PaperLoop is a product of analysis developed by the Knowledge Centre of Loop’s Consultants about the specialized strategy business models, product/service development, corporate acceleration, digital environment and strategic data analysis.

paper 0610 IMPACT TRENDS IN THE FMCG INDUSTRY APPLIED TO THE BUSINESS MODEL IN 2019

10 IMPACT TRENDS IN THE FMCG INDUSTRY APPLIED TO THE BUSINESS MODEL IN 2019

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When we talk about trends in the FMCG industry we can think of hundreds of trends and even associate them directly with leading companies that are striving to offer the best products or services in the market, but it is necessary to make an exhaustive analysis of all of them not only to be adaptative but to go forward.

On one hand, it seems positive that the market lives in constant change with the launching of new products and services, since this has become an activation strategy for sales of many manufacturers. But another less positive side of this phenomenon is that we have turned the window of opportunity into something so narrow that there is no time to repay the efforts invested.

In light of this search for disruption, it is necessary that companies take the leap and change their perception of consumers. In short, it is necessary to understand the trends, the evolution of the market and consumer habits to identify the right time to satisfy such needs aiming to lead the market, through a proactive attitude in search of new opportunity territories.

INTRO-DUCTION

TE

CH

NO L O G Y

IN LOOP WE HAVE ANALIZED

THE 10 TRENDS IN FMCG INDUSTRY THAT WILL MAKE THE DIFFERENCE IN 2019:

Due to the constant launching of products we have turned the window of opportunity into something so narrow that there is no time to repay the efforts invested.

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Augmented & Virtual Reality, and physical store empowerment

Servicing: the next step for brands

The monetization of information before the maelstrom of Big Data

Food Waste, towards sustainable production

Non-packaging as a strategic value

Circular economy: sustainability environmentand economics!

Traceability, the product credibility

Bio/Eco, growth margin

Customer engagement towards Generation Z and Millennials

Superiority in product: definitive strategy to win the pulse to the market

MARKETS O C I E T Y

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1.Augmented & Virtual Reality, and physical store empowerment

Both realities have come to stay and to revolutionize the way in which customers buy and discover products.

Google claims that 61% of consumers would prefer businesses that offered this type of augmented reality experiences, and 34% would use AR apps for their purchases. For this reason, companies are adapting their sales points to the new digital age.

The application of both realities in the FMCG industry and in the Food retail is linked to the evolution of the user experience in the supermarket. It will no longer be science fiction that customers can scan products as they move through the supermarket aiming to assess products (know their price, quality, qualifications and

opinions of other users); compare with other similar products; check recipes to prepare the product; and to verify its traceability (that is to say that the clients may learn the origin, allergens, authenticity of the product, etc.).

In addition, Virtual Reality will also make it easier to find the products we want through a supermarket map that works as a guide through the aisles and shelves, for example.

This year leaves us the first real example of this trend that has reached the market through the Walmart company, which has already launched a new augmented reality scanning tool in their iPhone app that helps their customers compare products.

This scanner can be scrolled through the shelves of its stores offering information about prices and customer ratings below the products that the client observes.

TRENDS FROM A TECHNOLOGICAL POINT OF VIEW

Artificial Intelligence (AI), the “what else” of planned purchasing

In addition to this technological trend, another focus of revolution comes from the hands of the virtual assistants. On one hand, according to Statista it is expected that VA sales will hit 16 millions dollars in 2021; While ComsCore predicts that for 2020, 50% of all Internet searches will be voice searches.

These data demonstrate that Artificial Intelligence is called to be the basis of digital transformation in the FMCG industry, since more and more business models are based on data and algorithms extracted from interactions with users; and these are gaining weight in the decision making of the companies.

In the case of Food Retail, AI is focused on allowing greater differentiation, customization and, definitely, an improvement in the services they offer to their customers: from automatic platforms capable of generating fast and personalized offers, up to chatbots that provide instant customer service.

