In recent years we’ve seen massive disruption in many sectors: music, media, retail, consumer electronics, communications and recently even payment & financial services. The online digital revolution continues to cut swathes through many industries, but strangely the world’s big FMCG players such as Unilever, P&G and Nestle have remained relatively remote from these seismic shifts.
So why is this a problem and why am I even talking about it? Well the fact is I don’t think FMCGs’ undisrupted status can last, and the fact that they sell tangible physical products isn’t going to be enough to protect them.
Dollar Shave Club is a service business that should send shivers down the spine of the executives at P&G’s Gillette as well as other FMCG Brands. Their proposition is simple: you pay as little as a dollar a month to have razor blades delivered to your door. It sounds like a simple and small-scale online business, so why do I think it might raise some scary thoughts for the big players?
1) You don’t need to own your supply chain
It’s become simpler than ever to find third party vendors in emerging markets, who’ll manufacture products like razors at the right price, quality and in limited quantity. It’s also become easier to use outsourced logistics to move and store your product around the globe.
2) You don’t need massive distribution
Part of the reason for big FMCGs’ hegemony is their ability to negotiate a huge presence in the supermarkets we all use for our weekly shop. With the increasing use of online shopping, Dollar Shave deliberately chose to sell only online avoiding the need for such large scale relationships.
3) You don’t need to spend millions on comms
Much of the cost of FMCG products is incurred through their branding and marketing activities. Dollar Shave avoids this by leveraging the power of social media to create an engaging brand presence and one of the most shared viral ads this year.
4) Technically generic products are often good enough
In the continuing arms race between the big FMCGs, the quest to create technically superior products is unceasing. But dollar shave recognises that after years of development standard razor blades are good enough and that many recent innovations are superfluous.
5) Selling direct strips out a huge proportion of costs
All the above means that you can take a product direct to consumers for a much lower price point than with the traditional FMCG retail distribution model. So Dollar Shave can sell a product that is as good, or certainly good enough, at a disruptively low price point.
6) Going direct creates an ongoing service relationship with customers
An issue for FMCGs is that they are being disintermediated at the point of purchase by supermarkets and their own-brand products. The beauty of the Dollar Shave model is that it allows the brand to have a direct relationship with its customers which is ongoing and which provides an opportunity to sell other shaving and grooming-related products in future.
So let’s see what happens in the months and years to come. I’m betting that there won’t be a large change overnight, but the opportunity for disruption in FMCG is certainly there and will be capitalised upon. For me the key to doing this will be to break free from the idea of pushing product through retail and beginning to create more direct relationships with consumers via digital services and social media.
It would be great to hear your opinions on this topic. Have you seen any more interesting examples of service disruption in FMCG?
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