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Seven Forces Driving the Future of Europe’s FMCG and Retail Market
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Seven Forces Driving the Future of Europe’s FMCG and Retail Market

As we open the year, both manufacturers and retailers are looking for new opportunities to grow their businesses. But this is a year that will stand apart. 2020 will kick off a decade that will witness evolutionary changes in tech-powered consumer engagement, increased consumer fragmentation around wealth, profuse advances in retail personalization, and remarkable shifts in innovation strategies to accommodate a new age of conscious, connected and unconventional consumption. In the backdrop of immense change, there are seven forces that will drive the future of Europe’s fast-moving consumer goods (FMCG) and retail market.

THE GLOBAL ROLL OUT OF 5G

With 5G, the Internet of Things will finally become a mainstream reality, providing end consumers with access to more data at their fingertips with virtually no response delay. As 5G rolls out in different stages in Europe over the next decade, market and consumer adoption is expected to drive tools that enhance consumer experience. The global rollout of 5G will present both challenges and opportunities for both retailers and manufacturers as technology changes the way consumers assess brands and products. Nielsen data shows that 50% of European consumers are open to using AR/VR for product engagement in the future and this will change the way consumers assess brands and products. One challenge to note: with an expected staggered adoption of 5G, a gulf between 4G and 5G speeds will cause a consumer gap between those who have access and those who do not.

EUROPE’S GROWING INCOME DIVIDE

Europe’s wealth fragmentation will further fuel bookend growth in both premium and value categories. Nielsen data shows that 37% of Europeans are better off than they were five years ago, while 32% are the same and 31% are reportedly worse off versus five years ago. These sentiments run parallel to the growing consumer need for tiered options within the FMCG space. Over the next decade, FMCG growth will increasingly be double edged as wealth fragmentation drives both the premium and value ends of categories and markets. While beneficial for the opposite ends of the value spectrum, this shift will continue to erode growth from the middle. Companies that cater to these extremes will meet success. Data proves that there are now more CPG dollars spent online by households earning less than $50,000 annually, compared to those earning $50,000 -$100,000 or over $100,000 per year.* The income divide has perpetuated retailing at the extremes, which means it’s more important than ever that your products be available in the channels that suit your key consumers.

*Source: Nielsen Strategic Planner, Europe Hard and Soft Discounters, 2018 vs. 2016, Total Europe valuation includes Belgium, Denmark, Italy, Netherlands, Poland, Portugal, Great Britain & Germany

ECOMMERCE WILL BRING A SECOND WIND FOR EUROPEAN PRIVATE LABEL

As the ecommerce landscape continues to mature within the European market, we foresee private label gaining a second wind of growth. Particularly within discount retailers in Europe, store brands have hit a plateau. Gleaning insights from the  U.S. market, online retailers are making a move towards prioritizing their own labels over branded items. In fact, Nielsen data, powered by Rakuten Intelligence, shows that dollar share of U.S. CPG e-commerce sales have doubled for private labels in the last two years. And although overall private label sales remain under-developed compared to brick-and-mortar penetration in the U.S., private labels account for 18% of baby care products and 13% of grocery within the U.S*.

*Source: Nielsen E-commerce measurement powered by Rakuten Intelligence, Total U.S., 52 weeks ended Jan. 31, 2019

EUROPEAN CONSUMERS WILL SHIFT FROM PASSIVE CONSUMPTION TO INTERACTIVE PARTICIPATION

European consumers are moving away from passive consumption and into interactive participation. The next decade of consumption will be one of interactive participation, where consumer’s desires for things like increased sustainability will turn to action. In fact, sustainability and environmental credentials are becoming increasingly important to European consumers. Nielsen data shows that 58% of European consumers are willing to change their consumption habits to support sustainability. And lock-step with trends within the U.S., Nielsen predicts that by 2021, sustainability-minded U.S. shoppers will spend up to $150 billion on sustainable goods.

HEALTH AND WELLNESS WILL BE A STRONG SOURCE OF EUROPEAN GROWTH

Health and wellness sales will soar as Europeans become an increasingly aged population, challenged by weight issues and air pollution, and sensitive to processed products and unhealthy ingredients. Over the next decade, Europeans will demand “better for you” products, pushing companies to innovate in a fresh, new way—tapping into new ingredients and new sources of wellness. Companies in the U.S. are currently facing the same challenge, but finding success in the journey. For example, in the U.S., functional beverages, such as those infused with marijuana are up 49% in sales vs. 2018, and products that meet a plant-based diet now represent 15% of total store food and beverage dollars.*

*Source: Nielsen Product Insider powered by Label Insight, Total U.S. All Outlets Combined (xAOC), 52 weeks ended May 25, 2019

EUROPEAN CONSUMERS WILL GROW TO EXPECT PERSONALIZED RETAIL EXPERIENCES

Personalization will continue to be one of the most important drivers in retail through the 2020s. Brands and retailers on the leading edge will get it right by delivering better offers, in the right channel at the appropriate moment.  This is only possible with the right understanding of not only their individual customer needs, but also the total market and complete shopper performance. In order to do this, companies will need to continue to invest in analytics and AI tools to unlock new ways to reach and stimulate shopper purchases, growing profitability, and increasing customer loyalty to better serve the rapidly changing tastes and needs of global consumers.

TIME WILL BE THE NEW CURRENCY OF CHOICE

Increasingly frictionless commerce in both a click and brick world will change the game for retail. From pop-up shops with cashier-less payment to automated warehouses in urban centers, fusing the overall consumer experience with smarter, intuitive tech is the future, as consumers require zero resistance from discovery to assessment to shopping to payment to fulfillment. Speed and convenience will drive behavior—and every millisecond reduced is a battle won.

Understanding these big megatrends that will impact your future growth in the coming decade is imperative to your ability to win in this competitive FMCG market.

7 Forces Driving the Future of Europe's FMCG Market