FMCG Consulting

New Zealand based strategy consulting and technical training practice focused on assisting consumer product organisations achieve step changing growth.

FMCG Consulting is an Auckland, New Zealand based strategy consulting and technical training practice focused on assisting consumer product organisations achieve step changing growth. 

3 Practical Strategies to Manage FMCG Brands in a Sugar Tax Economy

Fat, sugar, carbs, sugar, Coke, McDonalds, Facebook, Instagram, Snapchat, WhatsApp, YouTube, Twitter, Minecraft, League of Legends, Amazon, Netflix…………………. What’s the common thread that binds them all? Obesity - All can cause obesity. We know the simple formula below (though a number of people have suggested variations of it to suit their needs)

Energy in – Energy used = stored fat / lost weight

Elementary mathematics?

So what increases the ‘energy in’? Pretty much everything you eat and drink except water.

What prevents energy from being used? Activities that keep you from moving physically.

There has recently been a lot of attention on the time spent on social media and the explosion of the online gaming industry, both of which do not contribute to major physical energy usage. These enjoyable engagements tempt impressionable (not necessarily young) people to keep sitting rather than moving. Should these games come with a warning like: excessive use could impact your health adversely and even cause death? By extension, should Facebook be configured in such a way that it stops functioning after being used for 60 minutes in a 24hr period? But then you are taking away personal choice….and this in fact is the primary counter argument to all the soda / sugar tax laws on the cusp of being implemented in some key nations.

A number of countries are considering a sugar / soda tax – and the reason they believe this diet engineering will work is the success with the tobacco experience based on economic theories of price elasticity. Keep increasing the cost till more and more people find it unaffordable to buy. In my opinion it should work, as, price movement, however little, has an impact on consumer behaviour and more so on foods which are not necessities. Of course, the media will hone in on extreme examples of the young dad who did not get his young son’s infant formula because the price of his favourite fizzy drink had gone up!! “Dad robs son of food for his sugary drink” will attract lots of hits and will continue to get picked up in all forms of media as it is a more clickable story than a profile of someone who simply reduced or put a stop to their consumption due to rising costs.

Here is a detailed article of what is happening in Mexico: Soda Tax Mexico. The world is watching and a number of governments will act in the next 12 to 24 months. Some even earlier.

The UK has recently shocked the world by announcing a sugar tax much to the delight of the medical fraternity and foodies like Jamie Oliver. Other countries are actively considering or debating this - from Australia, Canada, New Zealand to India. Some will act sooner rather than later. This article shows how diet has changed for the average America since the 70s (Changing Diet of Americans ). Clearly it is not all due to sugar, added fat is a major contributor along with grains.

So what is bad for you? Current science tells us, it is all foods that don’t fill you up or provide any nutrition or fibre but are very densely packed with empty calories – think all sugary drinks, chocolates, biscuits etc. and all the cakes, muffins, pastries you can normally buy at your local café. The Australian government has had a Tax on foods which are not nutrient rich for over 2 decades. Everything that is real “food” has no tax while everything that is classified as “not real food” (think confectionery and the like) is taxed. Australian obesity, however, continues to rise at a rapid pace. Which comes back to the point that the cause of rising obesity is more complex than simply consuming too many empty calories.
Having said that, the global momentum is clearly against sugar and more specifically beverages which are emptier than a chocolate bar. Governments will act with new guidelines and even legislation. See this recent proposal by the FDA: FDA new sugar limits

For FMCG/CPG brands operating in the sugary categories it is a critical time, and how the brand is managed through these changing times will decide where it ends up in the next 5, 10 or 20 years.

Here are some practical strategies for managing through the anti-sugar mega trend that I suggest you consider when planning ahead for your sweet business

1. Acceptance.

Firstly, accept the world has changed. Anti-Sugar is not a fad – it is a mega trend. Whether the laws of various countries change or not, consumer perception of sugary food and drink is changing fast. The more a brand appears to fight this trend, the weaker the brand will become in the long term. You may win some battles, however, consumers will simply start viewing your brand as unethical, untrustworthy, profit driven, uncaring……………….and finally irrelevant. Accept, the consumer environment has changed (not necessarily the legal or tax one) and like true marketers focus on re-invention to grow. In my experience a number of global organisations and brands have a blind spot on the real reasons for business decline. Strategy at times is written without due consideration to mega trends, and a few years down the line they wonder why all the great innovation they have been investing in was irrelevant for the consumer. It was totally off trend. “The trend is your friend” is a common saying in the financial trading world.

2. Stop funding counter research:

A number of brands and industry bodies have been caught funding research showing that sugar tax won’t work or obesity is more complex than a simple sugar tax, especially on fizzy drinks. You may be right, but you are being perceived as sore losers now. The more brands are found funding this kind of research, the less believable the research results will be, even if they are perfectly true and valid.

3. Re-engineer your product portfolio :

a. Develop healthier products in similar or complimentary categories: Easier said than done, but If you aren’t doing this, then it is likely you will experience a decline in the sales of your sugary treats. I could write more about managing your innovation process and pipeline, but that maybe the subject of another article.

b. Launch a new brand: If you have brands which have previously been all about the sugary treat, you will need a new brand to launch your new healthier and relevant innovation. However, what is being seen currently is new, innovative, healthier products being launched under the same ‘sugary’ brand umbrella or being even more closely aligned with the original brand. Both of these strategies, while tempting, due to the very high brand awareness of the original sugary brand are the easier, internally more digestible and short term oriented solutions for a long term mega trend. A number of brands are on this path. If already on this path, marketers need to start hedging their brand bets by launching the same great new healthier innovation under a new brand name while it exists under the original sugary brand umbrella. The new brand should be given full support for its launch and organisations need to ensure the new brand is not sitting under the marketing management of the original sugary brand team. This is critical. In terms of financials, launching under the current sugary brand umbrella will almost always be more profitable in the short term, which is why we are seeing well-known brands head in this wrong direction.

c. Changing pack sizes: Brands that went crazy with large and very large pack sizes, now need to go the other way. Smaller pack sizes need to be introduced as some have already done, and to gain attention, maybe even ultra small pack sizes? Think 50ml can of a beverage? That’s just one gulp for some. Consumption in weight or volume will be down, however profitability per unit should be a lot higher if managed correctly. And you might just increase product trial and retention while reducing the number of heavy users.

d. Brand Positioning: the new healthier, innovative brand / product needs to be positioned distinctly differently to the legacy sugary brand. Consumers should not be left feeling that this is the healthier option from the sugary brand, rather this is a new brand with new offerings and a new personality and with no relation to the sugary brand. The earlier this distinct new brand positioning is established, the more insulated the organisation will be from competition that may not come from the known competitors within the industry.

The above are some generic steps a brand can take to manage their business in light of the anti-sugar trend. If you would like strategies and tactics customised to your business and ecosystem, please contact me through www.fmcgconsulting.co.nz

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