The document discusses how consumer purchasing habits are shifting from infrequent large shopping trips to more frequent smaller trips, and will continue shifting to automatic purchases through smart home devices with consumers opting out of purchases rather than opting in. It outlines 3 steps for FMCG companies to capitalize on this trend: 1) focus on e-commerce, 2) move to delivering full baskets through automatic purchases using the default effect, and 3) leverage voice assistants for conversational commerce. The opportunities include increased profits and customer stickiness, but risks include data security, customer preferences changing, and regulatory challenges.

1. But consumers’ habits are changing…
It is well known and written about that in the last 15 or so years, shoppers’ habits have shifted, broadly,
from ‘large and infrequent’ to ‘little and often’ trips.
The focus of this White Paper is the next step: we believe that the next step-change in consumer
behaviour in FMCG/Retail will be a pivot away from pro-active ‘shopping’ as we know it today,
towards a more instant, automated purchasing model: with consumers choosing to ‘opt out’ of
automated purchases, rather than ‘opting in’ to conscious ones as they do today.
FMCG: How to Ride the Smart Home Wave
The digital revolution has already proven to have had a massive impact on
consumers and businesses across FMCG. Customers want impact,
convenience and personalised experiences1. In the mission to meet those
needs, IoT is the next big frontier. By 2020 there are predicted to be 12.86
billion consumer-oriented IoT devices installed and working worldwide2.
Examples of currently used devices include: Amazon Alexa (voice controlled
personal assistant accessible via multi devices), Amazon Dash (physical
buttons used for easy reordering of household goods) and the Samsung/LG
Fridge Smart Fridges (these manage their own contents for the user in terms
of expiry dates and replenishment ordering3).
How to Ride the Smart Home Wave 1 of 4
Clearly, there are still gaps in the tech…
• There is a data capture disconnect between on and offline channels which needs to be addressed.
The sheer variety of devices and formats of data capture poses challenges for effective data usage
and ability to clearly understand and manage the customer journey. Access to more standardised
data from the growing IoT ecosystem will improve the ability to better influence consumer decision
making6;
• There are also skills gaps in the industry which limit implementation speed and form barriers to
innovation7: how many AI engineers do you know? Or even anyone who can clearly explain to you
what AI is or how it’s different from IoT? Didn’t think so…
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2. The key push to drive real revenue gains for FMCG is ‘moving from spearfishing to full
baskets’11: making the step-change from small, discreet purchases, to consistently
delivering the whole basket of goods to as many consumers as possible.
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How to Ride the Smart Home Wave
Step 2: Move to ‘full baskets’ by changing the model of consumer FMCG
purchases to ‘Opt-out’ rather than ‘Opt-in’, leveraging the ‘Default Effect’
Fig 1: IoT endpoint spending worldwide by category from 2014 to 2020
(in billion U.S. dollars)
2 of 4
Hypothesis in a Nutshell
The rise of instant, automated purchasing will be the most shift
to impact the FMCG sector in the next 5 years,
driven and catalysed by advancements in Internet of Things (IoT) and AI technology
and the emergence of the ‘Smart Home’9.
Step 1: Focus on the pivot towards e-Commerce from offline retailing
In order to capitalise on this trend towards the ‘connectivity of everything’ (aka IoT) and more
specifically the evolution of ‘smart home’ technology, what strategic steps do firms in FMCG need to
take?
3 steps to capitalise on this trend:
As per Walker Sands report10, 77% of those questioned believe online shopping will surpass
“Brick-and-Mortar” experiences by 2020, highlighting the need for companies to develop
their online presence. 84% of those questioned have made a purchase from Amazon in the
past year while also using other products such as Amazon Prime also emphasising the
need for a complete offering.
Experiments and observational studies in human psychology show that making an option as default
increases the likelihood that it is chosen – this is known as the ‘Default Effect’ 11,12. The winners in this
field will be the first to implement effective automated purchasing of FMCG products via Smart Home
appliances, starting with basic groceries, based on an ‘Opt-out’ model, meaning consumers would
have to choose to change their automated routine purchases, rather than choose to make them as
they do today. With these ‘stickier’ purchases secured, the prize on offer for the ‘winners’ is more
reliable revenue and a larger share of the $1,494,000,000,000 IoT end-point consumer spending that
is predicted by 202013.
To achieve this goal, FMCG firms should
invest in their IoT capability, their IoT
integration capability and build partnerships
with leading IoT firms like Crestron and
Samsung. They should also invest in
making ‘Just In Time’ delivery possible for
the end consumer, not just B2B. This will
allow suppliers to meet ‘in-the-moment’
need from Smart Home customers. To do
this, FMCG suppliers will need to
fundamentally re-think the way supply
chains work. A key enabling technology
here will be 3-D printing (currently early-
stage on the Gartner Hype Cycle).
If firms in the FMCG sector are to capitalise on this trend, the first step is to understand and accept
the trend, then to devote resources to answering the question: how can we prepare our
partnerships, product design, supply chain, marketing strategy and broader business for this
shift?
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3. The opportunity to engage with consumers via Voice Assistants (VA) will only grow as the
number of users mounts and VAs become more sophisticated. Figure 2 shows that VA users
have already been adopting them for making purchases.
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How to Ride the Smart Home Wave
Step 3: Be the best at ‘conversational commerce’
Fig 2: Level of usage of voice assistants across a variety of
functions
3 of 4
Benefits, risks and challenges of implementation
Research by the Capgemini Digital Transformation Institute shows that when consumers have a good
brand experience with VAs, 45% of them increase their spend with that brand14.
