The challenge that artisanal and local products represent for FMCG food and beverage companies in Europe
In recent years, European consumers have experienced a significant shift in their purchasing behavior, with an increasing preference for artisanal and locally sourced food and beverage products. This trend has emerged as a direct challenge to the traditional fast-moving consumer goods (FMCG) sector, which is characterized by mass-produced, standardized, and widely distributed products. For FMCG companies in the food and beverage industry, adapting to this shift requires navigating complex challenges that range from changing consumer preferences to supply chain logistics. In this article, we will explore the key challenges these companies face as they respond to the rise of artisanal and local products.
1. Changing consumer preferences: The demand for authenticity and transparency
One of the primary drivers of the growth of artisanal and local products is the increasing consumer demand for authenticity and transparency. Consumers, particularly millennials and Gen Z, are increasingly searching for products that reflect their personal values and lifestyle choices. This includes a desire for foods and beverages that are sustainably produced, ethically sourced, and authentic to regional or cultural traditions.
For FMCG companies that have long relied on economies of scale to produce large quantities of affordable products, this demand for authenticity can be difficult to meet. The mass production of food and beverages inherently involves the use of standardized ingredients, often from global supply chains, thus lacking the unique and personalized qualities that artisanal products offer. As a result, FMCG companies must find ways to balance their traditional models of production with the growing preference for products that feel "handcrafted" and reflect local traditions.
Example: One prominent example of this shift can be seen in the rise of craft beers, which are viewed as more authentic and representative of local culture compared to mass-produced beers from large FMCG companies. Brands like BrewDog (Scotland) or Mikkeller (Denmark) have tapped into consumer interest in locally brewed and sustainably made beers, often with a strong emphasis on ethical sourcing and environmental responsibility. In response, larger FMCG companies have started acquiring craft beer companies to tap into this growing market, such as Anheuser-Busch InBev’s acquisition of Elysian Brewing in the US.
2. The competitive advantage of local producers
Local food and beverage producers hold a strong competitive advantage, especially in a market where consumers are increasingly valuing products with a regional or geographical connection. Local producers are often seen as more trustworthy because they are perceived as having a closer relationship with their customers. Artisanal producers can also highlight their use of local ingredients, traditional methods, and commitment to sustainability, all of which resonate with the growing focus on environmental and social responsibility in consumer behavior.
For FMCG companies, the challenge is twofold: Firstly, the rise of these local producers means that they are competing against smaller, more nimble players who can react quickly to consumer trends. Secondly, the perception of authenticity attached to local products can be difficult to replicate on a large scale. For example, while an FMCG company may be able to produce a mass-market version of a traditional product, it often lacks the local identity and cultural ties that make artisanal products so appealing.
Example: In Italy, the artisanal food sector remains incredibly strong, particularly with products such as cheese, cured meats, and pasta. Producers of traditional cheeses like Parmigiano Reggiano or Pecorino Romano have long been able to command premium prices thanks to their PDO status, which ensures that they are made in specific regions following traditional methods. While large FMCG companies like Nestlé or Danone have attempted to enter this market with local variations of their own, they often struggle to compete with the authenticity and regional pride associated with true artisanal products.
3. Price and profitability pressures
Artisanal and locally sourced products often come with a premium price tag, which is in stark contrast to the mass-produced goods typically associated with FMCG companies. Artisanal products often involve small batch production, higher-quality ingredients, and time-consuming production methods, all of which contribute to higher costs. For consumers willing to pay a premium, these higher costs may be justified by the perceived value in terms of quality, sustainability, and authenticity.
However, FMCG companies, which operate on the basis of low-cost production and high-volume sales, find it challenging to compete on price while maintaining their profit margins. Additionally, FMCG companies are traditionally very price-sensitive and are reliant on large-scale production to achieve cost efficiencies. In the face of rising demand for locally produced and artisanal products, these companies must find ways to meet consumer demands for authenticity without sacrificing profitability. This may involve rethinking pricing strategies, investing in premium product lines, or adapting their supply chain practices to become more flexible and sustainable.
Example: An example of FMCG companies responding to this pressure is Unilever’s introduction of its “Knorr Green & Black” range, which focuses on organic, sustainably sourced ingredients with a premium price point. The move to incorporate organic and local sourcing into mainstream brands reflects an effort to balance mass production with the growing consumer demand for high-quality, ethical products. However, competing with smaller, independent brands that specialize in these values can make it difficult to maintain profitability.