20150

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10000

12000

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16000

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2016 2017 2018* 2019* 2020* 2021*

WORLDWIDE VIRTUAL ASSISTANT MARKET SIZE FROM 2015 TO 2021

( IN MILLIONS OF DOLLARS)

Source: Statista

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2.Servicing: the next step for brands

Another great revolution presented to generate product value, recurrence and differentiation in a crowded and competitive product market like FMCG is the bet for servicing. In other words, applying services to a product to create added value and benefits to both parties: better margins for some and more ease of purchase for others.

For brands providing services can mean not just a differentiating element but also loyalty, since specially in commodities, it allows to differentiate the product and to empower it with value. In addition, service offerings intensify and strengthen the relationship with customers by making the price no longer be the point of differentiation.

On the other hand, linked to the growth of planned purchases through the new technologies, servicing is also presented as a vehicle to add value, lengthen the experience and buying possibilitie.

In this line, the great opportunity of the industry goes by taking advantage of the capacity to convert the data and the enormous amount of information that brands

have (both of the market and the consumer) and turn it into services that extend the added value offered to customers, contributing to generate new sources of income.

As a result, although it may seem that this technology will only have an impact on e-commerce, the reality is that the incorporation of Artificial Intelligence to the physical store will reconfigure the way we buy.

The evidence is that there are already projects based on AI focused towards the consumer receiving product recommendations according to their nutritional preferences or the brand CSR policy while they buy in an establishment.

In this context, and due to such technological innovation at the point of sale, it is obvious that we cannot ignore the importance and power of the physical store. Consumers have hundreds of options to meet the same need and if we, as a brand, fall into the success of e-commerce we will not conquer impulse buying. Online shopping is more rational and guided by basic needs, being difficult brands or products breakthrough on your shopping chart. For this reason, manufacturers must help themselves with retailers, through various consumer experiences in order to conquer the consumer in the physical store and make consumers more responsive to suggestions as well as opened to test new products that make their chart grow.

CONSUMERS HAVE HUNDREDS OF OPTIONS TO MEET THE SAME NEED AND IF WE, AS A BRAND, FALL INTO THE SUCCESS OF E-COMMERCE WE WILL NOT CONQUER IMPULSE BUYING.

FOR BRANDS, PROVIDINGSERVICES CAN MEAN NOTJUST A DIFFERENTIATINGELEMENT BUT ALSO A LOYALTY ONE.

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As it is seen, the possible measurements are currently infinite and in all cases the result represents a huge amount of data. As such, brands great challenge is the monetization of information; In other words, the internal approach of how to convert a raw material as valuable as data in an economic value.

The reality is that this economic performance is totally polyhedral, it can have as many faces as economic maximization opportunities we may imagine. Therefore, we must ask ourselves the right questions to know if we are achieving the maximum performance of the data in our usual processes. For example, if efficiently managing the manufacturing, storage and order management processes; if there is room for improvement in the number of returns of our product, etc.

When achieved, the intangible benefits derived from this monetization are evident: alignment of internal priorities and work for the common benefit, gain of competitive advantages over our competitors, correct reading of the moment, etc. As well as a direct impact on the income statements.

3.The monetization of information before the maelstrom of Big Data

No doubt, the trend that will affect the channel of distribution in these next years will be the integration of analytics and Artificial Intelligence in the purchasing channel.

Knowing where customers move within a store, what are the times of permanence by different sections or shelves on the supermarket, and knowing their purchasing choices (along with their profile) will help retailers learn the behavior of the customer within their stores, finding the optimal locations to place promotions and provide the right information to their customers, among other possibilities of differentiation.

On the other hand, the use of the Big Data can favor stock decrease (for both online and physical sale). Knowing the consumption data (through an algorithm that helps to predict the demand for food) it will be possible to reduce food waste, avoid stocks depletion and thus ensure a greater freshness in the food.

In addition, in the case of e-commerce sales, the advances would allow the centralization of the inventory in a single

distribution center that will admit a greater speed in the shipment, when all the products are found in one place.

KNOWING WHERE CUSTOMERS MOVE WITHIN A STORE AND THEIR PURCHASING CHOICES, WILL HELP RETAILERS LEARN ABOUT CLIENT BEHAVIOUR, FINDING OPTIMAL LOCATIONS TO PLACE PROMOTIONS AND PROVIDE THE APPROPRIATE INFORMATION.