Marketers need to apply the principles of social listening and ‘I-want-to-know, I want to go, I want to
do, I want to buy’ micro-moments learnt from mobile customer journeys and develop these to be
applicable to VA customer journeys. The first innovators to perfect this opportunity to engage with
consumers through this medium in ‘See’ and ‘Think’ micro-moments have a big prize up for grabs,
because as once customers move into ‘Do’, it is easier than any other medium with IoT, assuming a
successful ‘opt-out’ purchasing model, to convert them into repeat customers in the ‘Care’ stage.
By leveraging various IoT connections
around an individual it is possible to marry
brand and personal data in order to build
more personalised experiences.
For example, in a home with a smart fridge, each
family member could receive an experience
tailored to their recent dietary preferences, or in a
connected car the offers could be tailored to the
driver behind the wheel according to the weather,
journey destination, or even the car’s state of
repair.
Benefits Risks Challenges
• Cumulative profit for a
low-margin industry:
higher profits and lower
revenue volatility due to
higher ‘stickiness’ of
automated purchasing
patterns due to the default
effect
• Cross-merchandising
opportunities due to linked
data cross-device
• Brand appeal due to
highly-customized user
experience and increased
engagement
• Security breach (As Voice
Assistants continue to
establish themselves as a
pivotal feature in the 21st
century home the modern
hacker/fraudster will also
evolve their techniques in
an attempt to exploit this
expanse of user data)15
• “Out of stock” (customers
can immediately switch to
another retailer)
• Risk of high WIP costs on
balance sheet due to high
inventories required for JIT
delivery
• Highly competitive
marketplace – risk of high
investment with limited
payoff
• Error reduction: VA’s
inability to detect distinct
voices in a multiuser
environment. This also
brings a challenge with
parental control system –
how can parents make sure
a child won’t order
something they don’t
expect?
• Finding suitable strategic
partners
• Communicating risks with
customers and working with
regulators to build comfort
There are undoubtedly a number of benefits to be attributed to adoption of this trend. However, each
new development has implications attached and new challenges to evolve:
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4. Squared Online Group 17
How to Ride the Smart Home Wave 4 of 4
When adopting IoT systems, firms are strongly advised to consider relevant ethical,
regulatory and societal implications. To put that in plain English: attitudes and laws take
longer to evolve than technology, so respect privacy, and be wary of the ‘creepy line’.
Regulatory implications
In the long run, consumer attitudes drive regulatory change, so and “Report on Robotics and AI”
produced by the UK parliamentary Committee on Science and Technology shows how eager
governments are to consider the consequences of the adoption of this technology.17
The best route for innovators is to collaborate and cooperate with governments, developers and
early adopters to de-mystify the technology and to agree general guidelines along with quality
and safety standards. This approach allows firms to better get a sense of, and a stronger ability to
influence the ‘triple tipping point’ at which regulation, technology and public opinion align to form new
markets and opportunities.. 19,20
Appendix: Sources
1. https://www.cambridgeconsultants.com/insights/iot-and-fmcg-its-not-just-about-the-pork-pies
2. https://www.statista.com/statistics/370350/internet-of-things-installed-base-by-category/
3. https://www.nbcnews.com/tech/gift-guide/out-milk-lgs-new-smart-fridge-will-let-you-know-
n99531
4. http://www.adweek.com/brand-marketing/gravity-award-winner-nivea-sun-solar-ad-charger-
160274/
5. https://www.cmo.com.au/article/600880/10-examples-how-brands-using-digital-technology-
attract-customers/
6. https://www.capgemini.com/wp-content/uploads/2017/07/making_the_connection-
how_internet_of_things_engages_consumers_and_benefits_business.pdf
7. http://www.digitalistmag.com/iot/2018/03/07/skill-gaps-limit-iot-implementation-success-
05922034
8. Institute of Grocery and Distribution, accessed: https://www.farminglife.com/farming-
news/shopping-habits-little-and-often-1-3646700
9. https://www.statista.com/topics/2430/smart-homes/
10. Whitepaper-PDFs/Walker%20Sands'%20report%20Future%20of%20Retail%202017.pdf
11. https://www.foodbusinessnews.net/articles/9617-general-mills-laying-the-foundation-for-a-
digital-future
12. Huh, Young Eun; Vosgerau, Joachim; Morewedge, Carey K. (2014-10-01). "Social Defaults:
Observed Choices Become Choice Defaults". Journal of Consumer Research. 41 (3): 746–760
13. https://www.statista.com/statistics/485252/iot-endpoint-spending-by-category-worldwide/
14. https://www.capgemini.com/2018/02/how-voice-assistants-drive-growth-conversational-
commerce/#
15. https://www.symantec.com/blogs/threat-intelligence/security-voice-activated-smart-speakers
16. https://www.forbes.com/sites/timworstall/2016/10/12/exactly-what-we-dont-need-regulation-of-
ai-and-technology/#4ae5ff495333
17. https://publications.parliament.uk/pa/cm201617/cmselect/cmsctech/145/14502.htm
18. https://www.diplomacy.edu/blog/artificial-intelligence-policy-implications
19. https://www.huffingtonpost.com/entry/should-artificial-intelligence-be
regulated_us_597a452de4b09982b737630c -
20. https://techcrunch.com/2017/01/28/artificial-intelligence-and-the-law/
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