October 2015 - We build brands for a digital age. · using Customer Relationship Management, behavioural tracking and targeting, data, and trend analysis to get to know consumers

October 2015www.newrepublique.com

Trend analysis

2

03ABOUT US

05 THE CONTEXT

10COMMUNITY CHEST

18 SUPERMARKET SUPERPOWERS

28NOT VALUE, BUT VALUES

38 HEALTH KICK

46FOODS FROM NEAR AND FAR

54NEED FOR SPEED

64 DON’T JUDGE A PRODUCT BY ITS PACKAGE

74 OMNIPRESENCE

84CONCLUSION

86METHODOLOGY

88SOURCES

CONTENT

4

ABOUT US

User Experience Brand

Data and Analytics

CUSTOMER EXPERIENCE

DESIGN Studio

Development

Creative

We’re a bunch of wildly passionate entrepreneurs with one goal: to become the most desired agency to work with and for.

We position ourselves as experts in sales. However in today's digitally connected, socially engaged, post GFC market - the art of selling has dramatically changed. This is why today's definition of a 'creative agency' must change.

Agencies like ours need to move away from selling ads to focusing on designing exceptional customer experiences. We do this by re-organising around three core disciplines of Brand, User Experience and Data. These disciplines are then supported by our traditional and digital creative, studio and technology services.

Since our inception we have worked with clients to help them re-define their customer experience and sales approach by:

Re-designing how their brands move online (and vice versa)Attracting and engaging customers via digital assetsSelling and re-selling to customers via data lead consumer

insights and personalisation

We believe that todays technically lead market needs an agency that can bridge the gap between brands, experience and technology, whilst being able to engage and excite consumers with compelling creative and inspiring design.

To find out more about us please visit: www.newrepublique.com or contact us on: +61 2 9332 2218

6

The Fast Moving Consumer Goods (FMCG) sector is crucial for Australia’s GDP, but also for the health and wellbeing of the nation. With an industry turnover of $114 billion, it employs almost 300,000 Australians and sustains approximately 27,469 businesses. Food and grocery manufacturing is Australia’s largest manufacturing sector, accounting for a quarter of total manufacturing, and its products are consumed by 23 million Australians every day.

In the highly competitive field of FMCG, customers are only as loyal as their options. Post-GFC consumers increasingly hunt for the lowest price on the day, and this competition and price pressure means that profit margins are reduced. The post-crisis consumer is also more skeptical than ever about large corporations and advertising, and brands are no longer seeing as much success from ‘selling’ their products to consumers through traditional means. Instead, consumers

With Masterchef, The Naked Chef, and a host of other chefs on our TVs and in our Facebook feeds, it seems everyone these days is calling themselves a ‘foodie’. The food sections of 21 newspapers, such as Good Food, Taste, and Fresh, have a total monthly readership of a staggering 5.9m people. Through these, as well as their social worlds, consumers follow new trends in food and diets, and FMCG companies need to keep pace with their fast-changing preferences.

Food and grocery manufacturing is

Australia’s largest manufacturing

sector

respond to brands that represent their values and are advocates of particular lifestyles and beliefs. Consumers are increasingly in the driving seat, and in order for supermarkets to maintain regular customers, and suppliers to maintain a slot on supermarket shelves, brands need to innovate to keep in touch with their customer’s desires.

THE CONTEXT

8

Throughout the report we will use GRiP, New Republique’s framework for determining how a brand can increase the buyability of its products amongst today’s customers, to assess the best ways to react to current trends. GRiP suggests that to engage with the post-GFC consumer - a consumer who is increasingly value-conscious, mobile, and digitally and socially connected - brands must exhibit Generosity, Responsiveness and Proximity.

Generosity refers to a brand’s willingness to give back – which encompasses giving to the community at large as well as to the consumer on an individual level, through monetary and other benefits.

Responsiveness is about knowing the internal world of the consumer - their dreams, goals and preferences. It’s about using Customer Relationship Management, behavioural tracking and targeting, data, and trend analysis to get to know consumers on a personal level and feed into their desires for individualised and custom products that suit their needs.

Proximity refers to being present in the consumer’s world. Consumers are drawn to brands with a strong Proximity to them, and this has four dimensions.

THE CONTEXT

1. ‘Me’ - At the level of the individual, Proximity refers to integrating the brand into the consumer’s lifestyle. This provides opportunities for retention of those who are already customers.

2. ‘My world’ - In a person’s immediate world, Proximity means that they are on a word-of-mouth-basis with the brand, which exists within their personal social network.

3. ‘My community’ - This refers to interest groups that the consumer identifies with or the way in which the consumer defines themselves. It is within the second and third dimension that brands create supporters and receive the greatest return and leverage.

4. ‘The world’ - Brands can also reach consumers through mass media and broad-reaching advertising and communications.

It is when each of these elements of GRiP align that a moment of ‘magic’ can happen, which transforms the consumer’s world and ultimately works wonders for brands.

10

Demographics of Australian societyWith a growing, aging population, steady immigration and an increasing number of Millennials in the workforce, the Australian community landscape is changing significantly, with implications for the demand for FMCG goods.

Australia’s workforce is increasingly made up of Generation Y (or Millennials), which today number 21% of the workforce but will grow to 35% in 2020. Similarly, Generation Z today comprises just 2% of workers, but will reach 12% by 2020. The next generation of shoppers, Generation Alpha, will be the most educated generation Australia has ever seen, with 90% predicted to complete year 12 (compared with 80% today). These are the shoppers of today and tomorrow, and for them, Technology is a part of their makeup. Just like their movies on Netflix, they want everything to be available to them on demand. They are savvy, skilled shoppers, who know how to use the Internet to their advantage when it comes to finding the cheapest product or the next new thing. Globally, Millennials

Generation Alpha, will be the

most educated generation

Australia has ever seen

make up over half of those who plan to make a purchase online in the next 6 months, with Generation X making up about 28%, and Baby Boomers about 10%. Of Millennials who plan to buy online, baby supplies, personal care items, toys/dolls and of course, alcoholic drinks, will take the most significant share of their purchases.

