Capabilities expansion

Key learnings from the pandemic include the importance of agility, the advantages of a strong-and-short supply chain and the need for direct customer engagement. The use of digital channels has accelerated rapidly and is expected to continue. From our survey report (PDF 2.3 MB), of 43 percent of consumers using in-person channels to contact brands for support, 33 percent have now switched to digital. Most sector players who lacked an online presence faced supply and distribution challenges. Companies pursued two solutions amid several government-imposed restrictions: Inorganic – partnerships with players such as food-delivery operators offering last-mile connectivity and distribution; Organic – through innovation, such as PepsiCo launching Pantrystock.com and Snacks.com, direct-to-consumer websites for personalized orders at home. 

Most large, fast-moving consumer goods (FMCG) players seem determined to strengthen their D2C channels and exert more control over their digital presence, while investing in capabilities to converge supply chains for online and offline channels, along with the consumer buying journey and product return journey. This is expected to reduce costs while better meeting consumers’ online preferences and enhancing consumer-data use amid evolving consumer behavior. Nestlé made two such investments in its DTC capabilities in Q4 2020, fresh-meal delivery service Freshly in the US, and UK meal-kit service Mindful Chef.

Another trend worth watching in 2021 is fintech expansion, as online and non-store purchases are projected to grow from 14.4 percent to 19.2 percent by 2024 in the US² alone. Meanwhile, the digital- payments market is projected to grow at a CAGR of 13.5 percent over 2020-25³. This is expected to propel M&A deal making among consumer players looking to strengthen financial technology capabilities. In another example, Walmart is turning four of its stores into laboratories that will test ways to turn the company’s huge physical footprint into a more-powerful force for e-commerce⁴.

Global US food giant Mondelez International⁵, for example, has noted its intent to increase investments in social media, data-driven engagement and online shopping innovations to strengthen DTC engagement. General Mills⁶ also intends to invest in similar capabilities, particularly data and analytics. We expect consumer players to keep investing in assets inorganically, especially looking for assets that enhance capabilities across both the back end (supply chain) and front end (marketing and distribution).