Economic downturn: Tips for FMCG companies
The global economic landscape poses significant challenges for fast-moving consumer goods (FMCG) companies, including rising input costs, shifts in consumer spending habits, and supply chain disruptions. To navigate these headwinds, FMCG businesses must employ a combination of strategic adjustments and innovative practices. Here are some examples and key tips from leading players in the sector.
1. Recalibrating product portfolios
Consumers prioritize value in an economic downturn, often opting for essentials over discretionary products. FMCG companies can adapt to this by focusing on their most in-demand and affordable product lines.
For example, Unilever has streamlined their product portfolio during previous downturns by emphasizing essentials like hygiene products and affordable food items. They have even introduced smaller-sized packages for their Dove and Knorr brands to appeal to budget-conscious consumers.
2. Value-based pricing and promotions
Effective pricing strategies, such as dynamic pricing (adjusting prices in real-time based on demand and market conditions) and bundling (offering multi-packs or combination deals to give the perception of greater value), are critical for businesses during a downturn.
By offering value without sacrificing quality, companies can strengthen customer loyalty. To give an example, Procter & Gamble (P&G) introduced "family-size" packages for their Tide detergent and Pampers diapers to offer lower cost-per-use options, successfully reinforcing the brand's value perception.
3. Expansion into private labels
As consumers gravitate towards cost-effective alternatives, FMCG enterprises could consider expanding into private label offerings, especially through partnerships with retailers.
In Europe, for instance, Nestlé collaborated with retailers to launch private label products, leveraging their manufacturing scale while maintaining competitiveness in price-sensitive categories.
4. Strengthening digital channels
E-commerce remains a lifeline during economic slowdowns, offering FMCG companies a direct connection to consumers. Through personalization, businesses can use data analytics to deliver tailored recommendations and promotions to their clients. Subscription models are also an effective strategy to encourage customers to subscribe to recurring deliveries of essential items.
A case in point is Colgate-Palmolive who expanded their direct-to-consumer presence by offering toothbrush subscription services, enabling steady cash flow and reducing reliance on traditional retail.
5. Sustainability as a differentiator
Companies that are able to align sustainability with affordability gain a competitive edge, even during downturns, since consumers are increasingly seeking environmentally friendly options.
For example, PepsiCo committed to using more recycled materials in their product packaging, reducing production costs while appealing to eco-conscious buyers. Their Lay’s brand also introduced smaller snack bags made from recyclable materials to cater to on-the-go, budget-friendly consumption.
6. Localization and supply chain resilience
Adapting to regional consumer needs and minimizing supply chain disruptions is critical to maintaining market presence. Partnerships with local suppliers reduce costs and support community economies. Flexible manufacturing is also important, since businesses can use multi-purpose facilities to quickly shift production to meet demand spikes in specific categories.
Coca-Cola localized their supply chain in Africa by sourcing ingredients like sugar and packaging materials domestically, which helped control costs and bolster their image as a community-supportive brand.
7. Investing in brand loyalty
Building trust and loyalty can shield companies from customer attrition during tough times. Loyalty programs (offering rewards for repeat purchases) and transparent communication, especially being upfront about pricing changes or supply issues, are valuable resources to maintain consumer trust.
Mondelēz International, for instance, enhanced their loyalty program for the Oreo brand by offering exclusive promotions and free samples to their subscribers, deepening customer engagement.
8. Innovating with affordable luxury
Even during downturns, consumers seek the occasional indulgence, especially if they’re positioned as affordable luxuries.
Ferrero did just that when it launched single-serve packs of their premium chocolates, like Ferrero Rocher, allowing consumers to enjoy small treats without overextending their budgets.
9. Leveraging partnerships and collaborations
FMCG companies can expand their reach and capabilities through strategic alliances.
For example, Heinz partnered up with Uber Eats to introduce bundled meal kits, combining their popular sauces and condiments with recipes, thereby creating a new revenue stream during pandemic-induced economic challenges.
10. R&D and adaptability
Continuous investment in innovation ensures relevance, even in a slow market.
During the 2008 financial crisis, General Mills launched its innovative Progresso Light soups, targeting health-conscious consumers while maintaining an affordable price point. The new product line quickly became a market leader.
Conclusion
Economic downturns are inevitable, but FMCG companies can navigate them successfully by adapting their strategies to meet evolving consumer needs, leveraging digital innovations, and reinforcing their value propositions. Companies that remain proactive and consumer-focused during challenging times will emerge more resilient, and ready to capitalize on growth opportunities when the economy stabilizes.
