EXCLUSIVE - The forces of change for FMCG and retail

Carat Australia presents its latest report on FMCG & Retail in an exclusive three-part series for AdNews. This is the first in the series.

FMCG & Retail are extremely broad categories, comprised of many different subcategories and brands. Rather than attempting to capture the nuances of each and every layer, the purpose of the report is to instead help marketers understand the key trends affecting all shoppers, so they can navigate their brand through the coming years.

This article starts with a snapshot of the market and then explores seven specific forces of change, from transparency to localism to private label.

A Snapshot

The past twelve months have been testing for most FMCG & Retail brands. Consumer shopping behaviours were quickly disrupted by COVID. Fluctuations in both supply and demand brought additional challenges to navigate. Bricks and mortar stores took a hit, especially during the immediate lockdown. But online sales boomed for many, and those already on their digital transformation journey were best positioned to leapfrog the competition. FMCG generally fared well, particularly with panic buying and more time spent at home. Ultimately there have been myriad experiences for brands. Ongoing uncertainty around COVID and the economy suggests the landscape will continue to fast evolve – those with foresight will be rewarded.

The landscape is complex, affected by both fast and slow forces of change, some scaled and others emerging. This next section explores seven such.

  • Brands are rethinking the role of physical stores (#1), and payment platforms (#2) as digital technology quickly evolves
  • Consumers are expecting greater transparency from traditional brands (#3), and expecting them to offer new ways to pay (#4) like online marketplaces, subscriptions and buy-now, pay-later
  • Australians are also placing greater importance on local (#5) as they become increasingly community-conscious
  • Private labels are enjoying growth (#6) as many shoppers tighten their wallets after a tough year
  • Mainstream brands are future-proofing themselves by borrowing tactics from direct-to-consumer brands (#7)


1. People choose local

A tough year has brought Australian communities closer together, prompting them to think more about where they spend their money. Love of local is everywhere. Australian Made has asked us to choose local businesses; Grassroots movements like Buy From The Bush and Empty Esky echoed these calls; and the Prime Minister told businesses to show “patriotism” and support Australian workers. 89% of Australians now agree that more essential products should be made locally (source: Roy Morgan) and brands are signalling their provenance to meet demand. eBay created an ‘Australian Made’ hub to make it easier for local manufacturers in all categories to grow their online business.  Local is an important facet of the value equation for many consumers, and local brands shouldn’t be afraid to shout about their provenance, or that of the brands they stock.

2. Brands take on private labels

Private labels have been steadily winning share in recent years, and COVID-induced frugality is driving even greater growth. Many FMCG categories have low rates of loyalty and differentiation which has made them a ripe target for private labels (source: HBR). Aldi is one brand underpinned by strong private label execution; its ‘phantom’ brands mimic popular brands, capitalising on their familiarity and training consumers to think less about the brand name they want, and more about the product they need.

Despite the success of private labels, consumers still prefer brands, so they should continue to invest and build equity in their assets to extend their advantage. The most familiar brands ultimately get chosen most.

3. The influence of DTC brands

The influence of direct-to-consumer brands have thrived by cutting out the middleman and traditional FMCG brands are taking notice. 57% of FMCG brands claim they are exploring DTC capabilities (source: Deloitte) by testing new distribution approaches (like subscriptions), acquiring DTC brands (like Unilever and Dollar Shave Club, and P&G and Native deodorant), and launching pop-up experiences (like July luggage). There are many potential benefits for brands; new distribution channels can bypass wholesale relationships (creating greater margins) and they can win a closer relationship with their customers and their data. Nevertheless, they must be wary to preserve their own traditional brands, and their relationships with retailers too.

Take the time to study DTC entrants and their business models – traditional brands may have opportunities to future-proof their distribution and better communicate with their customers.

4. Rethinking physical stores

While eCommerce soars, physical retail is suffering from reduced traffic, rent wars and store closures – but it’s far from dead. Nordstrom (USA) is standing out from online-only competitors by introducing smaller, merchandise-free ‘Local’ outlets which offer key services like online pickups, style advice, tailoring and beauty. Burberry (China) has used its WeChat app to enhance the in-store experience. Shoppers can book appointments, interact with displays, play music in fitting rooms, and unlock their personal ‘rewards’ avatar. Online specialists like Casper (mattresses) and Harry’s (razors) are partnering with Target (USA) to create instore pop-ups to reach new audiences and let them see and feel their products.

Physical retail is immensely valuable for traditional and new online brands, and should be designed to work in tandem with eCommerce

5. Discovery & payment platforms converge

Lower-funnel channels are evolving – they’re looking beyond sales and proving they’re often valuable spaces for discovery too.

Afterpay and Klarna are two fast-growing examples; both prefer to be defined as holistic marketing solutions, not just BNPL (Buy Now Pay Later) services. They enable brands to reach new audiences via their apps (users can browse retailers, share wish-lists, and access deals) and via retail events (like Afterpay Day) – an attractive proposition when two million Australians use BNPL, a number that’s expected to double by 2023 (source: Mozo)

Facebook (and Instagram) can perform a similar role. Its rollout of the ‘Shops’ capability transforms it into a payment platform with huge scale, but it retains its value as a discovery environment. Think of marketing platforms as partners not just as payment solutions and storefronts, but as instruments for reaching new audiences and driving consideration.

6. Transparency goes mainstream

Major brands are taking transparency seriously in all its various guises, from ethical supply chains to sustainability commitments.  Purpose-led brands (like Patagonia, Everlane) have long touted transparency, and it’s gaining traction amongst mainstream brands as a way to win competitive advantage, safeguard against reputational risks, and earn higher prices. For example, an MIT study suggested people would pay 2% to 10% more for products with greater supply chain transparency.

Some brands are acquiring B Corp certification to prove their transparency to consumers. B Corps make an ongoing commitment to work toward “reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high- quality jobs with dignity and purpose,” and pay an annual fee. Over 250 Australian brands are B Corps, including Bank Australia, Aesop, T2 Tea, and Koala, and the number is growing; Australia saw a 12% increase in submissions in 2020.  Brands should be looking to be as transparent as possible, however this must start with the business and its internal practices first for risk of backlash

7. New ways to pay

There are more ways than ever for people to pay for the things they want, thanks to new retail and digital payment technologies reinventing old approaches. People are making purchases on online marketplaces (like Gumtree and Facebook), via subscriptions (like Amazon Prime), buy-now-pay-later—‘BNPL’— schemes (like Afterpay) and contactless POS systems. The principles behind many of these trends aren’t new. People have long bought furniture second hand, paid subscriptions for cable TV and phone bills, and used legacy BNPL schemes. But technology has scaled them, made them even more convenient, and made them feel more modern than credit or lay-by. Test alternative modes of purchase and offer a range of options to your customers; don’t give people a reason not to choose to purchase your brand.

Originally published on AdNews here

Get In Touch