Consumers are looking for premium brands and premium brands are the most successful worldwide. Premium products grew by 21% in Southeast Asia, by 23% in China between 2012 and 2014 and 26% in the USA from Apr 2015 to Apr 2016 across the home care and personal care categories, (Nielsen, 2016a). Different factors helped the growth of premium products:
- Economic growth of middle class: Middle class is massively growing especially across emerging countries (Brazil, China, India, Indonesia, Mexico, Malaysia, Thailand, Vietnam, etc) and by 2030 (Reuters, 2012) will almost count 5 billion people worldwide (two times the current middle class population). This will encourage people to access a many different products and to expand their shopping basket with highest probability to trade up for premium products.
- Urbanization: many people will move from the countryside or rural areas to cities and towns (from the current 2 billion to 5 billion by 2030, Nielsen, 2016b) gaining access to more services who will help to raise the premium products consumption. For instance, even more people will access Internet to be informed and buy and even more people will access convenience store or specialised stores to purchase premium products.
- Digitalization: At the beginning of 2017 more than half the global population uses a smartphone, almost two-thirds has a mobile phone, more than half of all mobile connections are now ‘broadband’ and arond 20% of the world’s population shopped online in the past 30 days (We Are Social, 2017) Thanks to this data and thinking about the massive digital future growth more and more consumers will be affected by the effects of the omnichannel. The combination of different and many touchpoints any time and anywhere will make information more accessible and, as a result, many consumers more influenced by advertising, educational information, promotions, etc.
- Wider offer available (private labels and brands). If in the past only manufacturers offered premium brands in last 10 years we saw a new phenomenon showing how even retailers could launch premium labels on the market moving from aggressive promotion and discounting to better and higher quality in their offer (especialy on food and beverage).On top, we can also talk about the rising of local brands and smaller countries which, although a different impact depending on the countries and regions, massively contribute to increase the percentage of premium products on the market.
1. What are consumers looking for?
According to Nielsen (2016a) many reasons encourage consumers to buy premium products. Results are different across different countries, regions and consumers generations:
- Overall there is no always a correlation between highest incomes and premium products purchase rate. Indeed, the study (Nielsen, 2016a) shows how in many countries and regions a better salary doesn’t always influence the attitude to spend more.
- Price is not the only attribute consumers link to premium products. Only 31% of global respondents declared to think about a premium product when the price is high. On the other hand quality and performance are considered a plus. Quality and performances change depending on the product category we are talking about. For food quality is made by the ingredients used to make that product, while for a home care product by the effectiveness of a formulation. Other factors are the design or the brand name. The bottle design for a detergent or the brand awareness might be decisive to encourage consumers to purchase a product in a certain category regardless the quality and the performance. Even sustainable attributes are relevant especially among the youngest generations (Millennials and Generation Z).
- Social aspirations and status are important: many respondents, especially in emerging countries, declared that buying premium products increases their self-esteem, feel them better or more confident about themselves as individual or as members of social groups.
2. Private Labels vs brands: what’s the status?
The relevant growth of the premium fmcg products on shelf has been also facilitated by the launch of premium private labels. From the report (Nielsen, 2014) we can see how Europe, North America and Oceania, are the main region wolrdwide in terms of private labels presence. In Italy (Il Sole 24 Ore, 2016) premium and bio private labels products generated €1.32 billion (13.2% of the total private label segment value of the market in Sept 2016, respectively + 14% and +16.1%, vs Sept 2015). On the other hand low cost private labels lost share (-22% in value vs Sept 2015) only representing 2.6% of the total private label segment.
Figure 1: Premium Private Labels products in Italy, branded “Top Esselunga”
Local retailers massively invested in brand management and innovations in recent years building a high brand equity across different categories, with the main goal of creating store loyalty and getting better trade terms conditions vs manufacturers. However, there are categories (such as personal care) showing highest and similar value share across different regions around the world.
For brands the premium fmcg path is almost mandatory. Brands should continue to raise investments in brand management through marketing investments in communication and innovations, to better communicate the uniqueness of their value proposition and make their brand equity stronger. In order to do so, heavily marketing research investments looking for new and unmet needs among consumers are required to get the right consumer insights.
However perception of brands vs private labels even for premium products changes depending on the region and on the country. In Europe, Latin America, North America and Oceania, there is a high qualitative perception of private labels, considered as key SKUs able to drive brand differentiation and store loyalty. On the other hand the situation is completely different in Africa, Asia and Middle East, where consumers show the highest willingness to pay premium prices for brands. Most of the respondents still consider buying private labels too risky.