BRANDS CHALLENGE IS TO CONVERT A VALUABLE RAW MATERIAL AS VUALUABLE AS DATA IN AN ECONOMIC VALUE.

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4.Food Waste, towards sustainable production

FAO (United Nations Organization for Food and Agriculture) has conducted a first study focused on the environmental impact of food waste which showed that 1,3 million tonnes of food, 3,3 million tonnes of CO2 equivalents to greenhouse gases, 250 km3 of water and 1,4 million hectares are used annually for food that is either lost or wasted.

Some of the main causes of waste are related to the inadequate storage or transport in the supply chain, as well as in the overproduction or seasonality of demand and mislabelling; since the term “best-before-date” is not the same as the one of “expiration” and causes food waste.

Consumer awareness is becoming more and more clear and the same approach as food

distribution and manufacturing companies: reduce food waste in order to achieve sustainable production.

The aim of the European Union is to halve (per capita) waste at both the distribution and consumer levels in 2030, in addition to reducing losses in food production and distribution.

REDUCE FOOD WASTE IN ORDER TO ACHIEVE SUSTAINABLE PRODUCTION.

TRENDS FROM A MARKET POINT OF VIEW

5.Non-packaging as a strategic value

The new consumer habits, together with the development of e-commerce and the evolution of new technologies with industry 4.0, have accelerated the change in packaging.

Consumers are becoming more demanding and environmentally aware, learning the difference between traditional packaging materials and biodegradable-based innovators with a totally different material composition. In addition, they also want to know what to do with the packaging after use, claiming that the recommendations for proper disposal are to be included in the packaging itself.

According to IRI’s European buyer study, three of every four food buyers look for a packaging that is environmentally respectful making it clear that the consumer has forced manufacturers to make their packaging more sustainable, intelligent, safe, efficient and productive.

One of the trends in this matter is the blooming of stores and supermarket sections in Europe with bulk sales; focused on sustainability, the recovery and the reuse of the packaging.

But the question and the challenge for brands is, how do I keep my brand philosophy and image, my attributes, the characteristics of my product, its conservation, etc. aligned with this trend?

Meeting consumer preferences to be environmentally friendly will require manufacturers to consider their packaging/no-packaging strategy as part of its value contribution.

THE CONSUMER HAS FORCED MANUFACTURERS TO MAKE THEIR PACKAGING MORE SUSTAINABLE, INTELLIGENT, SAFE, EFFICIENT AND PRODUCTIVE.

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6.Circular economy: sustainability environment and economics!

In relation to the previous trend of non-packaging, the market is directed towards the reduction of non-recyclable materials and the maximum optimization of those that are, taking the first steps towards circular economy: production of goods and services while decreasing consumption and waste of raw materials, water and sources of energy.

On one hand, public administrations are seeing in this concept an opportunity to reduce risks related to the supply of raw materials, minimization waste, contribution to climate change mitigation, management minimization, as well as economic development and employment promotion. On the other hand, many companies that were operating with principles of sustainability see in this framework a way to give more meaning or breadth to their proposal.

Circular economy proposes a new model of society that uses and optimizes materials and waste, giving it a second life.

Therefore, the opportunity of many companies is to join the wave of innovation that proposes introducing innovative business models and designs which provide new business opportunities while helping to improve sustainability.

EQUITY, ENVIRONMENT SHORT TRIP TO THE STORE:7 OUT OF 10 SPANISH BUYERS SURVEYED IDENTIFY THEMSELVES WITH THESE ISSUES AND ARE WILLING TO PAY MORE IN COMPARISON WITH TOTAL EUROPEAN BUYERS. % OF EUROPEANS WHO AGREE WITH THE STATEMENTS

Many companies that were operating with principles of sustainability see in the circular economy a way to give more meaning or breadth to their proposal.

SPAIN EUROPE

Source: IRI European (Spain) Buyer Study 2018

77% 71%

78% 72%

75% 72%

63% 68%

77% 55%

Of Spanish buyers prefer to purchase products from companies that demonstrate equity, transparency and integrity.

Of Spanish buyers prefer to buy products from environmentally respectful companies.

