Comparing Traditional and Online FMCG: Benefits, Challenges and Trends

The fast-moving consumer goods (FMCG) market refers to essential items consumers buy frequently, such as food, health products, and other household products. The traditional fast-moving consumer goods market has long relied on physical stores, but with the advent of e-commerce, consumer shopping behavior and preferences have changed drastically. This article, compiled by the Vira team, compares traditional and online FMCG and also looks at the problems and benefits of online FMCG.

Traditional FMCG

The traditional FMCG market refers to physical stores such as supermarkets, hypermarkets, grocery stores, and department stores that offer daily consumer goods to customers.

Advantages:

• Immediate access: Traditional retail stores provide immediate access to products, allowing customers to physically see and examine products before purchasing.
• Tactile experience: Many consumers still value touching and in-person evaluation of products, especially for items such as fresh produce.
• Impulse purchase: Physical stores have a unique advantage in stimulating impulse purchases due to the strategic location of products.
• Trust and credibility: Well-known brands and retailers have earned the trust of consumers over time, which is very important for FMCG products.

Challenges:

• Limited access: Physical stores are limited to specific geographic locations, which limits the reach of customers.
• High operating costs: Running a physical store requires expenses such as rent, utilities, and personnel, which can reduce profit margins.
• Inventory Management: Traditional FMCG is dependent on a continuous flow of goods and inventory management can be complex, especially for perishable items.

Online FMCG

Online FMCG refers to the sale of consumer goods through e-commerce platforms. In this model, customers can order the goods they need through websites and applications and receive them online.

Advantages:

• Convenience: Online FMCG enables shopping from anywhere, and many consumers are interested in fast, contactless delivery options. For example, in 2021, around 30% of online grocery shoppers chose delivery in less than two hours, indicating a growing demand for speed in the online FMCG market.
• Wider reach: E-commerce platforms can reach customers beyond geographic limitations and expand the potential customer base.
• Personalization: Online retailers can use data analytics to personalize shopping experiences and tailor recommendations and offers to specific customers.
• Lower operating costs: Online FMCG businesses often have lower operating costs than traditional retail because they can operate without physical stores.

Challenges:

• Delivery and logistics costs: The cost of packaging and delivering products, especially perishable items, can be high and often affects profit margins.

• User Experience: Consumers expect a hassle-free online shopping experience. Any inconvenience, such as a complicated checkout process or poor customer service, can lead to cart abandonment.
• Price sensitivity: Many consumers are willing to pay only a small additional fee for the convenience of shopping online, which limits retailers’ ability to pass the full cost of delivery on to customers. A study found that only 36% of consumers are willing to pay extra for online grocery shopping, with most preferring an increase of less than 5%.

Trends and changes in online FMCG

• Increase in online shopping: Almost 50% of consumers now shop for groceries online at least once a week. Although traditional shopping has seen a resurgence after the pandemic, the convenience of online FMCG is likely to remain popular.
• Shift to fresh and frozen categories: Traditionally, online FMCG has dominated non-perishable items such as snacks and home care products. However, there has been an increasing tendency to buy fresh produce, meat, and frozen food online.
• Delivery options: The online FMCG market is moving towards a mix of same-day delivery and click-and-collect services. For example, grocery delivery platforms like DoorDash and Uber Eats have expanded into this market, offering a contactless shopping experience. Click-and-collect services have also gained attention due to their lower costs and convenience.
• User Experience: An easy user interface is essential for online use. Features such as quick selection, saved preferences, and automatic access to order information are essential to meet consumers’ ever-increasing expectations.

 

• Personalization and precision targeting: Online FMCG companies can use data to improve the customer experience. They can use metrics like cart abandonment rates and incremental behavior to deliver targeted ads and personalized product recommendations.

Strategies to face online FMCG challenges

• Improving profitability: Online FMCG retailers need to find ways, such as increasing cart size and optimizing operational efficiency, to make their e-commerce value proposition profitable. Retailers are exploring various strategies, including partnering with third-party providers and using micro-fulfillment centers to improve delivery costs.
• Invest in digital talent: Companies with a strong focus on digital literacy and data analytics capabilities can better navigate the complex online FMCG environment. Investing in digital talent is critical to efficiently managing e-commerce operations.
• Monetization of digital assets: FMCG retailers can monetize their digital platforms by partnering with consumer packaged goods (CPG) companies. For example, selling advertising space on your websites and offering preferred product placement can generate additional revenue streams.

 

Conclusion

While traditional FMCG is strong on instant access and tactile experience, online FMCG offers unparalleled convenience, wider reach, and personalization options. However, challenges such as delivery costs, user experience, and price sensitivity are still obstacles that online FMCG needs to overcome. By adopting strategies such as improving user experience, investing in data analytics, and monetizing digital assets, online FMCG can increase profitability and deliver an attractive value proposition to consumers. With rapidly evolving consumer preferences and technological advances, the future of FMCG is likely to be a mix of traditional and online channels, each catering to different consumer needs and preferences.

Important questions and answers comparing traditional and online FMCG:

1. What is the main difference between traditional and online FMCG?

• In traditional FMCG, customers buy products directly from physical stores and have a tactile experience. In contrast, online FMCG offers remote shopping, greater convenience, and access to a wider range of products.

2. What are the main advantages of FMCG online shopping compared to traditional shopping?

• It offers more convenience, personalized options, and access to products from any geographic location. Also, consumers can quickly compare prices and products and receive their orders in less time.

3. What are the main challenges faced by online FMCG businesses?

• Major challenges include high shipping and delivery costs, customer expectations for a seamless user experience, and consumer price sensitivity. Many customers are unwilling to pay extra for online services, which affects profitability.

4. How can online FMCG businesses increase their profitability?

• Online businesses in this area can increase their profitability by increasing the size of customers’ shopping carts, improving user experience, and investing in inventory management technologies. Also, establishing strategic partnerships with consumer packaged goods companies can help generate revenue.

5. When do customers prefer FMCG online shopping to in-person shopping?

• Customers prefer online shopping because of convenience, time-saving, and the possibility of shopping without going to crowded stores. This trend has increased especially during the COVID-19 pandemic, where online shopping has become a new habit for many people.

6. Will FMCG online shopping completely replace traditional shopping?

• Not quite. Both methods of purchase have their advantages. While FMCG online shopping has become more popular due to convenience and the ever-expanding technology, traditional shopping is still important for people who prefer the experience of touching and seeing products directly.

7. What steps should be taken to improve user experience in online FMCG?

• Improving the user experience in the online sector can include providing a simple and efficient purchase process, saving the history of purchases, and providing detailed information about the inventory and status of orders. Businesses must ensure that customers can easily find and order the products they need.

8. How can FMCG businesses use data to increase online sales?

• FMCG businesses can use data to personalize offers and provide targeted discounts and promotions to customers. Analyzing customer buying behavior helps stores prioritize products that are more likely to be purchased.