploit the market of ONE. Focus on
physical constraint will decrease with the individual consumer, influencer,
the digital revolution. We foresee an and shopper—they are all digital and
exponential expansion of product expect specific attention. This could be
ranges to meet consumers’ diverse highly profitable: we already know that
needs and tastes around the world. the more specific a product is to an
Advances in technology will turbo- individual, the more value they assign
boost this trend by making mass- to it, and the more they are willing to
customization of products a reality. pay for it. As advances in technology
make the mass-customization of
products an economical reality, allow
consumers to specify products to
suit their individual tastes, such as
fragrance, flavor, pack size and color.Making Sense Of A New Landscape
These trends are blurring the
boundaries in the consumer goods
being led tactically by the IT function.
Internal boundaries between functions It’s time to disrupt
industry. Product manufacturers are
becoming retailers, distributors and
need to come down, blurring the
lines between sales, marketing, R&D,
with a digital
media operators. On the demand-
side, consumers are no longer just
the supply chain and consumer
service – enabling a holistic view
operating model.
passive shoppers: they are critics, of consumers, the capabilities to
product co-creators, and, in some deliver customized messages and
instances, even digital storeowners. offers, and the agility to adjust
quickly as consumer needs change.
Although CPG companies are talking
1 eMarketer, “The Global Media Intelligence
about the need to digitize their Report Asia Pacific”, 2012
businesses, they are still a long way 2 eMarketer, The Global Media Intelligence Report:
from understanding the scale of Asia-Pacific, September, 2012 pgs. 38,39
the revolution that is coming. Right 3 Retail Planet, Global Trends & Forecasts,
2013:Retail Horizons – Looking Forward to
now, too many companies are simply 2020, December 2012, pages 25,54, 55
seeing the digital revolution as a 4 Planet Retail
technology issue: adding another 5 Captial IQ, FMCG Sales and Profit 1995-2012
channel to reach consumers. It is far 6 Planet Retail, “Global Channel Trends”, May 2013
more. It is a commercial revolution 7 Accenture Seamless Retail Study
that must be addressed strategically 8 Retail Planet, Global Trends & Forecasts, 2013:
across the enterprise, rather than Retail Horizons – Looking Forward to 2020,
December 2012, page 34
14Figure 3: The degree of functional change for CPG companies as they evolve through the stages of the journey
As companies expand globally, they evolve to
global brands, and ultimately develop line
extensions to appeal to localized tastes.
R&D Global Brands
Break down functional silos to
have one holistic view of consumer
Marketing Regional Brands Global Brands Global & Some Local Brands
No longer organize by geography,
and instead by consumer and Converge to
market archetype Work from
Route to market through Consumer
Sales market archetypes
Back & End-
Enabling local agility to-End
Creating cost efficiencies
and service
Supply Chain Regionalize Supply Chain Some Globalization/ Local Fulfillment
Value Creation
Eliminating redundancy and Driving global operating
increasing cost efficiency efficiency, innovation and
growth
Finance
Global
Regionalize GBS
Business
HR Shared Service
Services
Services Line
(GBS)
IT
0% Change
50% Change
100% Change Local Regional Global Super Global/ Digital
Super Local
15Contacts for more information: Shaping the Future About Accenture
Fabio Vacirca of High Performance Accenture is a global management
Global Consumer Goods in Consumer Goods consulting, technology services
Managing Director and outsourcing company, with
Milan, Italy Our Consumer Goods industry
approximately 281,000 people serving
fabio.vacirca@accenture.com professionals around the world work
clients in more than 120 countries.
+39 (02777) 58483 with companies in the food, beverages,
Combining unparalleled experience,
agribusiness, home and personal care,
comprehensive capabilities across all
John Jackson consumer health, fashion and luxury,
industries and business functions,
Managing Director— and tobacco segments. With decades
and extensive research on the world’s
Consumer Goods; of experience working with the world’s
most successful companies, Accenture
Growth & Strategy most successful companies, we help
collaborates with clients to help
London, England clients manage scale and complexity,
them become high-performance
john.jackson@accenture.com transform global operating models to
businesses and governments. The
+44 (20) 7844-2779 effectively serve emerging and mature
company generated net revenues of
markets, and drive growth through
Keith Barringer US$28.6 billion for the fiscal year
evolving market conditions. We provide
North America Consumer Goods ended Aug. 31, 2013. Its home
end-to-end business services as well as
Managing Director page is www.accenture.com.
individual consulting, technology and
Atlanta, Georgia, USA
outsourcing projects in the commercial
c.keith.barringer@accenture.com
and supply chain areas, enterprise
+1 (678) 657-7783
solutions and integrated business
Mark Austin services. To read our proprietary
Europe and Latin America industry research and insights, visit
Consumer Goods Managing Director www.accenture.com/ConsumerGoods.
London, England
mark.austin@accenture.com
+44 (20) 7844-7193
Rajat Agarwal
Asia Pacific Consumer Goods
Managing Director
New Delhi, India
rajat.agarwal@accenture.com
+91 (11) 429-0185
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