3. Management Implications
- Only some products can be upgraded (Nielsen, 2016a): Personal Care is the main category across many regions showing highest differentation and innovations rate vs other products categories. Regardless this trend, differences and opportunities across categories are different depending on the country and on the region. Premium perceptions are not the same worldwide for all products and categories.
Figure 2: Premium’s Value share per Category across different global regions (Nielsen, 2016a)
- Think global act local: Differences are relevant depending on the market and the region we are taking into account. This implies how even marketing strategy should be locally adapted to support the launch of a premium product on the long-term, depending on the market area to be served.
- Focus on digital and optimize your in-store visibility: In order to get highest results and makes the product successful an excellent quality, distribution or price are not enough. Firms and professionals need to find the right communication. Depending on products peculiarities firms need to find a balance between touchpoints showing highest awareness and trials (typically TVCs and high store visibility) and touchpoints showing a high degree of persuasion (e.g. digital). In many cases both brands and private labels are still struggling to achieve these goals.
Il Sole 24 Ore (2016), Private Label, la corsa è premium, December, http://www.ilsole24ore.com/art/impresa-e-territori/2016-12-09/private-label-e-corsa-premium-110740.shtml?uuid=ADFrDIGC
Nielsen (2016a), Moving on Up, December
Nielsen (2016b), The Dirt on Cleaning, April
Nielsen (2014), The State Of Private Label Around The World, November
Reuters (2012), The Swelling Middle, http://www.reuters.com/middle-class-infographic
We Are Social (2017), Digital in 2017: Global Overview
“Our ambition is to be the best performing, most trusted and respected consumer products companies in the world – ensuring we play a positive role in society is at the heart of this.” (Diageo Annual Report 2016)
With its 9.4% market share on volume (2015) Diageo is absolutely the leading company in the alcohol market, ranking always as first for the past eight years. Its market share is almost double of Pernod Ricard, the second market leader. Diageo strong market supremacy doesn’t surprise since the company operates in more than 180 countries and owns 20% of the world top spirits. For example some famous and well known Diageo brands are Guinness, Smirnoff, Baileys.
In the medium term the global beverage alcohol market, that generates today around 300 billion Eur of net sales, is expected to grow. This trend is driven both by a rise in global incomes and a growing legal purchase age population. On one side the beverage alcohol industry benefits from margins that are higher than for the overall consumer goods market, on the other side this market is one of the most highly regulated in the world with regulation varying widely between countries and jurisdictions.
However, despite of the great market supremacy reached in the past years Diageo seems now to be victim of its own success. The sluggish growth of the company has turned red with a 2016 negative performance of -3% on its global net sales. The brand portfolio has been recently revisited, some brands sold and now it focuses only on the most important areas of the company: Scotch, Beer, vodka, rum and other liqueurs.
It is clear that now Diageo cannot play the same expansion strategy used in the past years. The fast growth achieved thanks to expansion in white spaces market is now not repeatable anymore having reached almost entirely the market saturation.
For Diageo executives a direct competitors fight is now approaching and in order to continue gaining market shares their strategy is diversification through clear areas and a cultural steer towards responsible drinking.
There are already example of big multinationals who have been able to diversificate effectively in the FMCG market. One is Unilever that is investing in a sustainable living bringing “a brighter future, a better business”. The Unilever sustainable living plan focus on three main points: improving health and well being, reducing environmental impact and enhancing livelihoods. Another one is Coca Cola who have expanded its portfolio towards sugar reduction entering juice and water categories through different acquisitions. For example, a famous one is Innocent brand.
How diversificate in a market where alcohol is considered by the consumer almost like a commodity?
According to US National Institute of Health, in 2012 alcohol consumption have caused 3.3 million deaths in the world. Alcohol misuse reaches the fifth place as leading risk factor for premature death and disability. However, moderate alcohol consumption may have beneficial effects on health. For instance decreased risk for heart disease and mortality due to heart disease, decreased risk of ischemic stroke and decreased risk of diabetes.
Problems caused by alcohol are of great interest for governments who are continuously putting in place restrictions in the sector, who differs by country and making de facto the most regulated and difficult market to operate. Moreover, consumers – who are the first who pay the sour bill – are becoming more sensitive on this topic.
Diageo strategy focus strongly on responsible drinking. This is comparable to the sustainable living plan of Unilever. In the long run, this approach will educate people to a correct use of alcohol and bring a reduction in diseases and deaths caused by alcohol.
Ivan Menezes Chief Executive of Diageo states that sustainable efficiency will bring to the company £500 million savings in the coming three years.
