FMCG Produce marketing tightrope

tightrope

Coles limited  engagement in an “anti factory farming” campaign is indicative of the strategic and marketing tightrope the food industry in this country is walking.

On the one hand we have an effective duopoly of FMCG retailing exercising their power to increase their returns to shareholders, and service their customers by both maximising margin and minimising costs. A core part of this strategy is to absorb the proprietary brand margin by aggressively allocating shelf space to housebrand products that are just globally sourced  copies of the proprietary Australian products.  

On the other hand we have an Australian dollar that has effectively given a  50% price subsidy to the international competitors to the Australian supply chain, at a time when all other domestically sourced input and overhead costs  from labour, power, various rates and taxes, freight, and risk costs have all increased substantially. Double whammy!

An added complication is often that the (usually young) buyers in the retailers take the “fast moving” part of the FMCG literally, and fail to recognise the time and investment often required to reflect even a minor change in their product specifications through the supply chain. The consumer end may be fast moving, but when it takes 7 years to mature a fruit tree, and many generations of animals to reflect spec  change in the end product, it can be anything but fast moving.

Now Coles have, quite legitimately, moved to build a sort of “animal provenance” into their produce  supply chains, as a competitive positioning strategy against Woolworths, increasing the costs of their suppliers, as well as requiring added investment by suppliers  for which they need a reasonable chance of a competitive return. This is at the same time they have reduced  consumer prices substantially (consumers have been very grateful)  in some markets like milk.  Whilst Coles, and Woolworths who followed them,  may have sacrificed a bit of margin, the supply chain has borne the brunt of it, despite some spin to the contrary.

The small guy has little chance of succeeding against these odds unless he is very smart, and does not have all his eggs in the chain basket, as just competing on the grounds dictated by the chains is a no-win choice.

There are however, strategies that can be deployed to  succeed, but they require a re-engineering of the supply chain into a new beast, a Demand Chain that is driven by consumer demand, not supply, and is managed through a chain “community” where information is shared, and is agnostic in some way of the power of the big chains.

Having been a bit gloomy so far, it is however encouraging that the big two retailers are now differentiating themselves competitively, as consumer niches that can be accessed by agile and innovative suppliers. will evolve.

 PS. Just after posting, it was announced that Simplot had put its Bathurst and Devenport plants into a wind-down for closure, and McCains had cancelled potato contracts with three big growers. if we needed more evidence of the parlous state of food processing, it just arrived.

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
This entry was posted in Branding, Demand chains, Innovation, Marketing, Small business and tagged , , , , , , , , , . Bookmark the permalink.

One Response to FMCG Produce marketing tightrope

  1. Pingback: FMCG conga line rides again | StrategyAudit

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