COMMUNITY CHEST

12

Our population is getting older, having added 6.8 years to our median age and 6.3 years to our life expectancy in the last 20 years. In another 20 years, the ratio of workers to retirees will be just 3:1, whereas today it is 5:1. As customers get older, spending on many goods will begin to decline, but they will have new needs. The next generation of over 70s are more educated, more economically empowered, and more focused on themselves than any previous generations. In their old age they will have more desire to continue to be productive, and they will want entertainment, enrichment, and leisure, as well as health and quality of life.

13

As we leave marriage and kids until later in life, and more Baby Boomers are becoming ‘empty nesters’, Australia is made up of fewer traditional households. The couple-only family has replaced Australia’s nuclear family as the most common household type. This means that many FMCG products are becoming smaller and more personalised. Products like ‘meals for one’ and even specially-bred mini versions of vegetables which can be used in one sitting are helping us avoid waste and maintain value for money.

Over the last century, Australia’s population has grown by 18.5 million people. Our national growth rate is well above the world’s average at 1.0%, caused by a steady growth in annual births and net overseas migration. This overseas migration has made Australia a multicultural society, which gives us great exposure to new restaurants, recipes and flavours.

22%

21%22%

22%

7%11%

Builders (69+)

Generation X (35-49)

Generation Z (5-19)

Baby boomers (50-68)

Generation Y / Milennials (20-30)

Generation Alpha (<5)

COMMUNITY CHEST

14

Companies who want to stay relevant to Australian consumers need to be Responsive to changes in the community landscape. Brands should consider how the needs of various segments of the population differ to ensure they target the right type of consumer.

With Australia’s diverse cultural makeup comes opportunities to take advantage of niche tastes and our desire to experiment with foreign flavours.

Millennials and Gen Z, with their fragmented use of technology, are harder to reach with conventional advertising or marketing. They are more diverse, less keen on large corporations, and more likely to be multi-channel shoppers. In their fast-moving world, finding the next new thing is no big deal, and they are instead looking for the next thing that accommodates their unique tastes, interests and aspirations. Placing high value on individualism and entertainment, they’ll buy less of what’s ‘popular’ and more of what suits them and their niche interests. One way that brands can be Responsive to this is by allowing them a part in the process of creation through recreating and personalising products to suit themselves. Many Quick Service Restaurants (QSRs) get this, with their ‘make your own salad’ or ‘choose your own sides’ customisable menus.

COUNTRY OF BIRTH MEDIEAN AGE ERP

53.9

39.3

34.8

32.7

44.2

39.7

69.0

40.2

38.2

63.0

69.0

41.2

36.9

33.249.338.3

65.2

37.5

34.3

42.6

United Kingdom

New Zealand

People’s Republic of China

India

Vietnam

Philippines

Italy

South Africa

Malaysia

Germany

greece

Sri Lanka

United States Of America

Republic of Korea

Lebanon

Hong Kong

Netherlands

Ireland

Indonesia

Fiji

1,222,570

608,820

427,590

369,680

215,460

210,760

199,120

173,182

148,760

127,650

119,960

106,280

104,880

93,27091,29080,580

86,600

95,770

79,650

68,330

COMMUNITY CHEST

16

Product co-creation is another engagement strategy, which Unilever’s ice cream brand, Ben and Jerry’s, has seen great success with. Their international crowd-sourcing campaign ‘Do the World a Flavour’ asked consumers to come up with their own ice cream flavour. During the six week competition, they received over 100,000 submissions. This succeeded in creating creative new flavours and raising awareness about their move to fair trade ingredients. Another of their projects, called ‘City Churned’, turned to town locals in several US cities to look for ingredients that best represented their town. These kinds of strategies engage Milennials, who like to feel that their voices are being heard by brands and that products cater to them specifically. To meet the needs of the aging population

17

For example, Proctor & Gamble has seen success with their age-defying product, Olay Regenerist. In their own co-creation strategy, they used their Connect + Develop programme to outreach to innovators across the world in search of new anti-wrinkle technologies. P&G was contacted by a small French company, Sederma, who they then worked together with to create the new product. It quickly became a global market leader, beating boutique creams worth $350.

These kinds of strategies engage

Milennials, who like to feel that their voices are being

heard by brands and that products cater to

them specifically

brands should expand their range of convenient and functional products, and services that make their lives easier, like home delivery. Consumers will also be looking for products that help them defy, enjoy, and deal with age.

COMMUNITY CHEST

18

Every true Aussie knows that Coles and Woolies are fighting an epic and ongoing battle for supermarket supremacy, with the winner set to rule the country once and for all. Okay, so maybe not quite - but the dominance of the two major supermarket retailers is certainly one of the most prominent aspects of the Australian FMCG market. With forays into petrol, liquor, insurance, and now finance, their reach extends far beyond groceries.

Competition between the two is fierce, resulting in price battles and difficult situations for suppliers, who struggle to gain and maintain the attention of the supermarkets. Coles and Woolies are aware that there are very few brands that consumers care about so much that removing them from the shelves would be enough of a deal-breaker to cause them to take their business elsewhere. The supermarket giants have seen profits grow as they increasingly stock private label goods on their shelves. While these used to occupy the cheap, lower quality, ‘no frills’ end of the market, they now offer cheaper

It is predicted that private label goods

will make up 40% of grocery sales

within 4 years

alternatives of the same or even better quality than other products. It is predicted that private label goods will make up 40% of grocery sales within 4 years, as we look to follow in the footsteps of the UK, where they already make up 50%.

SUPERMARKET SUPERPOWERS

20

“Where we don’t see innovation

from branded manufacturers, we’ll use

the Coles brand to innovate”

- John Durkan, Coles merchandise director

22

The argument that the supermarket giants wield unfair power over their suppliers was given weight last year, when the ACCC launched its second large legal action against Coles in six months. It accused Coles of engaging in unconscionable conduct against five grocery suppliers, by forcing them to cover gaps in its profits, pay fines for late deliveries and pay for wastage in stores (which includes shoplifting). Coles was found to have increased its profit at the expense of smaller companies, and was forced to pay $11.2 million in penalties and fees. The outcome of this case could have positive benefits for suppliers - who need the competitive landscape to tip in their favour - as the behaviour of supermarket superpowers is increasingly checked.

