The supermarket landscape is shifting, with major FMCG players increasingly shifting away from traditional food products in favour of higher-margin health, wellness, and beauty categories. As supermarkets tighten shelf space and consumer habits evolve, brands are re-evaluating their strategies, leading to some major shakeups.
Fonterra's announcement that it will sell off its consumer brands, including Anchor, Mainland, and Kāpiti, marks a significant retreat from the FMCG space. CEO Miles Hurrell said that "the key to any good business is knowing what you're good at".
"Over the years, the returns as an ingredients business have been stellar, but farmers aren't getting the desired return on capital from the consumer side," said Hurrell.
Hurrell believes reinvesting in ingredients and food service will deliver higher returns, aligning with broader global trends in which food manufacturers are exiting low-margin categories.
Another big player, Unilever's strategy of focusing on fewer and bigger brands for long-term growth and scalability is an an example of how big brands are looking to streamline portfolios. Unilever will focus on products offering better profitability and growth potential, however the company will not divest all food to focus on cleaning and personal care products as food is an integral part of Unilever.
In New Zealand, the supermarket duopoly makes it increasingly difficult for smaller brands to secure shelf space. Even large players are finding the economics of supermarket distribution challenging, leading them to explore more lucrative avenues. The fight for shelf real estate has intensified. Globally private-label products are gaining a stronger foothold, offering retailers better control over margins and pricing.
Equally, subscription models for pet food, laundry, and personal care products are thriving, providing consumers with convenience and brands with a direct-to-consumer revenue stream. This raises the question: what will the future supermarket look like? If more categories shift to online subscriptions, will supermarkets focus primarily on fresh and private-label goods?
It also begs the question: If the big players want to divest FMCG brands to focus on higher margins, who are the potential buyers?
Amid these shifts, the broader trade landscape is also evolving. According to HSBC, globalisation "may have now run its course" in its current form, as geopolitical tensions and US tariffs threaten to upend existing global trade. This could see a transition towards more compact trading groups, altering supply chains and further influencing product availability in supermarkets.
With major brands on the retreat from traditional FMCG categories and supermarket chains expanding their private-label offerings, the supermarket of the future may look very different. If private label dominates supermarket shelves, emerging brands will have even fewer opportunities. If this prediction becomes fact, what does this mean for consumer choice?
As this brand divesting unfolds and looks set to grow across other manufacturers, supermarkets and suppliers alike will have to adapt to a rapidly changing retail environment where the old rules may no longer apply.
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