The company is assessing responsible drinking as a performance. In its annual report three KPI out of eleven are based on this: creating a positive role for alcohol in society, building thriving communities and reducing the environmental impact of its products.
Diageo is the first company in the industry investing strong commitment on responsible drinking. Moreover, by putting high level of information in the hands of consumers, demonstrates its true desire in helping consumers making informed decisions and at the same time confirms its position as market leader.
In 2016, 335 programs aiming to reduce harmful drinking were sponsored by Diageo. This year DRINKiQ.com was launched in 12 languages. This is a website with best practices about responsible drinking, list of allergens and sustainability symbols. Moreover, compared to 2015, the company has reached 12% improvement of water efficiency through its supply chain and production process.
Responsible marketing commitment:
“Diageo was in breach for a Smirnoff television advertisement on the grounds that depicted dependency on the presence of alcohol. We were also found in breach for a post on the Guinness Facebook page because it suggested that drinking may have therapeutic benefits. In both cases, the content was immediately withdrawn.” (Diageo Annual Report 2016)
However, the area where Diageo has made the most breakthrough step compared to its industry is with Johnnie Walker, a whisky scotch priced at a similar amount per serve of main competitors. Johnnie Walker Red Label is the first global brand to provide serving alcohol content and nutritional information on-pack. Indeed, a consumer who buys alcohol will never find on any bottle nutritional information. This is quite an anomaly, considering even something as simple as plain bottled water always has ingredients and the chemical makeup of the product on the label.
Diageo has chosen this exact brand and portfolio range because by value Scotch whisky is the most important area in which the company has 24% of total net sales, owning a total of five brands.
Following very positive market critics and feedbacks, Pernod Ricard follows now Diageo pioneering step. Indeed, it announced in February 2017 that will provide nutritional information on all of its spirits products. Consumers will be able to access this information by scanning a QR code that will be present on the back labels of all its bottles. This method also if different by the traditional adopted by Diageo, will enable consumers to quickly display all main info on their smartphones.
The trend started by Diageo is going to have big effects for the alcohol industry. First of all, this will enhance transparency between producer and consumer. A buyer entering a shop will trust brands who put on black and white calories and direct effects of consuming a glass of alcohol. Secondly, will strongly promote responsible drinking in the society improving as well relationship between key stakeholders such as government and regulators. Thirdly, this will boost sales for companies who will adopt this strategy, differentiating brands between other competitors and at the same time winning market shares in the market.
Sources: Euromonitor, Diageo, US National Institute of Health
Danone and Nestlé Waters, the world’s two largest bottled water companies, have joined forces with Origin Materials, a startup based in Sacramento, California, to form the NaturALL Bottle Alliance. Together, the three partners aim to develop and launch at commercial scale a PET plastic bottle made from bio-based material (i.e. 100% sustainable and renewable resources). The project uses biomass feedstocks, such as previously used cardboard and sawdust, so it does not divert resources or land from food production for human or animal consumption. The technology represents a scientific breakthrough for the sector, and the Alliance aims to make it available to the entire food and beverage industry.
Teaming up to accelerate development of 100% bio-based bottles
For decades, both Nestlé Waters and Danone have been committed to sustainable business practices, notably by continuously improving their environmental performances and promoting the development of a circular economy. A large part of these efforts has focused on developing innovative packaging solutions that are recyclable and made with renewable resources, as well as the promotion of recycling. After identifying the unique approach of Origin Materials separately, the two companies decided to team up to accelerate development of this promising technology.
“Our goal is to establish a circular economy for packaging by sourcing sustainable materials and creating a second life for all plastics,” declared Frederic Jouin, head of R&D for plastic materials at Danone. “We believe it’s possible to replace traditional fossil materials with bio-based packaging materials. By teaming up and bringing together our complementary expertise and resources, the Alliance can move faster in developing 100% renewable and recyclable PET plastic at commercial scale.”
Danone and Nestlé Waters are providing expertise and teams, as well as financial support, to help Origin Materials make this technology available to the entire food and beverage industry in record time.
This next-generation PET will be as light in weight, transparent, recyclable and protective of the product as today’s PET, while being better for the planet. The exclusive use of renewable feedstocks which do not divert resources or land from food production is the Alliance’s main focus area. The R&D will focus initially on cardboard, sawdust and wood chips but other biomass materials, such as rice hulls, straw and agricultural residue could be explored.
“Current technology on the market makes it possible to have 30% bio-PET,” noted John Bissell, Chief Executive Officer of Origin Materials. “Our breakthrough technology aims to reach 100% bio-based bottles at commercial scale. With the help of our Alliance partners, Origin Materials will be able to scale up a technology which has already been proven at the pilot level.”
