Shiv and Vani discuss why, in today’s context of digital, FMCG companies or ‘Fast Moving Consumer Goods’ companies are in fact slow! Listen on for some great pointers on how traditional large companies must reinvent to keep pace with the digital newbies.

Read the complete transcript below: –

Vani 01:00 

Now FMCG companies are typically not considered, they’re not the first ones that come to one’s mind when one thinks of digitization. Why is that so? FMCG companies have all of the money, they have trust, they have legacy and yet they’re not the first you think about when one thinks about digitization. Why is that so? 

Shiv Shivakumar 01:36

Yeah, I think that’s a very, very good question Vani and I’ve been telling the FMCG boys for a long time, I actually don’t call them FMCG. I call them, SMCG, Slow Moving Consumer Goods and I said this to them at a freaky seminar which they organized and they invited me in 2019. Why is that so? Because if you look at the crux of an FMCG business in India, it revolves around three things. Number one, a strong brand, number two, good distribution, number three, negative working capital. That’s all it depends on. Okay. Now, if you look at digitization, why haven’t FMCG companies embraced this? Because they think their brand is too strong. It doesn’t need to partner with anybody. I own my brand. Why should I share or partner with anybody? Number one. Number two, they want to protect distribution and I submit to you that they’re protecting assets which cannot be protected. In a digital world, a digital world will sweep their brands under the table. It’ll sweep their distribution under the table. If they don’t wake up. Okay. That’s the first thing. Second one, all the FMCG leaders, anybody who’s been in FMCG for 20 years has grown up in a physical world. Using email does not make you digital. Okay. Having a social media handle does not make you digital. Understanding consumers, conversing with consumers and having a 24/7 mindset in terms of dealing with consumers is what is needed. The FMCG system says I will relaunch in nine months time, I’ll put it on and then I’ll put up my legs. Those days won’t work anymore. The old FMCG system had defined competition, the new digital system as undefined competition and hence, it needs to be completely re-skilling at the top in FMCG, till that happens, things will not change.

Vani 03:12

So Shiv you just touched upon distribution also and the fact is that eventually as the world gets more and more cluttered, FMCG are not the factors, whatever product is available, whatever product the consumer has access to is what will sell. In the context of distribution, how can FMCGs leverage digitization?

Shiv Shivakumar 03:30

Very good question, Vani and they’re in, I think, FMCG companies have done some work but they’ve done the work to protect their strength, which is what I told you. They have not done the work to say let’s make it an open system. Okay. Completely open, et cetera. If you look at the pyramid of the Indian consumer market, Vani, and we’ve discussed this enough times when we work together, at the bottom end is the unorganized unbranded. But above the unorganized unbranded is what I call unorganized but branded and I’ll explain that. And about that is the complete branded segment, which is worth the price. Okay. I’ll pay money for it. Okay. Value for money and then premium brands. The unorganized unbranded, everybody understands, which is general store commodity, et cetera. What is an unorganized but branded? Unorganized but branded is in the food business. For example, Rakhangi in Bombay or Manish in Bombay. These are all unorganized, if you go around the city of Bombay today, the most innovative product in any general store is the Khakhra. There are at least 60 to 75 variants of the Khakhra. They have a mobile Khakhra which is a flat square thing, which a woman can carry in a purse, that’s the kind of innovation that people have driven. So the food industry is like that. The saree industry is like that, it’s unorganized, but branded, you will go to the Saree guy, next door. Almost all of tailoring and apparel is that. So many times, companies think that the total market is unorganized and unbranded, that’s not true at all. Especially food companies, apparel companies, all of these types of companies need to recognize that there is an unorganized, but retail branded market out there, or person branded market that’s out there. And you need to really think about that whether it’s education, tutorials in every single case. Okay. So what traditional FMCG companies have done or integrators have done, they’ve tried to integrate the retailers who are not integrated. They’re trying to create platforms for them, but as a brand, you need to ask yourself, how do I really partner with the unorganized, but branded guys also so that I have some say, yeah. For example, all the people who are promising 10 minute delivery. Okay. I won’t name brands because that’s not the right thing to do. What are they doing? They’re assembling a platform for the retailer and the pharmacist, et cetera, in that locality, right? So somebody is actually aggregating them already. 

