FMCG DEMANDING TIMES

2020 was clearly a hugely difficult year for all sectors and 2021 is continuing that trend, however, FMCG companies have proved exceptionally resilient through Covid-19, coping with increased consumer demand at home, while managing a massive drop in out-of-home consumption, and accelerating their shift towards digital engagement and new purchasing models.

The major branded FMCG businesses remain challenged in a number of areas, as Millennials and Gen Z consumers are increasingly drawn to smaller, more authentic and more purpose-led brands. The flurry of M&A activity over the last few years, as businesses like Nestle, PepsiCo and SC Johnson have added some of these brands to their portfolios, will only continue and demonstrates how difficult it is for more traditional companies to develop internally brands that resonate with these new generations. This blurring of boundaries between big and small will give top talent more opportunity to flex their leadership muscles within a larger business, where before they would have had to jump ship to work on higher growth, more dynamic brands.

The consumer demand for more innovation, limited editions and personalisation has put a strain on global supply chains that were set up to churn out volume product as efficiently as possible and we are likely to see an increased focus on contract manufacturing, as brands outsource more rather than take on significant internal capex investment.

The last five years have seen a rapid increase in consumer goods activist investors, pushing for change in companies like Procter & Gamble and Campbell Soup, businesses they view as slow-moving, with excessive costs and bureaucracy and ingrained management approaches. However, the high profile rise and fall of Kraft Heinz, the poster child for cost-cutting, zero-based budgeting and lean corporate structures, should mean that our more traditional FMCG companies have less to fear from activists over the next period and can instead take more considered steps to shape their businesses in the right way. Unilever’s focus on driving ambitious ESG targets, ensuring its brands put sustainability and purpose at their core and on shifting its portfolio away from slower-growth sub-sectors, will continue to be an exemplar for others, even if it brings short-term shareholder pressure.