A packaging revolution for all
The NaturALL Bottle Alliance partners consider that everyone should benefit from this new material, so the technology will be accessible for the entire beverage industry. This unique approach demonstrates the allies’ commitment to open innovation and sustainable business.
“It’s incredible to think that, in the near future, the industry will be able to use a renewably sourced packaging material, which does not compete with food production and contributes to a better planet,” commented Klaus Hartwig, Head of R&D for Nestlé Waters. “It therefore made perfect sense for us to join forces through this Alliance to develop this innovative technology in a large scale and in the shortest time period possible. This is an exciting journey and we are proud to be part of it.”
A packaging revolution in record time
Origin Materials has already produced samples of 80% bio-based PET in its pilot plant in Sacramento. Construction of a “pioneer plant” will begin in 2017, with production of the first samples of 60+% bio-based PET to start in 2018. The initial volume goal for this first step is to bring 5,000 metric tons of bio-based PET to the market. Thanks to their complementary skills and shared vision, the NaturALL Bottle Alliance aims to develop the process for producing at least 75% bio-based PET plastic bottles at commercial scale as early as in 2020, scaling up to 95% in 2022. The partners will continue to conduct research to increase the level of bio-based content, with the objective of reaching 100%.
Source: Medium.com / Nestleusa.com
I am now working in Paris and I noticed the side effect on my skin very quickly, so I decided to take a look on the antipollution cosmetic offering and I was very surprised by the large portfolio !
In fact antipollution cosmetics now going global, driven by a growing consumer trend for a healthy look. Consumers are more and more looking for cosmetics with benefits that not only fight the signs of ageing but also protect against pollutants. Growing urban pollution awareness in the West and global middle-class expansion in the East will shape the purchasing patterns of antipollution products over the coming years. This translates into big worldwide opportunities for leading cosmetic brands. Aware of this, ingredients manufacturers have moved quickly to capture the emerging opportunities that pollution brings to the market.
Diversification the secret for success
Anti-pollution ingredients are widely used in a wide variety of products in Asia Pacific where the worrying levels of air pollution were the inspiration for the development of these products. Increasing consumer’s awareness of the effects of air pollutants on skin health and appearance is driving the demand for anti-pollution products worldwide. However, marketing of a product differs across regions. In China with the highest pollution levels in the world, health concerns are driving the trend while in the West premature skin-aging caused by pollution is the main sales driver.
Antipollution claims initially carried by facial skin products such as Lancôme City Miracle, REN Flash Defence Anti-Pollution Mist are now increasingly advertised in skin cleansers, sun protection, hair care products and colour cosmetics. Sun protection products such as Clarins UV Plus Anti-Pollution SPF 50, Shisheido UV Urban Environment Protection SPF 40 and Vichy UV Pro Secure Anti UV Anti-Pollutant SPF 50 PA+++ are now addressing both pollution and UV protection. Besides sun protection, companies are now also marketing cleansing products claimed to be able to remove pollutants from the skin.
Henkel just launched in February 2016 its Schwarzkopf Extra Care Purify and Protect, a hair care range of products specially designed for Asia, while Bourjois launched its City Radiance foundation back in January. In order to take advantage of the new antipollution wave, cosmetics companies such as Unilever with its Pond’s Pure White Cleansing line or Clarins with its new Hydra-Essentiel Range are now launching entire product lines completely dedicated to combatting air pollution, driven by increasing consumer demand.
The number of antipollution products reaching the market is increasing and this trend is expected to continue. However, not all products claimed to fight the effects of pollution are equally effective since the anti-pollution activity of a cosmetic product depends on its anti-pollution ingredients.
Consumers demand proof
Although cosmetic companies have found their own ways to proof their anti-pollution claims in an attempt to gain credibility among consumers, the reality is that there is no standardized protocol to back up these claims. Manufacturers can produce and market antipollution products with limited scientific evidence based on a wide variety of anti-pollution tests that vary from one company to another. More research to understand the effects of pollution on skin over time as well as the development of standardized tests, similar to those in place for the SPF values, are required to validate and quantify the product efficacy.
The development of a standard protocol to assess the efficacy of these products will allow consumers to have a better understanding about which products offer the best environmental protection. So far, there is no perfect solution or miraculous single ingredient able to provide full protection against pollution. A combination of a variety of botanical extracts, vitamins and ingredients that creates a physical barrier is likely to be the preferred option by consumers.
Want to learn more on beauty ? Discover my article on probiotics !
Sources : Euromonitor, beauty trends, cosmeticworld.