4. Supply chain complexity and sourcing issues
One of the key differentiators of artisanal and local products is their reliance on regionally sourced ingredients and traditional methods of production. This presents a unique challenge for FMCG companies, which have long relied on global supply chains that enable them to produce large quantities of standardized products at lower costs. These global supply chains often involve complex logistics, long transportation routes, and a network of suppliers, which can be inefficient and unsustainable.
For FMCG companies seeking to incorporate more local ingredients or regional sourcing into their product offerings, they must grapple with issues related to the complexity and cost of sourcing ingredients locally. In some cases, local suppliers may lack the capacity to meet the large-scale demands of FMCG companies. Additionally, the seasonal nature of local ingredients and the variability in crop yields can complicate supply chain planning and inventory management, making it difficult for FMCG companies to maintain consistent production and meet consumer demand.
Example: A notable example of FMCG companies struggling with local sourcing is seen in the dairy sector. Companies such as Danone, operating on a global scale, have to work hard to improve their sourcing practices to maintain the authenticity of regional yogurt products. In some instances, local dairy farmers may not have the capacity to supply the quantity required for large-scale production, forcing the companies to adapt or source from multiple regions, which can affect the product's identity.
5. Brand identity and marketing challenges
FMCG companies have long relied on their established brands and marketing strategies to attract a broad audience. In a market increasingly dominated by artisanal and local products, however, these traditional branding methods may no longer resonate with consumers who are seeking more personalized, authentic experiences.
While FMCG companies may be able to launch new premium product lines or partner with local producers, their branding efforts must evolve to connect with the growing consumer desire for transparency, sustainability, and cultural relevance – a shift requiring a fundamental change in how the companies communicate their value proposition to consumers. Rather than relying solely on traditional advertising and mass-market messaging, FMCG companies need to incorporate storytelling that highlights the origin of their products, the values behind their production methods, and the relationships they have with local communities.
Example: An example of FMCG companies rebranding to address this challenge can be seen in the case of Nestlé’s “Alpine Milk” line. Nestlé, known for large-scale mass production, launched this premium line to reflect more local sourcing and ethical practices. The campaign focused on the traditional farming methods in the Alpine regions of Europe, tapping into the growing desire for locally sourced and sustainable products. Despite this, some consumers still remain skeptical of large brands entering this "artisanal" space, preferring instead to stick with smaller local producers they trust.
6. Navigating regulatory and certification challenges
In some European countries, regulations governing food labeling, production methods, and geographic origin are becoming more stringent. These regulations often favor locally produced products and those with certified designations such as “Protected Designation of Origin” (PDO) or “Protected Geographical Indication” (PGI), which certify the authenticity of regional products. Artisanal producers can more easily navigate these systems by ensuring their products meet specific standards.
However, FMCG companies face additional regulatory hurdles when attempting to position their products as artisanal or locally sourced. They may need to adapt their production processes to meet specific regional standards or obtain certifications that add complexity and cost to their operations. Moreover, some European consumers may be skeptical of mass-market products that claim to be "artisanal" or "locally made," viewing these claims as attempts to capitalize on a trend rather than a genuine commitment to quality or sustainability.
Example: The EU’s PDO and PGI certification systems have placed significant pressure on large FMCG companies seeking to launch premium, localized products. An example is Italy’s PDO certification for Parmigiano Reggiano and Prosciutto di Parma products, which protects these items from mass-market imitations. While smaller, local producers have less trouble navigating this system, global FMCG players must adhere to strict regulations, adding both cost and complexity to their operations. In some cases, large corporations may even face backlash from local producers if their products are perceived as falsely claiming authenticity.
Conclusion
The rising competition from artisanal and local products represents a complex challenge for FMCG food and beverage companies in Europe. While these companies must adapt to changing consumer preferences and navigate the competitive advantages of smaller, more localized producers, they also face significant obstacles in terms of pricing, supply chain complexity, and branding. However, the challenge is also an opportunity for FMCG companies to innovate and diversify their offerings by embracing sustainability, authenticity, and regional sourcing. By doing so, they can appeal to the growing demand for local and artisanal goods while maintaining their position in a highly competitive marketplace. The key will be balancing tradition with innovation to meet the expectations of today’s consumers without sacrificing the scale and efficiency that have long been the hallmark of the FMCG sector.