The competitive outlook is also changing as foreign supermarket chains have taken on the Australian stalwarts. Aldi has had the most success, quadrupling its customer base over the last eight years. 4.2 million Australians now shop at Aldi in an average four-week period. While they’re not yet near the 8.8 million customers shopping at Coles or the 9.5 million

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Metcash, owner of retailer IGA, has suffered the most from Aldi’s success, but Coles and Woolworths are feeling it too, with Woolworths posting its lowest quarterly sales growth for over a decade in November 2014. It has been estimated that Coles, Woolworths and Metcash will lose $250 million to $350 million of sales a year to Aldi.

Since entering Australia in 2009, Costco has launched seven stores, and it plans to open more soon. German-owned Lidl is also set to launch in 2015. There are even rumours that global giant Amazon may try to enter the Australian grocery market after success with its AmazonFresh delivery service in the US.

4.2 million Australians now

shop at Aldi

at Woolworths, Aldi’s long-term gains in market share are impressive and they look set to continue, in part because of the low cost alternatives it offers value conscious consumers.


24

There are approximately 30,000 independent retailers in the Australian market , and these manage to hold onto 8% of supermarket grocery spending.

Farmers markets, specialty stores, online niche retailers and other smaller players are also growing. The retailers who have seen the most success define themselves by the customers they target, providing edited assortments of goods which are just right for their specific target customer. Go Vita, Australia’s largest health food co-op, now has over 150 stores, and Aussie Farmers Direct has been Australia’s fastest growing franchise business for three years in a row.

25

39%

34%

10%

9%8%

Woolworths

Coles

ALDI

IGA

Other supermarkets


It now has 226 franchises across six states, delivering 1.3 million food and grocery products each week to more than 130,000 customers. There are also over 160 farmers markets operating across Australia, providing direct connections between producers and consumers who want fresh food straight from the source. They are estimated to have a 7% market share of fresh food sales.

Despite food being concentrated in the supermarket channel, a significant share of Australia’s food spending also goes to independent fresh food specialists (like bakeries, greengrocers, fishmongers, and butchers), as well as takeaway restaurants and cafés.

2726

With Proximity to customers such an important factor in determining a brand’s success, having a place on supermarket shelves is obviously a priority for FMCG brands. The supermarket giants are looking for suppliers to innovate in order to keep their position on shelves. Brands need to be the leader in their category, such that they turn supermarkets into simple distribution centres for their goods.

With shoppers voting with their wallets, brands need to turn their customers into advocates that are strong enough to demand their presence. A great example of this kind of campaign comes from the team behind Thankyou Water. After several unsuccessful meetings with Coles and Woolworths, they had failed to get their products stocked on supermarket shelves. So when they launched their body care and food ranges in 2013, they also launched a social media campaign designed to

The campaign saw great success, with thousands of people posting their support, tens of thousands of people watching the campaign video, and over 15 million media impressions – plus both Coles and Woolworths agreed to stock the Thankyou ranges.

Another strategy that suppliers can use is to look for specialty stores which align with their own customer base, in order to increase their Proximity to their customers by taking them from the dimension of ‘the world’ to ‘my world’ - the world of an individual consumer’s interest groups and communities.

Brands could also consider radical innovations like finding new ways to distribute their goods to consumers directly, circumventing the retailer. To do this, they need to create relevance and connection by delivering on consumer’s interests, needs and desires. But what exactly do consumers want anyway? Two of the biggest factors determining their choices – price and values – are discussed in the next section.

brands need to turn their

customers into advocates that are

strong enough to demand their

presence

use customers themselves to convince Coles and Woolies that they should stock their products. They asked people to post on Coles and Woolworth’s Facebook pages telling them that they’d buy Thankyou products if the supermarkets stocked them.


29

Despite how much we love to whine about the price of a coffee, food prices in Australia are rising at a slower rate than many parts of the world. For much of the past two decades, the consumer price index for food in Australia has been lower than the OECD average.

This is good news for consumers. Since the GFC, desperate companies have trained consumers to expect price reductions, rewards, and promotions as a matter of course. As people purchased more food for meals eaten at home (owing to the belief that it is cheaper than eating out), grocery retailers responded by increasing the focus and intensity of their promotional campaigns around ‘meal value’ and extending their use of private label lines in staple products. This increased the intensity of price competition between grocery retailers.

The high competition between Coles and Woolies has caused the supermarkets to use extensive price-based promotional strategies to win sales growth, passing this through the supply chain in the form of price pressure on suppliers. Combined

desperate companies have

trained consumers to expect price

reductions

with a strong Australian dollar, this has caused a significant increase in import penetration as brands struggle to stay competitive in a country with high costs and low margins.

NOT VALUE, BUT VALUES

30

Australian families continue to be price-conscious, with 80% of Australians believing that price reductions make a big difference, and 70% saying cost is the biggest influencing factor when it comes to purchasing grocery items. Clearly, brands who exhibit Generosity through price cuts, multi-buys and other deals can reap immediate rewards from consumers.

Price is becoming an even more important factor with the rise of the online shopper. Through the web, online shoppers have greater access to information about prices across supermarkets, and the ability to quickly find the next new thing at even more affordable prices. The near-perfect information and choice available online has further brought prices down.

With price such an important decision-maker, Australian consumers are among the most promiscuous grocery shoppers, as compared with other countries. Consumers are increasingly disloyal to brands - happy to switch to whatever is on special - and they are even disloyal to supermarkets.

31

As shoppers become fatigued with weekly promotions and all of this downward pressure makes it difficult to be the cheapest, supermarkets and brands need to get creative in their marketing of products that are not leaders in their category. Brands need to create meaningful reasons for consumers to stick with them, despite paying a premium. New lines that aren’t necessarily low priced can succeed - but they must have the right offer which meets a consumer need.

70.0

52.0

35.0

17.0

00.0Price or special offer

What’s in season

Whatever Ingredients I

need

Local Produce

Dietary needs

Don”t care about cost

just convenience


32

One reason customers are willing to pay a little extra for their groceries is to fulfill social and ethical responsibilities. People have come to expect brands to be Generous - not just to individuals, in providing value for money, but also to communities, the less privileged, and other causes like the environment. Increasingly, consumers project their own values onto a brand and use shopping as a proxy for their own ethical contribution to society. What a brand believes in and how it helps communities and the environment are becoming important factors in consumer purchases.

