Beating the FMCG sales blues

Aperio FMCG ConsultingBeating the FMCG sales blues

By Michael Wood, Aperio Director

Current consumer confidence in South Africa is at its lowest level in nine years and even worse consumers expect the economic situation to worsen over the next 12 months as reported by the FNB Bureau for Economic Research. Most FMCG companies have had a tough start to trading in the first 3 months of 2013 and in the short future there is no prospect of a quick turnaround.

With this in mind it’s no surprise that many companies, in a bid to meet commitments to their groups, are cutting back spend and slashing budgets. This is a catch 22: cutting back demand generating activities such as advertising to meet profit targets could in turn suppress even further demand. What course of action can be taken?

Beat the FMCG Sales BluesCost savings

Avoid cutting into demand generating activities like advertising and promotional budgets, of course if this is unavoidable, however rather look at other sources of cost saving. It’s so easy to cut 10% of your advertising expenditure but at what cost?

Here are 3 other ways you can save money:

  • POS material - spend more wisely, most companies have warehouses full of POS & display material, which never gets to store as a result of over-ordering or inappropriate material. In addition costly storage fees are incurred to store these materials. Getting it right in this area can save a surprisingly large amount of money. Rather cut this than advertising! You will have no impact on your in-store activity as this material just sits and gathers dust in your expensive 3rd party warehouse!
  • Promotions - take a walk around any store and look and see how many promotions are on the go at any one time. Are they really delivering for your brands? At Aperio we believe that less is more: fewer bigger promotional activities that have very clear brand goals, that surround the consumer in a 360 effect, deliver more bang for your buck than lots of small continuous promotions that cost but don't necessarily deliver.
  • Cost centers - go through each cost center with a rigorous and meticulous approach, areas such as freight forwarding and clearing, travel and other organizational costs as opposed to demand generating costs. There is lots of cash there, you just need the right expertise and you will to find it.

 

Those companies who focus on their consumers/customers and who are willing to take some risks, can gain significant shares which in normal times would prove very difficult.

 

One upside for those companies that are bold or bolder than their competitors is that in times of tough trading they usually end up making good share gains as their competition increasingly focuses inwards on how to cut costs, meet profit targets and communicate bad news to head office. Those companies who focus on their consumers/customers and who are willing to take some risks, can gain significant shares which in normal times would prove very difficult.

One other area where companies should double their efforts, especially with subdued demand in South Africa, is accelerating expansion into Sub Saharan Africa. Most companies report their results on a regional basis - South Africa and Sub Sahara - so apart from the fantastic growth opportunities in Africa, growth there could substitute softness in results from South Africa.

Aside from this benefit Sub Sahara has real long term potential. Goldman Sachs recently reported this could be the "African Decade", a sentiment Aperio agrees with as there are many African market opportunities in FMCG. Developing and executing an African Expansion Strategy should be high up on the agenda of all FMCG multinationals that don't yet have a significant presence in the region.