Vani 05:52

So you’re saying find a way of collaborating, such that you are able to dip into the deep equity that a lot of these local players have. We look at them as local and unorganized. Actually, these are guys, for example, in the snacks workshop, we used to see this, I mean, every guy is a king in his 30 square kilometers, but that guy is such a well entrenched king in that 30 square kilometers to break into that dominant leadership is very, very tough, even for the likes of a Kurkure and Lays. If they were brands that could actually find a way of collaborating with these local Kings, then 

Shiv Shivakumar 06:26

60% of Amazon business comes from people who are not Amazon, that’s fantastic, right? That’s fine. So continue, nothing wrong in it. Think about collaboration. That’s the key of the VUCA as I told you. Yeah. 

Vani 06:36

Okay. Lovely. Fantastic. So what advice would you have for FMCG companies? 

Shiv Shivakumar 06:41

Okay, so I would say, see if you look at online as a percentage of retail sales. In the USA, it’s already 22.1%, in the UK it’s 29%, in China it’s 25%, in India it’s 11% in the metros. Okay. Take a company like Uniqlo. Okay. Uniqlo is a fabulous brand, one of the best brands in the apparel business, they say we design apparel to be simple, comfortable, and casual. And a very important thing, which is what I said about the FMCG companies and I’ll circle back now. Uniqlo CEO says, we are a technology company, we are not a fashion company. Think about that. Now, as the FMCG company CEO has said, we are a technology company in the last 10 years. Nobody. Not one. Till you say everything I do is technology led. Okay. And this is actually what goes back to what Theodore Levitt said in the 1960s, how do you define your business? If the railroads define the business as the railroad, that’s why they die. If a FMCG business decides that it’s defining its business as this or that or this or a clothing company says I’m in the apparel business, you’re going to die. Okay. So I think the way a CEO thinks about it is absolutely important. And the final comment I would make to FMCG companies and brands is that brands have talked down to consumers in a digital world. It was fine in the physical world. Today, 83% of consumers trust the voice of a friend or a family or a referral to buy a brand. They don’t trust the brand. They trust their friend. So now ask yourself, how does the brand become part of the glue of a family or society or whatever it is so that you get as many referrals or as many good word of mouth. That’s the shift that you need to have? That’s what I would say. Two great examples, Nike, 50% of Nike sales today is digital. 50%, there are 48 billion dollar companies. 50% is digital, globally. And they’ve been on the journey for eight to ten years, they are best in class. You should see that site, et cetera. For example, in NewYork, they have a store, you can click. They also have a small experience center where they have a football field, a hockey field, et cetera, where you can try the shoes on and the coach will help you decide in terms of speed, this, that what kind of shoe will be good for you. The other company, which is very good with low investment in advertising is Zappos. Zappos has a 365 days money back guarantee, and both ways they ship to you free and if you ship it back to them, it’s to their charge. I talked about taking out the pain in the policy, that’s one of the reasons Zappo succeeds brilliantly. So everybody talks about Zappos and builds the brand Zappos. Zappos does not need to advertise. Okay. 

Vani 09:21

In fact, one case study brand is hardly about shoes. The narrative on that brand is about everything. 

Shiv Shivakumar 09:27 

The last point I would make, Vani, is a very important point. Going back to the point we started earlier about distribution. FMCG companies have thought of real estate as shelf space in a retailer shop. Today FMCG companies need to think about the phone and the screen as the real estate, which apps are there on the phone. Are you in those apps? Are you part of that? That is the real estate that you truly need to own if you wanna be successful today, the oldest of owning shelf space, blocking people, doing posters. Those days are fine in a few outlets, but not in all.

This show is sponsored by CherryPeachPlum Growth Consultancy. ­čŹĺCherryPeachPlum is a marketing-focused business consultancy that delivers business results. Get in touch via www.cherrypeachplum.in to get marketing solutions that work in the real world!

Shiv and Vani discuss why, in today’s context of digital, FMCG companies or ‘Fast Moving Consumer Goods’ companies are in fact slow! Listen on for some great pointers on how traditional large companies must reinvent to keep pace with the digital newbies.