Of Spanish buyers prefer products with an eco-friendly packaging.

Of Spanish buyers prefer products that imply a short trip to the store.

Of the Spanish buyers are willing to pay more for organic products from km 0.

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7.Traceability, the product credibility

One of the most worrying aspects for consumers is knowing the information in the product that they will buy, and therefore the new technologies of traceability for products will be relevant to be able to offer a quality product that endorses its origin, its storage process, its packaging and channelling information and as differential elements of the offer.

Since 2014 there is a law in Europe that requires additional information from the products to be marketed to be stored in databases, and this has become a reality thanks to the smartphones with which consumers will be able to interact digitally with the product; becoming an educational platform that, as it turns, is pedagogical and playful (for example, through the

TRENDS FROM A SOCIETY POINT OF VIEW

IMPORTANT ASPECTS RANKING FOR ORGANIC FOOD PRODUCTS PURCHASE

Source: MAPAMA/Gfk

creation of apps with nutritional tips based on each client’s profile).

Blockchain technology makes transparency, traceability and total credibility of individual products available in real time for consumers. The use of this

type of platform enables sharing with customers the origin, the ingredients, the allergies, the sustainability, the certifications, etc. of the product; information they value by wanting to be more and more aware of the products they consume.

Ecological Buyers

1 Contains exhaustive information of origin and cultivation/production 66%

64%

62%

59%

61%

57%

53%

56%

52%

47%

45%

33%

67%

64%

64%

61%

59%

57%

55%

55%

53%

48%

43%

34%

Includes official seal of organic product

Includes full nutritional information

Packaging is environmentally friendly

Product comes from nearby

Spanish origin

Comes from a quality brand

Is discounted

Knows the brand

Product composition which includes complete

Affordable Price

Product origin

4

7

10

2

5

8

11

3

6

9

12

base 436 305

Specialized Canal Buyers

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8.Bio/Eco, growth margin

Although it is a truism, the trend of Bio products and Eco will continue to boom due to the consumers growing concern for health, environment, better taste and product quality.

It is important to emphasize that the growth of the consumption of organic products has been much higher than the growth of the general consumption of food and beverages in Spain, being almost 18 times greater than the conventional.

Nevertheless, the level of penetration of organic food in Spain is still very low compared to other European countries. Whereas in Spain only 42% of households buy organic products, the European average stands at 80%.

In addition, in the last years we have observed an evolution of the formats in the specialized distribution. The tendency from a few years ago of small specialty stores (herbalists and eco-stores) is evolving towards bigger ecological supermarkets structures, major offer and categories.

According to the Ministry of Agriculture and Fisheries, Food and Environment, 70% of organic food sales in Spain

is carried out in the specialist channel, in which ecologic stores and supermarkets cope 40% of the market.

Vegetables and fruit are the organic foods products most consumed and with which the ecological consumption is usually initiated in most of the cases (37% and 32%, respectively), but there are many different products which want to grow in this market and to differentiate themselves by their ingredients of proximity, those that occur in a distance that does not exceed 100 kilometres between the producer and the consumer. They are more economically and environmentally sustainable food products, besides being seasonal products, which favour the development of the local economy.

Also, in a context of over-supply, the consumer begins to value other factors such as customized adaptation of their purchases. Meaning, that they are “tailored” according to their interests and preferences. In this context, the MF channel (Modern Food) has included the offer of free service and assisted sales in one same space to offer greater possibilities to the consumer. The bet for freshness, the freshly made and bulk offers this possibility to personalize the shopping experience.

The bulk format is the most breaking trend of the large supermarket chains. In Germany or France is now usual the existence of grocery stores, and even supermarket chains, where everything is offered in bulk. In Spain, organic stores began dedicating a small section to sell fruit and vegetables by weight.

Then vegetarian restaurants came through including a small direct sales venue of orchard’s products. And in the end, supermarkets have also arrived by not using plastics under the slogan Zero Waste and selling everything in bulk (including oils, wines, pickles, detergents, household cleaners, etc.).

THE GROWTH OF CONSUMPTION OF ECOLOGICAL PRODUCTS HAS BEEN FAR SUPERIOR TO THE GROWTH OF THE GENERAL CONSUMPTION OF FOOD AND BEVERAGES IN SPAIN.

