Big used to matter in the FMCG industry. Value was created in ways big corporations were good at; economies of scale reached from sourcing to manufacturing to R&D operations to mass marketing. All-conquering behemoths were relentlessly leveraging their large sales forces and global retailer relationships to gain advantaged access to consumers.
But this long-successful growth model has lost considerable steam in recent years. It’s small brands that are increasingly stealing the spotlight (and share of growth) across the FMCG categories. Millennial consumers are pouring Oatly in their Peet’s coffee and eating Chobani yoghurt at breakfast, ordering a salad from local deli via Deliveroo for lunch, and winding down in the evening with Kyrö’s Napue Gin and Double Dutch tonic. Brands such as Brewdog, the Honest Company and Halo Top didn’t exist 10 years ago, but within a decade, they’ve changed the competitive landscape and become a major thorn in the side of industry incumbents by capturing a disproportionate share of growth.

Subsequently, large consumer goods companies’ performance is slipping – in 2016 their revenues grew at their slowest rate since 2009. The issue is organic growth. According to McKinsey the total FMCG industry grew organic revenue at 2.5% from 2012 to 2015 and the majority of this lacklustre growth is coming from the smallest manufactures: 53% in the US and 59% in Europe.

And retailers are taking notice. Small brands are getting overbalanced share of the new retail listings according to Nielsen. The reason is twofold: retailers are looking into small brands to differentiate their proposition and to drive up margins, as small brands are often priced premium and tend to promote less. As a result, small brands are capturing two to three times their fair share of growth while the largest brands remain flat or in decline, according to the recent report by research firm Nielsen.

There are various factors behind this wave of disruption. The barrier to entry is lower than ever. While startups might have understood and kept the pace with today’s consumers’ shifting desires better than their large rivals, they could not have succeeded to this degree without significant changes in the economics of supply. Outsourcing production allows small brands to access manufacturing scale. New distribution channels offer easier and cheaper access to consumers – retailers such as Whole Foods carries lines of smaller brands made of natural and organic ingredients while Amazon’s shelf space is practically unlimited where small brands have the ability to earn same visibility as large ones. The social media revolution allows challenger brands to engage with armies of consumers and create a tribe of followers at a low fixed cost. Consumers under 35 differ fundamentally from older generations in ways that make mass brands and channels ill-suited for them. According to recent McKinsey research, millennials are almost four times more likely than baby boomers to avoid buying products from ‘’the big food companies’’.

All this does not automatically mean that large FMCG companies are doomed. The game is not permanently tilted in favour of smaller companies and brands, but the ‘’slash costs and merge’’ approach with solely focus in short-term sales and margins at the expense of longer-term brand building is unlikely to be the success formula of the future. An updated playbook to stay relevant and prosper is needed and a lot can be learned from this new breed of insurgent brands in rewriting it.