‘Face reality as it is, not as it was or as you wish it to be’ Jack Welch
Many reached out to get my views on the below, after few weeks stuck as a draft on my computer, here it is finally. I reckon it is much easier also to make predictions one month in the year. Enjoy the read.
2017 Winners and Losers (based on the latest financials communicated on 05/02/18)
The majority (90%) of the top 50 listed FMCG companies grew slower than their overall global market and lost shares in 2017
We anticipate that some categories (mostly VMS/OTC) will lose most of their competitive moats (especially in the countries OTC can be sold in drugstores and grocery stores) and their structural profitability will deteriorate dramatically in the quarters to come
Bayer hires new blood to stem ‘Amazon effect’ in consumer health
FRANKFURT (Reuters) – German drugmaker Bayer has hired the head of Nestle’s baby food business to help it reverse a drop in revenue from consumer health brands, which often fail to appeal to buyers on Amazon and other online platforms. Bayer has appointed Nestle’s Heiko Schipper, 48, to run the Consumer Health division as a group board member from March 1 next year, replacing Erica Mann, Bayer said in a statement on Wednesday.
A hard sell for the ad men
A surprising thing happened when Procter & Gamble, the consumer goods giant behind Gillette razors, Crest toothpaste and Pampers nappies, trimmed $100m from its digital marketing costs in the second quarter: nothing changed. “We didn’t see a reduction in the growth rate [in value or volume of sales],” Jon Moeller, P&G’s chief financial officer, told investors.
Rodan + Fields quietly became the top-selling skincare brand in America
In 2002, the doctors who invented the best-selling acne brand Proactiv, launched a women’s skincare brand called Rodan + Fields. Last year, the brand sold $1.15 billion worth of product and today, Euromonitor announced it is the top-selling skincare brand in the U.S. This may come as a surprise to much of the country.
As Rakesh Kapoor (RB CEO) put it this year: ‘if you do not want an activist investor, you should behave as an activist CEO’
P&G appoints Peltz to board despite losing proxy battle
(Reuters) – Procter & Gamble Co () said it appointed Nelson Peltz to its board despite the activist investor narrowly losing a months-long proxy fight, the biggest ever involving a U.S. company. The company’s shares were up 1 percent in after-market trading on Friday.
We are currently witnessing a polarization of the growth a both end of the spectrum and losers will be ‘stuck in the middle’ retailers and brands (no price and no differentiation advantages)
This Chicago Startup Sold Its Protein Bar Company for $600 Million to Kellogg’s
“Have you ever had one of these RXBARs?” I asked the cashier as I was checking out. “I actually haven’t, but man do they sell. People here love it and buy it all the time,” the cashier said. I had just finished interviewing co-founder of RXBAR, Peter Rahal at his local coffee shop in the River North neighborhood of Chicago.
Kylie Jenner Made $420 Million in 18 Months from Her Cosmetics Company, Says Kris Jenner
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Meet the New No-Brand Brands Selling $3 Shampoo
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10 predictions for 2018:
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you run very fast for a long time, as we’ve been doing.” “A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
FMCG leaders will understand that they are running on a treadmill on which the speed keeps accelerating and their traditional strategic toolbox is becoming increasingly ineffective. Exponential Growth strategy will be front and centre through:
i) Exponential Organizations build and acquisitions
ii) Leveraging the potential of e-commerce through partnering with the new winners (e-tailers…) and inventing new consumer centric business models
iii) Business model innovation to leapfrog specifically in developing markets
2. Structural increase in cost of doing business
Cost of doing business in the FMCG industry will only increase dramatically for several reasons. i) Price war will only intensify among legacy retailers to drive price competitiveness perception. ‘Stuck in the middle’ retailers with neither a cost advantage or a differentiation advantage (ie. most large retailers) will drive the most deflation, ii) The rise of e-tailers with different profit expectations will only add more pressure to legacy retailers, iii) Legacy retailers will respond through cutting further costs, pushing even faster unprofitable ecommerce initiatives, pushing harder their private labels, shrinking shelf space on the categories they cannot defend and/or opening their shelf space to digital native companies. All of these while using FMCG brands as an adjustment variable in their P&L and on their shelf space, iv) E-tailers will progressively increase their trade spend/monetize their new status (search/voice/media placement). v) Digital native competitors with frugal business model (no/low paid A&P, no/low trade margin) will drive deflation and disrupt the most profitable segments (e.g. Blades and Razors, OTC, Skin, Make-up…).
