Rethinking Diversification and Innovation in FMCG Markets: an Empirics-First Analysis

Fast-moving consumer goods (FMCG) markets across Europe have undergone structural transformations driven by intensified retailer power, saturation of product categories, and the rapid growth of Private Labels (PL). Italy represents one of the most promising and dynamic Private Label markets in Europe, distinguished by rapid growth in penetration, increasing category leadership, and rising consumer trust in retailer-owned brands. The country's low retailer concentration and sophisticated category management practices have enabled PL ranges to expand beyond traditional value tiers into premium, functional, and specialised segments, strengthening retailers' strategic influence across the FMCG landscape. Retailers have consolidated their ability to shape assortments, control visibility, and drive innovation within categories. As a result, National Brand manufacturers (NB) face mounting pressure to defend brand equity and profitability. To respond, many manufacturers have relied heavily on product diversification, SKU proliferation, and incremental innovation to sustain market presence. These strategies are often complemented by persistently high promotional pressure, even as competitive roles evolve. Yet, it remains unclear whether such approaches generate real growth, expand market boundaries, or reinforce competitive advantage. This study adopts an empirics-first approach to reassess the effectiveness of diversification and innovation strategies in contemporary FMCG retailing. Drawing on survey data from 24 leading manufacturers and scanner data from the entire Italian FMCG market, we explore how brands diversify, how innovation is executed, how promotional behaviour evolves, and how national brands compare to Private Labels over time. Rather than testing predefined hypotheses, we allow empirical patterns to guide conceptual refinement. The combination of managerial insights and market-level performance data enables a comprehensive analysis of strategic choices and their actual outcomes. Italy's dense retailer ecosystem and strong PL penetration provide an ideal context for understanding broader dynamics in mature FMCG markets.