How (FMCG) markets grow
Markets grow most of all due to gaining more buyers
It’s very likely that you have heard a brand manager calculate the growth potential of their category by comparing its average consumption with a neighbouring country. For example, a statement like “if they eat 24 kilos of pasta a year in Italy, why should we settle for 10 in Spain?”. They then use this as a starting point to devise a strategy. Calculating incremental growth targets on a country-by-country level is an excellent way for global brands to achieve growth. The problem sometimes is what growth is being targeted.
All too often the target is to increase the amount bought by existing category buyers. In some ways this does seem like common sense as it is surely easier to make the people already buying the category to simply buy more of it. On the other hand, attracting additional buyers in highly penetrated markets seems a much harder thing to do for the same outcome.
Yet analysis of the data shows that, as with brands, this is not how markets grow. In the table below using Spanish data, we have divided the categories into groups by their annual penetration. We then calculated the evolution of their penetration and annual purchase frequency. This shows that categories with annual universal penetration above 90% have grown by 0.8% in three years while their frequency has dropped only a little.
Contrary to the “common sense” reasoning, it is clear from this that markets grow most of all due to gaining more buyers. Purchase frequency varies very slightly and in any case does not determine market growth or reduction. This is true for all category groups irrespective of their degree of penetration.
Time and again when we examine the data, we see the same laws: penetration is more variable than frequency; the greater the penetration increase, the greater the frequency increase. Markets and brands grow through increasing penetration.
So the answer for how to increase frequency in the category? Increase the consumer base. If a brand is looking to grow, it shouldn’t try to increase loyalty or increase category purchase frequency. Instead it should focus all its efforts on increasing the customer base of the brand and the category - this is how markets and brands grow.
Adapted from an article originally published in INFORETAIL.