Consumer goods companies are going through the biggest change the industry has seen since the arrival of modern retail after the Second World War. For consumers, this will be a golden age, with more products and services, available through more channels, at more transparent prices than they have ever seen.
However, increasingly the beneficiaries of this change are not the industry incumbents who have dominated the industry in the modern era, but smaller and medium scale challengers. In the food and beverage sector in North America 75% of the growth now comes from companies below the top 20% and 50% from outside the top 100. Relative market share is shifting. These smaller players are leveraging digital technology, building deeper consumer understanding and driving the development of new business models. Moreover, our analysis suggests that the capability gap between smaller and large players is getting bigger, not smaller.
While the potential for this trend has been suggested in the past, the reality is that in the last five years it has truly become serious and is accelerating.
The growing sophistication of consumer demands will challenge the industry to evolve and innovate, driving huge growth in digital commerce. To thrive, organizations must aggressively pursue innovation and be willing to disrupt themselves. The key to success will be the adoption of new, digitally-driven business models that will enable companies to offer consumers the shopping experiences they crave, whilst still maintaining strong links to the legacy retail models which won’t quickly go away and are still the way most people still shop.
What are these new models that consumers are looking for? To understand the level and shape of interest, we conducted a global survey of over 25,000 consumers. The survey highlighted that four business models will accelerate the move to digitally based commerce:
1. Sharing economy This is essentially the next-generation rental market where consumers use a product as needed rather than actually owning it. For instance, 52% of global consumers said they would rent a fashion item for an occasion and then return it, instead of purchasing it outright. ThredUp, a U.S. company, allows consumers to send clothing they want to sell in a sealable bag. They then run those items through an algorithm and are ultimately able to resell 50% of the items with the rest going to charity. For those who worry this will reduce demand for new products, it appears these models enhance ‘closet velocity’ in houses who embrace them. While historically this has been restricted to higher end possessions, platforms like Stuffstr will soon be available that will allow consumers to track and increasingly easily trade the value of items they have bought at values of $15 and, potentially, below, opening up the sharing economy to a new level of scale.
2. Personalization economy Think of this as ‘surprise me subscriptions’, where experts curate products tailored to an individual and automatically deliver it to their door. Forty-eight percent of consumers said they’d use this subscription for clothing, where an expert selects items on their behalf based on previous shopping preferences and purchases. Companies like Stitchfix use a mix of highly developed analytics and style consultants to create very specific recommendations for their consumers. Their return rates are falling by the day. In addition, over the longer term more and more product personalization options will emerge, allowing consumers to tailor products with automation assisted local manufacturing.
3. Replenishment economy Automatic replenishment is when smart sensors detect when a consumer goods product is running low and automatically reorders and delivers it to your door or when consumers order product replacements on a standard schedule. Sixty-three percent of consumers would be interested in subscribing to services that replenish items like laundry detergent. Another 58% might use it to re-order fresh food items. These services are giving consumers the convenience they crave while removing the mundanity out of household shopping.
4. Services economy Also known as “do it for me” services. This is when consumers outsource the heavy lifting of household chores to others. Fifty percent of consumers would consider this sort of service for their laundry – getting someone else to do the ironing and folding. One of the most fascinating examples is Vigo, a concept created by Danish convenience retailer REMA 1000 where thousands of consumers are now shopping for those who live close to them. Why has it become so popular? Because people want to connect to their neighbors and are happy to make a little extra money at times when they have flexibility in their day.
What’s clear is that we are going to see a transformation in both the high-street and the “last mile” space – between the high-street and the home – creating opportunities for vibrant local communities with ever broader ranges of goods and services.
For companies who harness technology and consumer experience it could be a golden age for them too. In this world, the success of retailers and consumer goods companies to unlock value will be dependent on their ability to gain a deep understanding of consumers, embrace disruptive technologies and adopt innovative business models. The next few years will be fascinating.