Consumers want to know that their food has been ethically sourced and farmed. This has seen organic options and grass-fed beef gain attention, and 25% of consumers only buying eggs if they are free range and chicken if it is RSPCA approved. 36% of people are willing to pay at least 5% more for ethical and fair products, and 29% are willing to pay 5% more for

33

consumers project their

own values onto a brand

a product that minimises environmental impact. In today’s emerging generations, these percentages are even higher, suggesting that this trend is only going to strengthen.


34

Consumers today are understandably concerned about sustainability, as de-

mands for natural resources continue to challenge supplies. By 2030, the world's

population will reach 8.3 billion, boosting demand for food and energy by 50% and for fresh water by 30%. In this light, sus-

tainability is simply smart business.” - Muhtar Kent, Chairman and chief executive, The Coca-Cola

Company

3736

In response, brands such as Coca-Cola have embraced sustainability whole-heartedly. They are reducing their eco-footprint and reliance on fossil fuels with PlantBottle - a fully recyclable plastic package made up to 30% from plants, and are working to create a bottle that’s 100% made from plants. They also want to protect the ingredients that go into their products, like water. By 2020, they aim to give back 100% of the water they use in their products.

The trend has also seen a rise of sustainable cafés and grocery stores, which have grown by positioning themselves as not just providers of products, but providers of lifestyles. Aboutlife, which now has 5 stores in Sydney, embraces the grocery store as a lifestyle experience. Not only do they focus on organic and natural foods, but each store has a whole food café and natural pharmacy. Similarly, in southeast Queensland, Wrays Organic Market and Café has grown from humble beginnings to now having 9 stores open.

Clearly, Generosity from brands on an individual level, in the form of discounts, two-for-ones, giveaways and competitions, is well appreciated by consumers. But as maintaining significant differences in prices becomes increasingly difficult for producers and supermarkets, profit margins are squeezed, and consumers tire of seeing the same deals, being Generous at the level of the individual may not necessarily pay off in the long run, as consumers will

presumably take their business elsewhere as soon as your brand is no longer the cheapest. Even being Generous at the level of the community, while currently a factor of consumer decision-making, will have diminishing returns as it becomes the norm for companies and consumers simply expect, rather than appreciate it.

In this light, being Responsive to consumers may actually have more significant payoff for some brands. It will become more important to differentiate and innovate, in order to better respond to consumer values, desires and goals. Supermarket loyalty cards provide an opportunity to capture data on these consumer interests. Australians, being the value-conscious shoppers that they are, are more than willing to use these in return for targeted, relevant discounts. 14.5 million Australians are using FlyBuys and Woolworths Rewards loyalty cards, meaning supermarkets can gather all kinds of data on consumer habits, budgets and lifestyles. Targeting specific consumer interests and becoming a reflection of their lifestyle will put brands on the road to magic.


39

For example, Coca-Cola’s newest release in Australia, Coco-Cola Life, claims to have a third less sugar and a third fewer calories than regular Coke, as it’s sweetened with a natural plant extract, stevia.

As we become more aware of the health consequences of certain diets, gluten free, preservative free, allergen free and dairy free have become food buzzwords, and alternatives, such as soy milk, almond milk, and rice milk are no longer hard to find at a café or on shelves.

According to Australian Bureau of Statistics data, 51-70 year olds are the most likely to be on a diet. Overall, the top types of diet for both men and women over age 15 are weight loss or low calorie diets, low fat or cholesterol diets, sugar free or low sugar diets, and low carbohydrate diets.

38

It seems everyone is on a health kick these days. From kale to quinoa, chia seeds to acai, a new ingredient seems to reach ‘superfood’ status before most of us even learn how to pronounce the last one.

Part of this is due to the fact that today’s consumers are more educated and more engaged with their food than ever before. As a result of growing concern over health and safety, 56% of consumers spend more time reading labels, looking at ingredients and searching for additives than 3-5 years ago. As they learn more about the benefits or otherwise of certain foods, consumers are following trends in healthy substitutes, trialing elimination diets, and taking up alternatives like Meat Free Monday. ‘Clean’ or less processed food is on the rise, as 59% of consumers globally find food or drinks with as little ingredients as possible appealing.

This has seen the demise of fatty foods, and an increase in foods with less sugar, salt and fat. Foods which claim to be low calorie or ‘natural’ are also on the increase. Healthy alternatives to junk food are appearing everywhere - with veggie

chips replacing other crisp snacks and veggie juice becoming an alternative to soft drink. FMCG companies increasingly look for ways to ‘disguise’ healthier foods without sacrificing taste.

today’s consumers are

more educated and more engaged with their food than ever

before

HEALTH KICK

40 41

And it’s not just what we take out of our diet that’s important. Consumers are also wanting to add healthier foods to their diet and are paying attention to things such as their vitamin intake. FMCG companies attract consumers through claims of natural enhancers included in their products. We all know beverages which have taken this route - think vitamin waters and sports drinks - and supermarkets are in on the trend too, with Woolworths partnering with Costa to create a range of Vitamin D-enhanced mushrooms. Other types of enhancers are being added to non-edible products too, as brands like Nivea have brought out energy-inducing face wash.

People are increasingly curious about the ‘cleanse’ concept and green juices filled with kale, spinach and other vegetables are popular at cafés. Sales of cold press mechanical juicers have burgeoned, with claims that they retain more nutrients from fruit and vegetables. Juices are seen as a quick and easy way to get our fill of vegetables, and 55% of consumers globally say they are trying to eat as many vegetables as possible.

Despite this, many people are not getting their recommended daily dose of fruit and veggies. Australia ranks highest for daily fruit and vegetable consumption amongst all the OECD countries, yet only 5.5% of Australian adults reach the recommended intake of 5 serves of vegetables and 2 serves of fruit each day, with women more likely to meet both guidelines than men (6.5% and 4.5% respectively). Older Australians are more likely to meet the guidelines than younger adults, with 8.8% of persons aged 85 years and over consuming the recommended intake of fruit and vegetables, compared with just 3.4% of people aged 25-34 years. 54% of people believe it is too difficult to include fruit and vegetables in their daily diet, with some claiming it is too expensive, and others that they take too long to prepare.