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9.Customer engagement towards Generation Z and Millennials

These new consumers are going to be essential when developing and investing in new Innovations. They are the customers of the future and their ecological awareness is much greater than that of previous generations, so it is necessary to carry out sustainable strategies (from an environmental and economic point of view) which guarantee the survival of the products in the market.

The Generation Z grows with unlimited access to information and therefore they want to know everything about what they are consuming: where it comes from, how it is cultivated, who manufactured it, etc. They are concerned about the sustainable future and healthy food, valuing the product quality above its price and making more physical purchases than those of their previous generation.

On the other hand, we have the Millennials, who try to find a lower impact environmental, although for its consumption they seek a highly customized and attractive packaging. This generation is the promoter of

“ready to eat” and “ready to go”, looking for an immediate consumption but increasingly healthy and of higher quality. They are willing to pay more for ready-to-serve dishes and in supermarkets are taking advantage of this wave in two ways: increasing the sections of this type of products and incorporating spaces where we can consume them in the supermarket itself.

For all of this, the most important thing is to keep in mind that we are facing with a social-rationalist consumer, whose social responsibility is unquestionable and growing and that every time seeks more comfort.

It is essential for companies to develop customer experience strategies that ease the purchase process, offering them all the information they need about the product, and adapting the increasing need of healthy and environmentally conscious products.

In conclusion, we can state that all the tendencies described above are grouped in the tenth and last trend, where the great opportunity of FMCG industry companies resides: the strategy of superiority in the product.

TRENDS BY GENERATIONAL SECTORS:

MILLENIALS GENERATION Z

Source: Gfk and Ipsos

3 Basic values: honesty (86%), joy of life (85%) and authenticity (86%).

100% omnichannel.

They buy on and off.

Use more apss of specific brands.

The physical store remains being key because they like to experiment, see, feel and touch products (56%).

They expect products that simplify their lives, that offer solutions.

A 66% is not loyal to any distribution ensign.

Immediate consumption, “on the go” and microwave.

Thorough research before making a purchase decision.

They perform more purchases in physical stores than their predecessors.

They value product quality above the price.

Packaging becomes a very important element of communication.

Transparency as the main value to choose their brands.

60% prefers a cool product versus 40% who prefers the experience

Their ecological awareness is much greater than that of previous generations.

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10.Superiority in product: definitive strategy to win the pulse to the market

In the previous points we have analysed how the market lives a maelstrom of changes, both from the technological, economic and social point of view. In particular, in the FMCG industry this context has caused the launching of new products and services to be a strategy of activation of sales. However, as we said at the beginning, the other side less positive of this phenomenon is that we have turned the window of opportunity into something so narrow that there is no time to repay the efforts invested (with their subsequent losses).

In view of this situation, and considering the design of the upcoming strategies within the industry, it arises the urgent need to revise the launching processes in order to find new amortization formulas. In this line, strategic data analysis is presented as the best driving thread to establish a superiority strategy in product that could be profitable and sustainable over time as well as measurable.

After our experience and market observation, in LOOP

we have defined superiority in product as when a brand gets the perception sustained over time that their products or services are much higher than the average and expire in benefits and in quality/cost ratio. This strategy consists of four ingredients in which companies must focus their efforts:

The first ingredient is tracking and identifying the target, which makes it possible to achieve a real connection between brands and consumers. In this line, it is equally important to know who we sell as to identify who we don’t sell (no – target) to make a focused and effective strategy. In addition to recruitment, this point also refers to the loyalty, that is not achieved through the product per se but of my philosophy and values as a manufacturer (what differentiates us).

The second element would be the correct reading of the moment, also known as the opportunity tempo in short, to understand the trends, the evolution of the market and consumer habits, through a proactive attitude of new territories of opportunity, to identify the right time to meet those needs.

