Is premium the future of FMCG?

Is premium the future of FMCG?

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” 

premium products in italy prodotti_top

 

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)

Premium products growth

  • 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.

 

 

SOURCES

 

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

Tide launches its first green laundry detergent

Tide launches its first green laundry detergent

Green laundry detergents are not a market niche

P&G launched Tide Purclean a green laundry detergent who has a bio based formula. The product was launched in May for the only US market. The company claims a same cleaning effect of the non-bio formula. It has been certified as USDA Certified Biobased label. Moreover, following the product initial success a new scent will soon be launched.

“A biobased detergent excludes fuels, heating oil or electricity produced from biomass”

Today the most used detergents on the market use a consistent amount of petroleum and chemical ingredients. Those products without usage of proper filtration systems, such as Acquafresco technology, pollute irreparably the world water supply. Biobased products instead help us reduce our consumption of petroleum by focusing instead on renewable resources.

Tide Purclean is a green detergent. It is produced using 100% renewable energy and in a zero waste manufacturing facility. The bottle is completely recyclable. It is formulated to perform in cold water conditions to help save energy and is designed free of dyes, chlorine, phosphates or optical brighteners.

This green laundry detergent is the leading one in the bio-based segment and currently the most sustainable laundry detergent out in the market. However, is only 65% bio based. This means that still 35% of the ingredients come from petroleum and chemicals added in the formula. P&G has made a big step in the right direction but still a lot can be made by creating a detergent without any pollutants.

“Finally an environmentally friendly detergent that works” (Amazon customer)

There are already several companies moving towards the creation of a natural detergent. Green laundry detergents is a very fast-growing niche, driven by more and more sustainable consumers. However, still lots of investments need to be done in order to discover the right formula that will guarantee a better sustainable footprint together with an outstanding cleaning effect.

Amazon creates its own private label range

Amazon creates its own private label range

 

Amazon started selling its own private label range in the U.S:

Since June, the e-commerce giant is launching three different ranges of product with their own specialty offer. “Happy Belly” becomes a food & beverage brand offering snacking, tea, coffee and different oils for cooking; “Wickedly Prime” will be devoted for Meal-to-go, “Mama Bear” will contain a wide selection of baby products. Once again this offensive will fortify the dominance of the company in the e-commerce landscape.

happy_belly

According to the Wall Street Journal, Amazon targets also selling spices, housewares, vitamins, detergents and even layers. For Amazon, Millenials consumers not only have much better opinion on private-label brands than older consumers, they are also more likely to purchase grocery products online.

This move could prove to be significant event in online food retailing

Therefore this could have serious consequences for competitors and for brands. Because the giant obviously has leadership positions in sales and niche sectors, generating the best profits, as did the modern trade before him. This new offensive should allow Amazon to get ahead of its current suppliers for at least two reasons:

mama bear amazon

A mastered launch with data insights

First, the company is already popular enough and will not need to spend millions of dollars in marketing and advertising. Second, Amazon has a phenomenal database that allows it to predict what products will be best seller. The giant e-commerce platform can thus launch its new brands with low risk.

amazon_mdd

Amazon Prime has about 50 million members.

These new brands are reserved exclusively for Prime service’s subscribers, which is positioning itself increasingly as the Amazon’s main growth engine. In addition to private label, Amazon Prime offers already benefit with digital content, free restaurants delivery, online Video platform and exclusive products.

We can be sure these launches will be closely watched by the CPG industry as a whole !

 

Better cleaning for a better future

Better cleaning for a better future

Aquafresco is reinventing the laundry market

Washing clothes is an ordinary routine spread through all the world that, even if safeguarding personal hygiene, costs a lot for the environment. A quarter of all water consumed by the average household comes from laundry. It puts a lot of nasty detergents into the water system. The current situation is not sustainable and if continued will pollute irreparably the world water supply.

There is an innovative solution to this problem and is called Aquafresco

A startup founded the last year by 3 MIT Phd Alumni have addressed this issue through the development of a new filtration system. Through a breakthrough in material technology, they have created a miniaturized filtration system that offers a water recycle system that will save detergent and water by 95%.

The AquaFresco filtration unit can be used in any system involves detergent, water, and waste mixtures, includingRecycle-Water car-wash, industrial cleaning, and petrochemical applications. It is the first filtration system that can be scaled down to fit small-medium sized hotels and household, allowing AquaFresco to create a great impact on global water sustainability.

The mission is to promote water sustainability as well as reduce hotel operation cost. For a fast market penetration Aquafresco will leverage franchise hotels and laundry facility providers constant need for savings to promote this new technology. They calculated, for example, that an hotel with 800 rooms will save more than 220.000 €.

The technology has big potential to become a rising star in the market!

In less than one year they already won several MIT awards. Now, they are planning to launch the product in hotels and commercial laundry starting from September 2016, while international expansion is in the end of 2017.

MIT award