60.0

45.0

30.0

15.0

00.0Weight

Loss - Low Calorie

Low Fat - Cholestoral

Sugar Free - Low

sugar

Low Carbohydreate

Male Female

HEALTH KICK

43

HEALTH KICK

Obesity remains a major problem, with 10.8 million Australians classified as overweight or obese. 26% of people believe accessibility of junk food is a cause. The burger is still our favourite fast food, with 26.5% of the total fast food market spend, but there has been a five year decline in this which is set to continue. Pies, sausage rolls, pasties, fish and chips have declined too, while sandwiches, salads and juice bars are unsurprisingly on the up.

Some QSRs are feeling the pinch as customers are demanding healthier fast food choices. In 2012, compared with a general growth rate of 5% across the Australian food service industry, takeaway food grew at only 2%. Some large fast food outlets have sacrificed profit margins for market share. McDonald’s ‘Loose Change Menu’, aimed at attracting customers with small, cheap snacks, is typical of this strategy. Yet the growing emphasis on premium products with premium

‘‘One in three Happy Meals sold in Australia includes a healthier choice of either a

grilled chicken snack wrap, apple slices, low-fat flavoured

milk, fruit juice or water’’

- spokeswoman for McDonald’s

0.8 million Australians classified as

overweight or obese

pricing has helped boost margins. QSRs have added fresher, salad-based menu offerings, and this has largely managed to offset potential loss of business due to dietary concerns.

42

44

Consumer demand has been met with the expansion of options in the high growth sector of sandwiches, salads and juice bars. Subway has forged a dominant role in the market, but other healthy option brands, like Boost Juice, Sumo Salad and Healthy Habits have carved strong niches too.

By being Responsive to customer desires and habits, brands can create and alter products to suit consumer lifestyles and ultimately become a more appealing option on the shelf.

The fact that consumers display a strong preference for eating healthy, but find it difficult to do so, displays a great opportunity for FMCG brands. Providing low calorie, low fat, sugar free and low carb options which don’t make customers feel like they are missing out on taste will appeal to those who are on diets. Creating convenient healthy options for busy lifestyles will also make it easier for customers to integrate healthy foods into their diet, and this presents a great

consumers display a strong

preference for eating healthy, but

find it difficult to do so

opportunity for QSRs.Producers and supermarkets should also exhibit Generosity, by finding innovative ways to provide value to customers who feel that eating healthy is too expensive.

HEALTH KICK

46 47

Consumer preference for local, yet diverse As consumers become experts about food (how could they

not be after five seasons of MasterChef?), their tastes have changed and they’ve grown to focus on how food is prepared and where it comes from. While Australians prefer locally sourced food, they also love diverse flavours and cultural influences.

A large majority (71%) of us say it’s important to know the source of our food, such as where it originated and whether it was ethically farmed. Many people prefer to cook at home as it means they have more control over their ingredients and where they have come from. People look for ‘Australian-made’ labels, and even more local foods from their own region, town or city. Brands increasingly need to answer consumer’s questions

While Australians prefer locally

sourced food, they also love diverse

flavours and cultural influences.

about where exactly their food came from and how it was prepared. The ‘paddock-to-plate’ trend is also visible in the growth of sustainable cafés and farmers markets.

FOODS FROM NEAR AND FAR

49

Reasons for preferring local vary. When it comes to fresh produce, 85% of consumers prefer Australian-sourced foods. This is partly because there is a perception that Australian fruit and vegetable produce is of better quality and taste, but also that local food is fresher. Our obsession with fresh food has grown alongside the popularity of cooking shows - it only takes Jamie Oliver to utter the word ‘fresh’ and everyone is out looking for veggies that are still in the ground, covered in dirt. A whopping 82% of Australians now state that buying fresh is important to them – up from 68% just 3-5 years ago.

While 55% of us believe that packaged goods are the same quality whether they are Australian-made or from overseas, many also choose to buy local packaged food because they want to minimise environmental impacts or support local producers, with 40% of us claiming to be passionate about supporting local farmers. Woolworths reported that when it switched to 100% Australian sourcing for its private label canned goods in 2013, sales of canned fruit increased for the first time in 3 years.

New types of grocery stores are emerging to appeal to consumers who are emphasising fresh and local. Organic retail outlets like Aboutlife are fitted out in natural, earthy décor to replicate the look of farmers markets and imply a ‘back to basics’ approach. People look to grocery stores like this as a way of engaging with their local communities. They are looking for a supermarket that is also a ‘lifestyle destination’, where they can make use of in-store cafés and bars, and eat, socialise, and be entertained.


5150

The ubiquitous gourmet cooking shows, interest in gourmet travel and the increased multiculturalism of our urban communities have also contributed to Australia’s increased palate for diverse foods from around the world, and produced a great willingness to try new cuisines and flavours. Exactly what we prefer to eat varies across age categories, but overall, the range of options available and the varying tastes amongst Australians shows a nation with sophisticated dining tastes and consumers who aren’t afraid to experiment.

In many cases, customers hunt for more authentic versions of traditional ethnic foods, or, in a trend which seems to be going the other way, experiment with what have been called ‘mutant foods’ – foods which combine the cuisine of more

18-32

22-47

48-65

66+

0 25 50 75 100

Fast Food

Sandwich / Rolls

Pizza

Sushi

Salad

Crepes

Kebab

Chinese

Other

Foods most likely to be purchased in a food court by age group

a nation with sophisticated

dining tastes and consumers who aren’t afraid to

experiment.

than one country, like sushi tacos. Recent times have seen the introduction of cuisines from places like Taiwan, with tea chain outlets like Chat Time and EasyWay, and Korea, which has brought frozen yoghurt chains.


5352

As we become more passionate about experimenting with food, ‘gourmet getaways’ have become trendy, with food and wine ranking highly in holiday decision-making.

People are also willing to pay more for food that is perceived

to be gourmet. This goes for beverages too, with premium coffee and teas increasingly popular. There are more specialty tea stores and more sales of herbal, green and fruit teas. And as coffee has become ingrained in our culture and lifestyle, cafés have become places for socialising and business meetings. Not only do people relish in the search for the best coffee in cafés, but more premium options are being created for use in the home, as we try to replicate the taste of café coffee. The likes of

Brands need to increase their Proximity to consumers by tailoring their marketing of local products and providers. One of the keys to the success of brands like Aussie Farmers

Direct is its sourcing of as much product direct from farmers as possible. With sustainable grocery stores, products can enter into the realm of ‘my world’ simply by being from a consumer’s local community. Generosity plays a role too, as customers look for the added value that grocery stores can provide to their lives, over and above products.