Read the complete transcript below: –

Vani 01:00 

Now FMCG companies are typically not considered, they’re not the first ones that come to one’s mind when one thinks of digitization. Why is that so? FMCG companies have all of the money, they have trust, they have legacy and yet they’re not the first you think about when one thinks about digitization. Why is that so? 

Shiv Shivakumar 01:36

Yeah, I think that’s a very, very good question Vani and I’ve been telling the FMCG boys for a long time, I actually don’t call them FMCG. I call them, SMCG, Slow Moving Consumer Goods and I said this to them at a freaky seminar which they organized and they invited me in 2019. Why is that so? Because if you look at the crux of an FMCG business in India, it revolves around three things. Number one, a strong brand, number two, good distribution, number three, negative working capital. That’s all it depends on. Okay. Now, if you look at digitization, why haven’t FMCG companies embraced this? Because they think their brand is too strong. It doesn’t need to partner with anybody. I own my brand. Why should I share or partner with anybody? Number one. Number two, they want to protect distribution and I submit to you that they’re protecting assets which cannot be protected. In a digital world, a digital world will sweep their brands under the table. It’ll sweep their distribution under the table. If they don’t wake up. Okay. That’s the first thing. Second one, all the FMCG leaders, anybody who’s been in FMCG for 20 years has grown up in a physical world. Using email does not make you digital. Okay. Having a social media handle does not make you digital. Understanding consumers, conversing with consumers and having a 24/7 mindset in terms of dealing with consumers is what is needed. The FMCG system says I will relaunch in nine months time, I’ll put it on and then I’ll put up my legs. Those days won’t work anymore. The old FMCG system had defined competition, the new digital system as undefined competition and hence, it needs to be completely re-skilling at the top in FMCG, till that happens, things will not change.

Vani 03:12

So Shiv you just touched upon distribution also and the fact is that eventually as the world gets more and more cluttered, FMCG are not the factors, whatever product is available, whatever product the consumer has access to is what will sell. In the context of distribution, how can FMCGs leverage digitization?

Shiv Shivakumar 03:30

Very good question, Vani and they’re in, I think, FMCG companies have done some work but they’ve done the work to protect their strength, which is what I told you. They have not done the work to say let’s make it an open system. Okay. Completely open, et cetera. If you look at the pyramid of the Indian consumer market, Vani, and we’ve discussed this enough times when we work together, at the bottom end is the unorganized unbranded. But above the unorganized unbranded is what I call unorganized but branded and I’ll explain that. And about that is the complete branded segment, which is worth the price. Okay. I’ll pay money for it. Okay. Value for money and then premium brands. The unorganized unbranded, everybody understands, which is general store commodity, et cetera. What is an unorganized but branded? Unorganized but branded is in the food business. For example, Rakhangi in Bombay or Manish in Bombay. These are all unorganized, if you go around the city of Bombay today, the most innovative product in any general store is the Khakhra. There are at least 60 to 75 variants of the Khakhra. They have a mobile Khakhra which is a flat square thing, which a woman can carry in a purse, that’s the kind of innovation that people have driven. So the food industry is like that. The saree industry is like that, it’s unorganized, but branded, you will go to the Saree guy, next door. Almost all of tailoring and apparel is that. So many times, companies think that the total market is unorganized and unbranded, that’s not true at all. Especially food companies, apparel companies, all of these types of companies need to recognize that there is an unorganized, but retail branded market out there, or person branded market that’s out there. And you need to really think about that whether it’s education, tutorials in every single case. Okay. So what traditional FMCG companies have done or integrators have done, they’ve tried to integrate the retailers who are not integrated. They’re trying to create platforms for them, but as a brand, you need to ask yourself, how do I really partner with the unorganized, but branded guys also so that I have some say, yeah. For example, all the people who are promising 10 minute delivery. Okay. I won’t name brands because that’s not the right thing to do. What are they doing? They’re assembling a platform for the retailer and the pharmacist, et cetera, in that locality, right? So somebody is actually aggregating them already. 

