In my opinion: FMCG prices are going to keep on rising. It’s time for supply change

By Justin Floyd, CEO of RedCloud

Floyd: goal is a ‘sell anywhere’ economy

When the price of consumer goods rises, everyone notices and everyone has an opinion. 

It’s no surprise that, in the past few weeks, a flurry of articles have appeared discussing the possible reasons why FMCG price increases are occurring pretty much everywhere – from increased raw materials prices and the global HGV driver shortage, to Brexit and the pandemic. 

These debates remind us that, despite living in an age of uber-convenience, the coffee we bought this morning still relies upon a vast, interconnected supply chain, one that is regularly subject to external pressures.

But as yet, no one is asking the biggest question of all. What if the FMCG price rises are not ultimately being caused by external factors? 

What if the vast, interconnected supply chain we rely on for our coffee, our nappies, our rice, pasta and detergent, is broken?

Fundamental problems at every stage in the distribution journey

Today’s supply chains are too complex, too opaque, and too slow. In the past 12 months, FMCG brands lost $1.8 trillion in sales because their inventory didn’t make it onto shop shelves in the first place. 

There’s far too much reliance on cash transactions – expensive to handle and slow to move around the world. $19 trillion of non-digitised payments occur between merchants and distributors every year, adding at least 10% to the cost of the goods being bought and sold.

And brands are still reliant on manual trading processes, with minimal digital connectivity throughout the supply chain. As a result, most coffee brands won’t know that you bought their coffee this morning from a café on Fleet Street. In fact, they’re unlikely to know how many merchants even sell their coffee on Fleet Street, who they are, or what type of business they are. 

Operating global sales, marketing and distribution based on guesswork has never been a viable or sustainable strategy, yet somehow it has become the norm. 

And if you think this visibility issue is bad in London, imagine the situation in fast-growing emerging economies. Billions of consumers in these markets still want to buy and pay for FMCG products locally – in the grocery store, in cafés, at kiosks or with street vendors. These markets represent the biggest growth opportunity for FMCG brands, but due to current supply chain inadequacies, they are also the most challenging markets in which to trade and sell effectively. 

Supply change is needed – and fast

The global economy is accelerating towards an FMCG price crisis, one that will potentially see billions of consumers priced out of the market for the most basic consumer goods and millions of local merchants unable to grow their businesses as a consequence. 

It might sound like someone else’s problem, but given the western world’s reliance on LatAm and African food produce, broken supply chains will increasingly affect consumers in developed markets too. The maths is simple – we are currently consuming more than we create, and everyone in the distribution journey from production to shop shelf is losing money in the process. Something has to give.

FMCG brands recognise that the answer lies in digitising the B2B supply chain, enabling more merchants in more markets to trade digitally with them and access their products more quickly and easily. But to date, most digital supply chain propositions have been created to suit brands’ sales ambitions rather than supporting what local merchants genuinely require from digital technology. 

Transforming how consumer goods are bought, sold and shipped

A different approach is necessary. We need to embrace truly open commerce by using technology that puts all brands and merchants on an equal footing and allows any merchant, regardless of location, to access the consumer goods they know will sell locally at an affordable price. 

This is neither fanciful nor far-fetched. There are 500+ million merchants worldwide. In the next few years, as many as one billion new merchants will be created. Plainly, there is no issue with coverage. It is simply a question of making it easier for brands to get their products out to these merchants faster, while digitising all aspects of this journey – including payments – so that there’s less lag, more transparency and richer data in the supply chain.

Powering the sell anywhere economy

Almost 15 years ago, Apple unveiled the iPhone. Today, any brand can build a mobile app for any smartphone user to experience. 

Just as the iPhone forever changed how digital services are created, shared and consumed, the same thing must now happen across our physical supply chain. 

We must bring the world’s local merchants into a digital ecosystem for the first time, creating a new open marketplace for global commerce rather than continuing to channel everything through Amazon, where the house always wins and the sellers generally lose.

The goal is a ‘sell anywhere’ economy in which brands and distributors can reach more of the world’s consumers more effectively and economically, bringing down the price of consumer goods in the process. 

It’s time we stop focusing on the symptoms and start addressing the root cause of FMCG price inflation. By digitising the current, outdated supply chain processes and infrastructure, we can enable brands, distributors and sellers to buy better, sell smarter and pay simpler, and create a global supply chain that doesn’t keel over at the first hint of external pressure. 

Justin Floyd is CEO and founder of RedCloud, a technology company powering the ‘sell anywhere’ economy through its frictionless global commerce platform for all.