Being Responsive to consumer preferences for gourmet, diverse and experimental foods will help brands attract more sales.

People are also willing to pay more

for food that is perceived to be

gourmet

Nespresso coffee machines and pods have reached new heights of popularity, and, you guessed it – Coles, Woolies and Aldi have released their own alternatives.


As a society, we are busier than ever. We work longer hours - both men and women - and our smart devices have become extensions of ourselves, meaning we never really switch off. Gen Y are so busy that they skip breakfast twice a week and only half of them eat most of their meals at the dinner table. And despite our love of all things gourmet, we don’t have the patience to make a curry paste from scratch. In fact, 1 in 5 of us couldn’t even name a single ingredient that goes into one.

We’re used to receiving things fast - with just a click of a button we can order an outfit online and be wearing it within three hours thanks to brands like The Iconic. We want the same from our groceries. With 1 in 4 Australians doing their shopping ad hoc and as needed, speed can be a decisive factor when purchasing packaged goods. Whether it’s pre-chopped vegetables or quick drying self-tan, we want products that save us time and fit in with our busy schedules. Consumers are

Gen Y are so busy that they skip

breakfast twice a week

even making use of petrol convenience stores, which, according the Australasian Association of Convenience Stores, beat grocery on percentage sales growth over the 12 months from 2013-14.

NEED FOR SPEED

56

Our obsession with health makes traditional fast food such as McDonalds very much a ‘sometimes’ thing, but we still want our food fast. This has seen an increase in on-the-go options that are at the same time fresh and healthy. Woolworths has seen great success with its in-store sushi bars and prepackaged salads. Products that have focused on the convenience of portion-controlled sizes and reduced meal preparation have grown. Australians have shifted from preparing meals from scratch to the convenience of semi-prepared meals. We’re even willing to buy pre-cut bags of carrots, despite the fact that they can cost between two and four times more than whole carrots.

Despite a contraction in the café and restaurant industry after the GFC, as consumers shifted from eating out to eating at home, over the long term, Australians remain big spenders on eating out. The average Aussie eats out four times a month and spends $70 per week at cafés, takeaway shops and restaurants, which equates to $60 billion across the country. But the types of places where they eat has changed. While average spend per month on fast food increased by 23% between 2009-13, the average spend per month on restaurant dining fell by 9%, demonstrating that consumers have begun to prefer casual food options. There has been a blurring of casual café outlets,

which have traditionally been based on a coffee offering, with more formal restaurants, as consumers look for a dine-in option that suits their needs. Breakfast has also become more of a meal occasion through this channel.

With the trend towards casualisation, consumers are looking for more single item menus or back to basics, comfort food with fewer ingredients. 48% of people say that their favourite dining experience is home-style cooking. This preference will see restaurants continue to casualise their offering and simplify their menus (hot dog only restaurant anyone?).

QSRs that have capitalised on convenience and meal value have outperformed others. Franchise brands such as Domino’s and Pizza Hut have developed online and app-based ordering systems, which have made it easier and more convenient to order. There is also an impact from websites that act as online ordering portals, like Menulog.

NEED FOR SPEED

58 59

Increasing numbers of online and app-based shopping is another reflection of our desire for convenience. Apps are seeing higher shopping frequency and conversion rate - consumers are 5 times more likely to browse a retailer’s products on a regular basis once they have installed an app. P&G in the Philippines has seen success with their branded apps. Having found that the in-store experience was the most important moment in their consumer’s path to purchase, they wanted to make their in-store marketers more relevant for smartphone-savvy consumers.

Research has shown that 85% of shoppers prefer to use their own devices to research products, and only 4% want help from store employees, so P&G gave each of their in-store marketers tablets and created interactive apps for 20 of their brands to drive engagement. The apps gave information about products and included reviews and product demonstrations. For example, the Pantene Hair Health Care Check app allowed consumers to specify their hair damage to receive

Desire for a more convenient way to shop has also seen a clear trend towards Internet shopping across many categories, with Australians who do not buy something online in an average three-month period becoming a minority for the first time in 2013. FMCG are no exception. Online grocery shopping currently makes up just 1.2% of Australian supermarket spending, but it is growing fast, with time-poor and tech savvy consumers looking for an easier way to get their grocery shop out of the way. Of all online shopping, the fastest annual online sales growth from 2013-14 occurred in groceries and liquor, with a 15.9% growth in sales.

consumers are 5 times more likely to

browse a retailer’s products on a

regular basis once they have installed

an app

personalised product recommendations. As a result of their app’s informational features, P&G recorded a 32% increase in the amount of products sold by the in-store marketers in just one month.

NEED FOR SPEED

6160

Younger consumers, unsurprisingly, express the greatest need for speed. 38% of 18-34 year olds use their mobile or apps when shopping for food, in comparison to only 12% of those over 35. Of those who plan to make an online grocery purchase in the next 6 months, 56% are Millennials. Online spending remains dominated by those between 35 and 44, but the over 65s are catching up, with positive growth rates often higher than those of other aged groups. They now spend a large proportion of their online dollar (28%) on Groceries and Liquor.

In order to have the best hope of attracting increasingly time-poor customers, brands should be Generous in setting up and improving online offerings. Investing in the availability of customer service to provide ease of use for online shoppers, and providing a range of convenient and speedy delivery options will be important. Brands can also exhibit Generosity through free apps and features, which may not directly correlate to sales but improve customer’s overall brand experience. For example, Woolworths’ app asks for your local store so that it can tell you which aisle items on your shopping list can be found in – clearly a time saver for shoppers.

Brands could also exhibit Responsiveness to consumer preferences for fast and casual options by expanding their offering of semi-prepared meals and ingredients, and ready-meals, which are at the same time fresh and unprocessed. Time saving innovations for cooking will increase convenience for busy households. Pre-chopped, washed and packaged vegetables and salads, or frozen veggies and semi-dried herbs, which translate to less trips to the shops, are just some examples of convenience products. Consumers will increasingly like to shop for entire recipes or meal plans at once, and supermarkets should link fresh foods with complementary products from other departments through clever positioning. Shoppers also want to experience time saving innovations at the checkout – both in bricks and mortar stores (think self serve) and online.

