---
title: "McKinsey's Latest Report: These 12 Trends Are Disrupting the FMCG Industry"
description: "The FMCG industry has long enjoyed significant commercial success, creating 23 of the global Top 100 brands and maintaining a 15% overall return on investment over 40 years. However, recent growth has slowed to just 2.7% organically, as 12 technology-driven disruptive trends are reshaping the market, rendering traditional value-creation models obsolete. McKinsey recommends a new model centered on a three-step portfolio strategy and agile operations."
author: "麦肯锡咨询公司"
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published: "2018-07-19"
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# McKinsey's Latest Report: These 12 Trends Are Disrupting the FMCG Industry

> The FMCG industry has long enjoyed significant commercial success, creating 23 of the global Top 100 brands and maintaining a 15% overall return on investment over 40 years. However, recent growth has slowed to just 2.7% organically, as 12 technology-driven disruptive trends are reshaping the market, rendering traditional value-creation models obsolete. McKinsey recommends a new model centered on a three-step portfolio strategy and agile operations.

The FMCG industry has long enjoyed significant commercial success. Not only has it created 23 of the global Top 100 brands, but it has also maintained an overall return on investment of 15% over 40 years. This can be attributed to the widespread application of a five-step value-creation model established after World War II:
> (1) Achieve growth and high profits through building mass-market brands and product innovation;
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> (2) Establish close ties with mass retail channels such as supermarkets to reach a broad consumer base;
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> (3) Enter developing markets early to create new categories and proactively cultivate consumer habits;
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> (4) Establish an operating model focused on unified cost control;
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> (5) Use mergers and acquisitions to achieve market consolidation and new product entry, and leverage mature models to achieve synergies and leapfrog growth.
In recent years, the FMCG industry has gradually lost its former luster, with organic growth of only 2.7% after excluding the effects of M&A, exchange rates, and inflation. Why has the traditional value-creation model failed to drive growth in this era? Through in-depth research on the global consumer goods industry, McKinsey has found that 12 technology-driven disruptive trends are breaking or about to break the market landscape, rendering traditional models ineffective (see Figure 1).
12 Disruptive Trends Breaking the Market Landscape
**Disruption of Mass-Market Brand Building and Product Innovation**
**1. Different Preferences of the Younger Generation**
The younger generation (born in 1980 or later) prefer new brands, believing they are better and more creative. Mass-market brands and channels no longer attract them. Recent McKinsey research shows that young consumers, with purchasing power four times higher than the older generation, are unwilling to buy products from "large food companies." They prefer to conduct thorough research on products, resist brand-led marketing, and like to learn about brands and products through communication with others, including family, friends, online influencers, and netizens. They are willing to spend money on goods that reflect their personal taste, value quality, and are more cautious with spending given limited income.
**2. Digital Marketing**
Digital technology is changing how consumers learn about and perceive brands, making traditional marketing less effective. Most FMCG companies have begun to actively embrace digital technology, such as using WeChat official accounts to build more interactive and lasting connections with target consumers. However, there is still a long way to go, especially in leveraging massive data for precision marketing and sales.
**3. Rapid Rise of Small Brands**
Many small consumer goods companies are using digital technology to quickly win the hearts of the younger generation. Four factors make small brands more likely to succeed in the FMCG industry: high profits, emotional connection with consumers, easy outsourcing of the value chain, and low shipping costs. Additionally, over the past decade, more than 4,000 small companies have received $17 billion in venture capital. Such substantial funding has also helped new brands rise rapidly. Traditional companies like P&G and Sephora have also seen these shifts and have launched incubators to gain a competitive edge.
Sephora
**4. Most Categories in Most Markets Are Mature**
Although innovation is still possible, opportunities are not what they were decades ago. McKinsey's analysis of FMCG consumption patterns shows that once median consumer income reaches $30,000, per capita sales in each category level off. This means that leapfrog growth can no longer be achieved by upgrading or increasing penetration.
**5. The Real Rise of Healthy Food**
Consumers now want more organic products without sugar, gluten, pesticides, and other additives. They are increasingly choosing fresh food. Overseas companies are working hard to change to meet consumer health needs, but Chinese companies clearly need to invest more in this area.
**6. The Internet of Things Connecting Everything**
Although the IoT is still in its infancy, it will inevitably have a revolutionary impact on certain categories. For example, in the laundry category, the IoT will transform consumer demand for products into demand for services, completely changing the industry's operating mechanism. Given that China has been leading the world in digitalization of consumer markets, domestic companies must pay attention to this early.