We expect most FMCG companies to spend back between 100 and up to 300 bps of trade spend in developed countries depending to their category and channel footprint
Price War Pressures Consumer-Goods Giants
Household goods from diapers to toilet paper to razors are getting cheaper, but what is a boon for shoppers is squeezing profits at the world’s biggest consumer-goods companies.
3. It is not market softness, it is called Channel shifts and it makes the difference between businesses Shrinking-to-Glory (declining top-line, growing profitability) and Shrinking-to-Misery (both declining top-line and profitability)
Categories the most impacted by the Channel Shifts are:
As a result, we will witness an increasing top-line CAGR standard deviation between small companies and large companies on categories/markets where channel shifts hit the most
4. The New Red Oceans or the Strategic convergence to Beauty/Nutrition
At a time most Household and Consumer Health categories are losing their attractiveness. We will see an increasing convergence to Beauty/Nutrition segments. We expect all the legacy household players (P&G, Unilever, Colgate-Palmolive, Henkel, RB, Clorox, Church & Dwight) to ‘double down’ on personal beauty care organically and by acquisitions (although that for UL and HENKEL, this is not new). Colgate-Palmolive’s acquisitions of medical grade skin care companies end 2017 was only the beginning of this accelerating trend
Colgate-Palmolive Enters Professional Skincare Market With Key Acquisitions PCA Skin And EltaMD
In an effort to bolster its higher-margin oral care, personal care and pet nutrition businesses, Colgate-Palmolive Company announced this morning it has agreed to purchase professional skincare brands PCA Skin and EltaMD, in two separate transactions. 2017 has been like a gold rush with beauty conglomerates making strategic acquisitions and investments in independent beauty brands.
5. A record M&A year ahead (a mix of large/transformative and small/bolt-on) and the rise of PEs
Overall 2018 will finish like 2017 at Nestle. Good progress, but too slow and not enough to really move the needle both on top- and bottom-line front
6. E-tailers (AMZ, Alibaba, JD…) will continue to drive the show and everybody else will react:
Why grocery shoppers may move online twice as fast as originally anticipated
Total online grocery spending could reach $100 billion within five to seven years, according to the Food Marketing Institute and Nielsen.
Retailer Leclerc eyes Paris food delivery service to counter Amazon threat
By Dominique Vidalon PARIS (Reuters) – Privately-held French supermarket operator Leclerc said on Wednesday it planned to launch a food delivery service in Paris this year, in the face of competition from Amazon. Amazon’s purchase of Whole Foods in the United States last year has prompted speculation that the tech company could be targeting the European food and supermarket sector next.
Grocer Kroger has had early talks to work together with Jack Ma’s Alibaba
Chinese e-commerce and technology company Alibaba and U.S. grocer Kroger have had early discussions on working together, including a meeting in which U.S. executives traveled to China, a source familiar with the matter said. The business development talks are at an initial stage, and it is not clear if they will lead to any cooperation, the person said, declining to be named.
Walmart and Rakuten partner on grocery delivery in Japan, Kobo e-books and audiobooks in U.S.
Walmart today announced a major expansion in terms of its global e-commerce presence: the retailer is entering a strategic partnership with Tokyo-based Rakuten, which will see the companies collaborating on the launch of a new online grocery service in Japan, and the sale of e-readers, audiobooks a…
JD.com plans to make U.S. foray this year – Bloomberg
(Reuters) – China’s JD.com Inc is preparing to enter the United States by the end of this year in a move that will challenge its Chinese rival Alibaba Group Holding Ltd and U.S.-based Amazon.com Inc, Bloomberg News reported on Thursday.