NEED FOR SPEED

62

There are other creative ways to make shopping experiences more convenient for consumers. Coles has expanded to new categories such as apparel, to attract consumers who want the convenience of an all-in-one shopping experience. Woolworths launched pop-up virtual stores in Sydney and Melbourne CBD train stations, where potential customers could go ‘in store’ and browse a range of product photos. Using the Woolworths’ app to scan the QR codes on desired products, orders were placed and finalised via the online store, and then filled by shops close to the delivery address. Woolies has also engaged customers with virtual stores on bus shelters

consumers who want the

convenience of an all-in-one shopping

experience.

and vertical scrolling posters within train stations. In this way, Woolies increased its Proximity to customers – being present in their physical world, and engaging with them online at the same time.

NEED FOR SPEED

64

There’s one thing that consumer packaged goods have in common, and that’s - well, packaging. It’s no surprise that packaging has a significant impact on consumer choices, with environmental considerations and health concerns some of the major deciding factors.

As the environment increasingly ranks as a decision-making factor when shopping, consumers look to reduce their packaging footprint. Packaging that is smaller, reusable, or even dissolvable, is on the up. In the UK, GreenBottle, an alternative to plastic bottles made from a paper outer shell and containing a thin plastic liner to hold liquid, offers reduced reliance on petroleum-based materials. Pouch packaging offers similar advantages and is being used for products from juices to rice to readymade meals. KFC in the UK has taken this a step further with their Scoff-ee cup – an edible coffee cup made out of a mixture of coffee, cookie and white chocolate.

65

0 20 40 60 80

Best before/ use by date

Fat content

Country of origin

Sugar content

Ingredient list in general

Saturated far content

DON’T JUDGE A PRODUCT BY ITS PACKAGE

66

With women increasingly in the workforce, more men are taking on tasks that women used to dominate, such as grocery shopping, cooking, and household cleaning. As a result, marketers are paying more attention to the male consumer. Consumer packaged goods companies are finding creative ways to attract the male shopper and ease women’s concerns that men will ‘mess up’, by, for example, using no-nonsense messaging, a casual tone of voice and simple imagery.

Packaging is also becoming smarter and more technologically connected. In 2014, Nestle became the first brand on our supermarket shelves to use near field communication (NFC) on its packaging. It used QR codes to connect shoppers with oat recipes, developed in partnership with Woolworths Fresh Magazine. This campaign was designed to strengthen the launch of their new oats product at Woolworths. Nestle has also launched a campaign called ‘Beyond the Label’, where they use QR codes on more than 150 of their MAGGI products. When customers scan the codes, they are taken to nutritional, environmental and social information about the product,

67

more men are taking on tasks that

women used to dominate

including ingredients lists, recipe ideas, sustainability, and other information that they would not be able to fit on the physical packaging. This creates a more engaging experience for consumers.


68

“This type of edible packaging is definitely aligned with the global consumer mind-set in terms of sustainability and

simplifying their life… Millennials in particular want to

make sure an innovation is functional, works and is right

for their lives” - Shilpa Rosenberry, senior director of global consumer

strategy at Daymon Worldwide

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Packaging can strongly influence our purchasing decisions, whether consciously or not. Consumers perceive products with green labels to be healthier, and ticks and seals are subconsciously seen to indicate that a product has met some certification criteria.

Some companies increasingly try to push legal boundaries and loopholes in order to mislead consumers. In 2014, the Federal Court decided that Coles breached Australian Consumer Law by claiming its bread was “freshly baked” or “baked today”, when in fact the bread was partially baked in overseas factories and imported into Australia. There are several other ways that companies mislead shoppers too – and get away with it. Loose terms such as healthy, premium, natural, and pure are used to imply product benefits, without having any definitive meaning.

While you would think that if ‘Made in Australia’ appears on a product, the ingredients were grown and sourced in Australia, it may simply mean that at least half the cost of making the product was incurred in Australia. Instead, consumers should look for ‘Product of’ or ‘Grown in’ labels, which do refer to locally sourced goods.

Similarly, you would be forgiven for assuming that any product described as ‘organic’ would be sourced from organic farming. However, if there’s no certification on the product, there is no guarantee that it has met any particular standards. Some companies have tried to confuse consumers by registering the word ‘organic’ as a trademark, and the ACCC recently forced several bottled water companies who used the term organic as part of a trademark to change their brands. A national definition for free range is also on its way after Pirovic was fined for promoting its eggs as free range, despite their hens being housed in crowded barns. And let’s remember that many consumers are willing to pay a significant premium for organic products, and as much as double for eggs that are free range.


72 73

Other products claim to be superior, without specifying what they are comparing themselves to. For example, Fountain’s Smart Tomato Sauce’s label states it has 25% less added salt, but on closer inspection, an asterix tells us it has 25% less added salt than a regular Fountain Tomato Sauce 500ml bottle. It still contains 410mg of salt per 100ml (while The Heart Foundation defines low-salt foods as those with less than 120mg per 100g). Similarly, Sun-Rice Naturally Low GI White Rice states it is ‘cholesterol free’, which is actually true of all rice. It is also low GI, but basmati rice from other brands would have a similar GI. To stay relevant to consumers, brands

And as the ACCC cracks down on misleading consumer packaging, brands should be aware that it could cost them more than just a hefty fine. Consumers will become increasingly skeptical of packaging claims and fatigued with brands that are perceived as inauthentic. Brands should be Generous in their provision of accurate details about their products. Consumers are looking for brands who are trustworthy, honest and even human. Brands that introduce frankness will be more attractive. In fact, one study found that the number one thing consumers want from brands is that they communicate honestly about their products and services. products claim

to be superior, without specifying

what they are comparing

themselves to

should be Responsive to their demands for environmentally friendly packaging, and Generous in their investments in new styles of packaging which benefit the environment.


74

In our multi-device, technologically connected world, we are consuming less traditional media - like radio, TV and newspapers – than ever before. Consumers are no longer passive recipients of brand communications broadcasted on TV or sent through direct mail – they are able to research brands themselves to find out if the claims they are making are true, and can be a part of a conversation with other potential buyers.

Even if they are not always purchasing online, consumers are using digital to help them select products and conduct research, both in-store and at home. As many as 60% of Australians are using a combination of online and traditional stores to fulfill their grocery needs.