**Disruption of Mass Retail Model Relationships**
**7. E-commerce Giants Get Ahead**
E-commerce giants will have a profound impact on FMCG companies. Due to the large amount of traffic they gather, they can further lower prices, but this also causes channel conflicts. E-commerce giants in Europe and the US have begun to try private labels to compete directly with FMCG companies. On the other hand, domestic e-commerce platforms like Tmall provide Chinese FMCG companies with a different operating model. FMCG companies typically sell through intermediaries such as distributors and hypermarkets, with low control over end consumers. E-commerce platforms help FMCG companies connect directly with consumers, providing an opportunity to change their bargaining power in the value chain.
**8. Emerging Retail Channels Like Convenience Stores Are Flourishing**
Younger consumers prefer spontaneous rather than planned consumption, and they are less likely to shop at traditional retail channels like hypermarkets compared to the older generation. Convenience stores cater to this behavioral change. Especially in China, with the help of various apps that combine online and offline, convenience stores are even more effective in reaching and serving consumers.
**9. Large Retailers Under Pressure**
The rise of e-commerce giants and new retail channels is further squeezing the living space of traditional retail channels like hypermarkets. Over the past six years, large retailers' earnings have been stagnant. Under pressure, they have also begun to adopt strategies such as purchasing alliances to proactively respond. But for FMCG companies, this will make large retailers stronger trading partners.
**Disruption of Category Creation in Developing Markets**
**10. Rise of Local Competitors**
Developing markets still hold huge growth potential. By 2025, these markets can still generate $11 trillion in sales. Local competitors are vying for this business with international FMCG companies by offering more localized products, local talent, and faster decision-making. International FMCG companies must change, and the core is to change the highly centralized decision-making model currently prevalent.
**Disruption of Synergy-Focused Operating Models**
**11. Persistent Pressure from Activist Investors**
Investors will follow the footsteps of companies like 3G and demand that FMCG companies cut expenses and adopt an operating model centered on cost reduction. Many companies have already taken action to withstand pressure from activist investors in this regard.
**Disruption of M&A**
**12. Intensified Competition for Deals**
M&A will remain an important tool for market consolidation and a key foundation for revenue growth. However, in certain sectors (such as the OTC market), competition among counterparties will intensify as high-quality assets become scarcer and private equity firms become more financially powerful.
Building a New Value-Creation Model to Reshape the Market Landscape
To survive, FMCG companies need a new value-creation model (see Figure 2). The core is to shift from a purely mass-market category strategy to a three-step product portfolio strategy. This should be supported by agile operations to effectively implement the new strategy, and M&A should be used as a key growth accelerator.
**Three-Step Product Portfolio Strategy**
FMCG companies need to change their current strategy of focusing on developed markets and mass-market brands, and instead consider developed markets, developing markets, and premium niche markets as three distinct revenue sources.
**Mature Markets:** Must maintain high profit levels and continuously drive core business growth. At the same time, consider sales strategies to avoid potential channel conflicts. Additionally, use data analytics, e-commerce, and other tools to improve execution quality.
**Developing Markets:** Must bring the latest and best innovations (not low-quality products) to developing markets as early as possible to seize the $11 trillion market opportunity. The key to winning lies in excellent digital execution and full empowerment of local leadership teams.
**Premium Niche Markets:** Must identify and cultivate premium niche markets that are already economically attractive and have high growth potential, and drive explosive growth of small brands through capital operations.
**Supported by Agile Operating Model**
Agile operations can effectively help FMCG companies address challenges in traditional operating models. The agile operating model consists of two parts: a flexible front end (including various business task forces that drive business goals through cross-functional collaboration) and a solid back end (providing the capabilities frontline teams need to achieve goals, including expertise, data, technology, etc.).
This new model requires companies to abandon the traditional command-and-control model (i.e., top-down instructions to the frontline). The new organizational model consists of multiple small teams, each focusing on a specific direction with full autonomy. In this model, the role of leadership teams shifts from issuing commands to enabling ("servant leadership"). In China, internet companies like Tencent and Alibaba are undoubtedly early beneficiaries of agile operations. FMCG companies like Mengniu are also actively exploring organizational change and have already benefited.
Furthermore, in the new model, companies still need to use M&A to quickly build new revenue streams.
**Action Recommendations for FMCG Companies**
McKinsey recommends that FMCG companies take a three-step action plan to respond to the rapidly changing market landscape:
> (1) Assess the risk of disruption in each category and decide how to act;
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> (2) Begin planning the transition from traditional to new models, develop a three-step product portfolio strategy, and initiate agile organizational transformation to gain a competitive advantage in the next decade;
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> (3) Develop an action plan, including detailed work schedules, clear timelines, and clear division of responsibilities.
Source: McKinsey & Company
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