Alibaba partners with convenience stores
This story was delivered to BI Intelligence “E-Commerce Briefing” subscribers hours before appearing on Business Insider. To be the first to know, please click here. Alibaba has been recruiting independent store owners in China to adopt its retail management platform in their stores, according to Quartz.
7. The rise of Voice will make it even more a winner-takes-it-all game where the rules are controlled by AMZ
8. Increasing disintermediation, accelerated foray into Direct-to-Consumer (DTC) and in-sourcing of marketing activities
How Blockchain Technology Will Transform Grocery Retail
Here, we discuss the retail market, the ongoing crisis and a change in consumer preferences. Next, we explain the blockchain technology in a plain and easy to understand manner, and explore practical use cases for it within the retail industry and groceries, in particular.
P&G to Bring More Media Agency Work In-House as Agency Fee Cuts Continue
The world’s biggest ad spender, Procter & Gamble Co., likes what it’s gotten from agency- and production-fee cuts so much that it wants more: It’s now moving more media planning and buying in-house, Chief Financial Officer Jon Moeller said Tuesday as the company released its latest financial results.
9. Increase in commodities price and significant margin erosion
Oil price will increase by 50% over the next 6 months and reach 80$ by July 2018 (up from 55$ in Q4 2017) and will generate the biggest in-year increase in commodities price over the last 10 years eroding further profit margin. We expect the impact to be felt from H2 2018. In an overall deflationist environment, we expect FMCG companies will not be in a position to pass straight pricing and it could shave-off up to 150 bps margin on Household, Personal Beauty Care
FMCG companies will not be in a position to pass straight pricing and commodities price increase could shave-off up to 150 bps margin for the Househould and Personal Care (HPC) companies
Goldman: Oil to top $80 within six months
Goldman Sachs has held one of the most optimistic views on the re-balancing of the oil market and oil prices in the near term. The investment bank is now growing even more bullish, predicting that the oil market has likely balanced, and that Brent Crude will reach $82.50 a barrel within six months.
10. Developing markets bounce-back
Finally after a chaotic year 2017 (demonetization and GST in India, Brazil…), developing markets will finally bounce-back and lead global growth again.
‘Face reality as it is, not as it was or as you wish it to be’ Jack Welch
We wish everyone the very best for the year ahead. No doubt, that it will be again a hugely exciting one. More than ever, for all leaders in the industry, it is time to manage for growth
For the one willing to continue the conversation, we will host an exclusive and unique European FMCG Executive Conference on Friday, March 16th 2018 from 11 am to 2 pm in Zurich in our exclusive office on the Bahnhofstrasse (lunch will be served – and potentially on the rooftop overlooking the lake weather permitting). The event is exclusively reserved to senior executives in the FMCG industry (managing a P&L > €1bn or Head of Strategy) and is limited to only 12 attendees. For more information and to RSVP, please contact: email@example.com
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Frederic Fernandez does not own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information.
About the author:
Frederic Fernandez is an expert and thought leader in the FMCG industry. He is the Managing Director and Partner of Frederic Fernandez & Associates a bespoke Strategy Consulting Firm exclusively focused on the FMCG industry. Before joining the world of management consulting, he worked with Fortune 500 companies like Procter & Gamble, Reckitt Benckiser, PriceWaterhouseCoopers and Societe Generale in leadership positions across Europe (France, UK, Nordics, Germany, Switzerland, Austria), Central Africa and India. His focus areas are mainly direct-to-consumer, consumer eco-systems and business model innovation; growth and profit turnaround and corporate strategy in the FMCG industry. His passion is to help FMCG leaders co-creating the future of the industry and to develop, achieve and exceed the potential of their business. He spends his time advising Fortune 500 FMCG senior leaders globally. He is based in Zurich, Switzerland. He is also a sought-after speaker and speaks across the globe at trade associations and for corporate clients (CEO strategy meeting, yearly strategic reviews, senior management events) about the FMCG industry.