Audience attention may have fragmented, but that does not mean there is no way for brands to reach consumers. In fact, marketers have more avenues than ever before to reach consumers. The challenge is that consumers flit between channels easily, and they want brands to transition between their worlds just as easily. Customers want an enjoyable end-to-end experience, not just a product.

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OMNIPRESENCE

76

“Multi-channel is an operational view – how you allow the customer to complete

transactions in each channel. Omni-chan-nel, however, is viewing the experience

through the eyes of your customer, orches-trating the customer experience across all channels so that it is seamless, integrated, and consistent. Omni-channel anticipates that customers may start in one channel

and move to another as they progress to a resolution. Making these complex ‘hand-

offs’ between channels must be fluid for the customer.”

- John Bowden, Senior VP of Customer Care at Time

Warner Cable

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To be more present in customer’s personal, social and wider lives, brands need to be using not just multi-channel, but ‘omni-channel’ campaigns. This means engaging with consumers in-store, online and through on social media, and offering customers the ability to shop where they want, and receive their purchases whenever they want.

FMCG companies need to take advantage of the multiple opportunities to connect with consumers to create a better in-store experience, as well as completely new shopping experiences.

Pre-shop, brands can use channels such as social media to engage consumers. Social media, which lives between our second and third dimensions of Proximity, is increasingly driving our food choices, as more people follow restaurants and chefs, as well as major brands and even supermarkets. Coles currently has over 800,000 Facebook fans and Woolies over 700,000. Social media is becoming a low cost alternative to traditional marketing channels, with brands able

79

At the sales or transactional level, social media can also be useful. Aussie Farmers Direct, for example, has 10 staff monitoring Facebook and supplying answers to customers’ queries in real time. During their shop, customers want an easy and enjoyable experience. As online retailing continues to grow, providing brand experiences in-store will become even more important. Two thirds of Australians view grocery shopping as an opportunity to try new innovations, which they feel add to their shopping experience. Shops should respond to consumer demands by making the shopping experience personalised and interactive. New distribution models like pop-up shops, virtual shops, ‘endless aisle’ in-store kiosks for customers to shop for harder-to-find products, and the grocery store as a lifestyle destination will continue to grow.

After their purchase too, customers want ease and enjoyment of use and the satisfaction of their expectations. People are prioritising experiences, and in return, brands are making products fun, through games or customisation. For example, India’s Lifebuoy colour-changing handwash goes from white to green after 10 seconds of use, and Brazil’s Nestle Fast Suflair Shake becomes more creamy the longer you shake it, effectively customising it according to taste.offering

customers the ability to shop

where they want, and receive their

purchases whenever they want.

to reach out to a community of users, as well as their wider communities. Brands are leveraging social media for co-creation, engaging with consumers on product designs.

OMNIPRESENCE

80

Coca-Cola Amatil has had great success with omni-channel marketing in Australia. With a product range that includes coffee, water, juice, tea, fruit snacks and alcohol, as well as the famous trademark Coca-Cola brands, they have found ways to use an omni-channel strategy to communicate more effectively with their customers, drive brand preference and make more sales. For example, they use digital screens in pubs and clubs to display advertising for their products, with rich content delivered to screens via the Internet. The content is able to be dynamic, keeping up with current promotions, competitor activity or even changes in the weather – something a paper poster could never do. The screens also have built-in wireless routers, which Coca-Cola Amatil uses for Proximity-based marketing.

They provide deals such as ‘Buy a Jim Beam and get free Wi-Fi for 30 minutes.’ This has seen sales increases of anywhere from 20%. By entering the Wi-Fi hotspot, customers also have the opportunity to opt in to a digital relationship with Coca-Cola Amatil, where they will receive relevant offers based on their individual requirements and Coke will gain valuable customer profiling and data which they use to find out how, when and with what other products consumers are buying Coke products.

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OMNIPRESENCE

The growth of channels also means data is available to retailers from more touch points than ever, providing brands with more opportunities to be Responsive and create personalised, individually relevant offers. Consumers will indulge in products uniquely suited to their tastes, interests and values.

Using social media, online shopping, and data at the point of sale through means such as loyalty programme cards, supermarkets can create long-term individual customer relationships. They can get to know their consumers intimately, and suggest items tailored to customer preferences via email. The value chain is becoming more intimate, as consumers share more information with retailers, but expect more in return. Sophisticated data analysis will help retailers be Responsive to customer’s desires, needs, and purchase history and provide more relevant offers. Apps can sync with loyalty programs in-store, to get people pulling their phones out while browsing the shop, and allow brands to provide recommendations and discounts in real time.

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Suppliers can take advantage of technology and increased touch points to create their own market presence, as well as to listen out to shoppers in their niche across many channels, to spot trends, discover what they are looking for and respond to their needs - and let them know how they have responded.

Retailers, cafés and restaurants should also offer experience-enhancers such as free Wi-Fi. Not only does this give them opportunities to deliver advertising or special offers to people that connect to the service, offer benefits to those who share their experience on social media, and gather data about their spending habits, but it is also an act of Generosity which customers appreciate, and could attract people who might not have otherwise engaged with the brand. Engaged consumers will comment on Facebook pages, watch branded YouTube videos, give their email addresses and enter competitions. If

83

discover what they are looking

for and respond to their needs

they are engaged enough through interesting, informative and fun content on a range of platforms, even a promiscuous consumer may choose to ‘go steady’ with one particular brand

OMNIPRESENCE

84

The world of FMCG is complex. Consumers have diverse and often contradicting demands. But what analysis of these trends has confirmed is that brands who focus on increasing their Generosity, Responsiveness, and Proximity have and will create moments of awe, wonder, surprise and delight for customers – which just might translate into a bit of magic for the brands themselves.

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CONCLUSION

86

Both quantitative and qualitative research methods were used to create this report. A broad survey was conducted of available statistics, information, discussions, research papers and articles on the FMCG industry. While there are many current trends in the FMCG arena, these trends were chosen to be included in the report based on the impact that they are likely to have on the industry in Australia in the coming years. Further research was then undertaken on the wider cultural and social background of each of these shifts, and how they came to enter the FMCG field. Critical analysis provided suggestions for areas of focus for companies in order to respond to the current landscape.

METHODOLOGY

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To find out more about us please visit:

www.newrepublique.com

or contact us on: +61 2 9332 2218

88

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