Building a successful export business is a key ambition for many fmcg businesses. But how can SMEs tap global demand without global scale? Barney Wallace, associate partner at OC&C Strategy, sets out the path to profitable and sustainable international growth.
In the fmcg sector, overseas expansion has typically been the realm of giants such as Unilever or Procter & Gamble. It was traditionally believed that the scale, resources and local knowledge required to succeed was beyond the reach of smaller brands. However, this is rapidly changing. We are now witnessing smaller, nimble food and drink producers achieve great success abroad with relatively light infrastructure.
Success stories have shared three key characteristics: meaningful distinctiveness; local relevance; and pragmatic persistence.
But what do these mean in practice?
A great example of a meaningfully distinctive business is Walkers Shortbread, which now exports to over 80 countries and has 40% of its sales now coming from abroad. OC&C’s Food & Drink 150 Index, which ranks the UK’s top food and drinks producers, found the Scottish company was the fourth most international business in the UK.
Walkers is one of only two businesses with shortbread factories in Scotland. While the other is a private label within shortbread, Walkers has been able to own ‘Scottishness’ in the shortbread market and make it a unique feature for international customers.
On local relevance, meanwhile, there are some fantastic examples of companies that have used this to their best advantage – be it by understanding shopping habits or tweaking their product, to tapping into existing relationships to ensure they’re working with a partner who really knows the market.
You might be surprised to hear that fruit drink Vimto now sells over 20 million bottles a year in the Middle East. The brand has achieved this by positioning itself as the perfect drink to end a day’s fasting during Ramadan – with over 50% of sales taking place during the festival.
Similarly, United Biscuits is experiencing great success in Africa. In its case, a change in pack sizes has been key. Having understood the typical consumer’s disposable income is much lower - and buying a packet of 20 digestives is not financially viable for the majority - the company is now selling biscuits locally in packs of two.
When looking at overseas expansion, it’s safe to assume things are unlikely to go as planned despite the best laid strategies and most thorough research. However, this does not mean if things don’t initially go to plan, it’s not worth striving to make them right.
Let’s take Greencore, the Irish company that supplies fresh sandwiches to retailers and coffee chains. Its US division is currently thriving – but there have been some bumps along the road.
Following thorough market research, Greencore initially identified ready meals as the product to spearhead its US growth. However, as the company spent time in the market, it saw that the growth of coffee shops in the US – relatively premium outlets but with limited prep space – was creating demand for the kind of short shelf pre-packed sandwiches that Greencore excels at in the UK. The business was quick and pragmatic enough to realise a change of tack was in order. It now brings in $250 million in sales from the US alone and continues to have strong growth prospects.
As emerging markets continue to provide huge opportunities, and the domestic environment in the UK and Europe continues to present challenges, fcmg companies need to continue to look for overseas expansion to achieve growth. But international expansion doesn’t come without its risks. Uniqueness, local relevance and persevering in the face of adversity are crucial attributes for success.