Five of the top eight FMCG manufacturers in the world are retailers and their own labels account for 20% of the global market.
That’s one of the revelations in the second edition of Greg Thain’s Store Wars book, which explores ‘The Worldwide Battle For Mindspace and Shelfspace, Online and In-store’.
According to the author, there has been an explosion in private label branding – especially in packaged foods, cosmetics and home care. As a result, Unilever and Coca-Cola have been pushed out of the top 10 by Wal-Mart, Tesco and Aldi, Thain says.
Change is definitely afoot in the world of fast moving consumer goods, the book concludes. A decade ago the market was dominated by manufacturing giants such as Unilever and Coca-Cola.
Now, it is forecast retailers, not manufacturers, will hold 75% market share by 2014. And with sales of food in Asia expected to increase by 70% from $2.7 trillion in 2010 to $4.6 trillion in 2014, that’s a valuable share.
Part of the equation is manufacturers pay more for retailer-related costs than consumer-related costs, spending anything between 10% and 25% of their annual revenues on trade deals, the second-biggest cost after manufacture itself, the book reveals.
Store Wars also explores emerging markets such as the $239bn Russian market, the fourth largest in Europe; where retail is growing at between 30% and 40%, as companies build upon their current modest 11% market share. In India, meanwhile, the retail share of the $435bn market is forecast to rise to 20% by 2020; while China is now the second largest grocery retail market in the world.
Across the globe, this shift in power from manufacture to retail has seen the market expand at an exponential rate, says the book.
In a world where an annual turnover of less then $5bn spells takeover, retailers have themselves become active marketeers, with companies regularly spending hundreds of millions of dollars per year on advertising.
They recognise even in low technology, low image categories like frozen peas – where consumers don’t seek variety or novelty – innovative, brand-specific advertising is crucial, Thain says.
And it’s reported to be having an impact. In 2008, Tesco increased its advertising spend by 18.8% to $125m. Two years on, its UK sales were $70.3bn. Despite the vast advertising budgets of Unilever ($235m in 2008), and America’s largest FMCG company P&G ($231m), the manufacturers brought in a mere $3.9bn and $16.6bn respectively.
Store Wars also heaps praise on the UK retailer Morrisons. It sells at the lower end of the price range, has shown little interest in loyalty cards, does not offer significant online shopping and yet has consistently beaten or matched its larger competitors in terms of growth rate, profitability levels and return on capital. The book credits improved vertical integration as the secret of Morrisons’ success. It gives greater control over its fresh produce supply chain than competitors can manage: it butchers its own meat, packs its own fruit and vegetables, and provides the best local produce, including 15 varieties of English apples.
The revised edition of Store Wars: the Battle for Mindspace and Shelfspace deals with the impact of advertising, marketing and sales strategies in this increasingly dynamic global context. It claims to lay bare the secret weapons of branding, consumer loyalty and price perception, wielded across the sector in the battle to win the hearts and minds of consumers.
Special attention is also given in the closing chapters to emerging economies and e-commerce.