Every industry has a number of pains. Arguably, a problem in the FMCG (fast-moving consumer goods) sector is that the market is saturated and that margins are fairly low. Over the next few weeks, I plan to take a deeper look at companies within the FMCG-segment for food, in order to understand the structure of the industry better, and the challenges faced by companies—new and existing.
Somewhat related to this, I came across an interesting article at HBR, on "strategies to crack well-guarded markets," which I'll go into now.
I'm a great fan of the book "The Art of War" (not to be confused with "The War of Art," that I reviewed a few months ago…). Sun Tsu offers some timeless and broadly applicable tips on how to fight battles that cannot be won by force alone. The quote I remember best goes something like this (paraphrased):
"A big army is like water; it is fluid, it can envelop you, but it is also hard to control. Fight a big army like you would water, in places where it finds it difficult to move."HBR makes a similar point in their article (abstractly paraphrased to stay in character):
- Thread lightly - using a minimum of resources to enter these new markets also minimises the risk associated with these experiments.
- Be unpredicatable - when doing things fundamentally different from your enemy, you end up catching him off-guard and slow to respond.
- Use a dagger, not a sword - just like Sun Tsu's point about water, it perhaps makes little sense to use a bucket at the beginning. Instead attack there where it least expects it—via a market-niche—and start building towers.
- As well as a combination of any of the above
It reminded me to pick up the book, "Blue Ocean Strategy" again, which describes methods on how to find uncontested market-space, based on an analysis of existing products and companies and their shortcomings.
A pretty obvious example of this is the Nintendo Wii, which Jeremy discussed on Tech IT Easy some time ago, and which is reaching out to a whole new group of consumers, who traditionally not play console-/computer-games. Interestingly, the HBR-article looks at a related company, Jakks Pacific, which has also entered the console-market to compete with the big three, and has done so successfully by competing on price ($20 consoles) and marketing (working with big partners like Disney).
Other examples of Blue Ocean Strategies include Cirque Du Soleil v.s traditional circuses, which is a big inspiration to me personally, and Starbucks in the 80s-90s and on US-soil (!).
In the case of Starbucks, you certainly couldn't argue that their strategy is "blue ocean" in Europe or even globally today. However in the US, when they started, they targeted a niche demand for quality coffee, reshaped the value chain of a coffee-retailer, and initially grew through the acquisition of the Starbucks-brand and coffee-plant. Today the situation is somewhat different, Starbucks is the incumbent and its competitive advantage relies on finding new business opportunities. Whether they succeed, the future will show.
Any successful Blue Ocean Strategy depends, I feel, on the inability of incumbents to react—i.e. focussing on areas which incumbents are either neglecting or are finding it difficult to manoeuvre in. Starbucks is in a different business-cycle now, its novelty has worn off, and other companies can benefit from similar advantages in the value chain, such as sourcing quality raw materials and a huge demand in the market. I guess, to a degree, Starbucks' educational focus has created that market and given competitors a success-formula to emulate.
As mentioned, during the next few weeks, I'll be looking at other food-companies, particularly FMCG-ones, to get a better understanding of the industry and the challenges facing these firms. Who knows, maybe I'll discover some blue oceans…
The picture is courtesy of valuebasedmanagement.net.
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