Vani 05:52

So you’re saying find a way of collaborating, such that you are able to dip into the deep equity that a lot of these local players have. We look at them as local and unorganized. Actually, these are guys, for example, in the snacks workshop, we used to see this, I mean, every guy is a king in his 30 square kilometers, but that guy is such a well entrenched king in that 30 square kilometers to break into that dominant leadership is very, very tough, even for the likes of a Kurkure and Lays. If they were brands that could actually find a way of collaborating with these local Kings, then 

Shiv Shivakumar 06:26

60% of Amazon business comes from people who are not Amazon, that’s fantastic, right? That’s fine. So continue, nothing wrong in it. Think about collaboration. That’s the key of the VUCA as I told you. Yeah. 

Vani 06:36

Okay. Lovely. Fantastic. So what advice would you have for FMCG companies? 

Shiv Shivakumar 06:41

Okay, so I would say, see if you look at online as a percentage of retail sales. In the USA, it’s already 22.1%, in the UK it’s 29%, in China it’s 25%, in India it’s 11% in the metros. Okay. Take a company like Uniqlo. Okay. Uniqlo is a fabulous brand, one of the best brands in the apparel business, they say we design apparel to be simple, comfortable, and casual. And a very important thing, which is what I said about the FMCG companies and I’ll circle back now. Uniqlo CEO says, we are a technology company, we are not a fashion company. Think about that. Now, as the FMCG company CEO has said, we are a technology company in the last 10 years. Nobody. Not one. Till you say everything I do is technology led. Okay. And this is actually what goes back to what Theodore Levitt said in the 1960s, how do you define your business? If the railroads define the business as the railroad, that’s why they die. If a FMCG business decides that it’s defining its business as this or that or this or a clothing company says I’m in the apparel business, you’re going to die. Okay. So I think the way a CEO thinks about it is absolutely important. And the final comment I would make to FMCG companies and brands is that brands have talked down to consumers in a digital world. It was fine in the physical world. Today, 83% of consumers trust the voice of a friend or a family or a referral to buy a brand. They don’t trust the brand. They trust their friend. So now ask yourself, how does the brand become part of the glue of a family or society or whatever it is so that you get as many referrals or as many good word of mouth. That’s the shift that you need to have? That’s what I would say. Two great examples, Nike, 50% of Nike sales today is digital. 50%, there are 48 billion dollar companies. 50% is digital, globally. And they’ve been on the journey for eight to ten years, they are best in class. You should see that site, et cetera. For example, in NewYork, they have a store, you can click. They also have a small experience center where they have a football field, a hockey field, et cetera, where you can try the shoes on and the coach will help you decide in terms of speed, this, that what kind of shoe will be good for you. The other company, which is very good with low investment in advertising is Zappos. Zappos has a 365 days money back guarantee, and both ways they ship to you free and if you ship it back to them, it’s to their charge. I talked about taking out the pain in the policy, that’s one of the reasons Zappo succeeds brilliantly. So everybody talks about Zappos and builds the brand Zappos. Zappos does not need to advertise. Okay. 

Vani 09:21

In fact, one case study brand is hardly about shoes. The narrative on that brand is about everything. 

Shiv Shivakumar 09:27 

The last point I would make, Vani, is a very important point. Going back to the point we started earlier about distribution. FMCG companies have thought of real estate as shelf space in a retailer shop. Today FMCG companies need to think about the phone and the screen as the real estate, which apps are there on the phone. Are you in those apps? Are you part of that? That is the real estate that you truly need to own if you wanna be successful today, the oldest of owning shelf space, blocking people, doing posters. Those days are fine in a few outlets, but not in all.

This show is sponsored by CherryPeachPlum Growth Consultancy. ­čŹĺCherryPeachPlum is a marketing-focused business consultancy that delivers business results. Get in touch via www.cherrypeachplum.in to get marketing solutions that work in the real world!

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Shiv Shivakumar Group Executive President - Strategy and Business Development, Aditya Birla Group

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Hosted by award-winning marketeer Vani Dandia, who has spent over two decades in advertising and marketing with Unilever, PepsiCo, Reckitt Benckiser, Henkel, BBDO and Leo Burnett.

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