As a complement to the above, the third ingredient in this strategy is the consumer philosophy, the attributes and values of the brand that make it unique and differentiate it from the rest. At this point, it is usually the retailers who have the consumer’s pulse and who can convey this philosophy more easily. Given this threat, the challenge of the manufacturer’s brand is to counterattack by converting its product/service in being efficient, distributed, transversal, recurrent, continuous, subjected, adapted and contrasted; all of which allow to manage in real time the launch and life of new services through the superiority in product strategy and the strategic data analysis.

Finally, as a fourth ingredient and for the foregoing to be carried out, it is key to achieve effective and efficient corporate governance. Its objective should be to design organisational strategies that generate collaborative and opened leadership for the introduction of innovations, the generation of open innovation and the transfer of knowledge.

With these four yarn ingredients through the strategic data analysis, brands will be able to create a clear and tangible perception of what their products/services are above the market through strategies that can be profitable, amortized and sustainable in time; the one that would be the definitive pulse to the market and a real differentiation in a crowded context.

THE STRATEGIC ANALYSIS OF DATA AS THE BEST CONDUCTIVE THREAD TO ESTABLISH A SUPERIORITY STRATEGY IN A PROFITABLE AND SUSTAINABLE PRODUCT OVER TIME.

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WHAT IS LOOP?WE ARE PREPARED FOR COMPLEXITY

FMCG RETAIL INDUSTRYSERVICES

We have created new business models and new categories of products and services.

Loop is the strategy consultancy that generates market referents through its experience in: business models, product/service development, intellectual capital management and corporate acceleration, digital environment and strategic data analysis.

We focused on market launches of our products/services with a quality and economic return defined together with our clients.

OUR AREAS OF ACTION5 SERVICES FOR 4 MARKETS IN THE B2B & B2C FIELDS

Business modelDetection, creation and

structuring of new business models and definition of new

categories of service products.

Product/Service DevelopmentWe manage portfolios of products. We conceptualize and develop them. We showcase specific technological solutions. We manage projects from the opportunity to the market.

Intellectual Capital & Corporate acceleration

We manage our clients knowledge complemented with external

knowledge and/or exporting it to boost market opportunities.

Digital Environment We help our customers boost their sales in the digital environment.

Strategic data analysisWe use data mining to boost business opportunities.

360º

WE ARE EXPERTSIN FMCG

We detect new market opportunities (business).

We define new areas of opportunity for brands.

We define new business models and product / service categories.

We create differentiation in mature (existing) product categories.

We use technology to conceptualize new products.

We create new shopping and consumer experiences.

We harness the potential of packaging as a strategic element of the category.

We help to boost sales/digital communication with your customers.

We monitor the categories’ first few months of life in the markets through strategic data analysis.

29PaperLoop

Creation of a new category of products to

maximise the value of the brand.

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A packaging system that highlights the brand, showcasing the quality of product and the inherent values of ecology.

Maximized the business model of spin technology for its

implantation and exploitation in the food retailers.

Definition and development of a new experience of “tap

beer” for the Horeca channel.

Definition and development of a new coffee System in

“portable” capsules, for big public events.

Creating the new category of

Homemade Desserts for HORECA channel.

FM

CG

FMCG 29PaperLoop

Definition of the territory of opportunity and

development of a new category of snacks for adults.

Identify new territories of opportunity for the HORECA channel by exploiting

the assets of the company.

Improvement of the visibility in HORECA channel worldwide and redefinition of the category of cooling equipment to strengthen the commercial strategy of the brand.

Segmentation of the market under value of practical cosmetics and new channels for its commercialisation.

Strategic Reflection Center MadridCalle Alcalá, 21 - Planta 11, derecha28014 Madrid, EspañaTel.: (+34) 911 441 144

Strategic Reflection Center BarcelonaCamí de Can Camps 17-1908174 San Cugat del Vallés, Barcelona, EspañaTel.: (+34) 933 030 299

Strategic Reflection Center LisboaRua Duque de Palmela, 37 – 3 Esquerdo1250-097 Lisboa, PortugalTel.: (+351) 215 895 471

Strategic Reflection Center País VascoGoiru Kalea, 1 A Eraikutza20500 Arrasate, Gipuzkoa, EspañaTel.: (+34) 943 848 988

www.loop-cn.com

All the cited corporate cases are projects in which Loop participated in some aspects of service.