For many years, CPG companies were able to make the most out of macroeconomics waves and market opportunities and generally outperform the markets. The industry saw fast growth thanks to premiumization in developed markets, relatively easy expansion and consolidation in emerging markets, net new consumers, and globalizing brands.
Against the background of the greatest economic downturn in decades and slower than anticipated recovery CPG companies have shifted focus to cutting costs. In addition to increased competition, CPG companies also have the challenge of shifting consumer preferences—people are demanding value and specialized products, and they are spending across channels.
CPG companies have been targeting their cost base as a means to shore up profitability with programs that include restructuring, de-layering, zero-based budgeting and supply chain optimization through to manufacturing rationalization to reduce costs.
Reducing costs is a critical activity—but it isn’t the only way to build an offensive edge in today’s competitive marketplace. To stay relevant, stable and strong in the changing consumer/channel landscape, CPG companies have realized they must pivot their focus to reinvesting savings to drive growth.
So what is happening in today’s market place?
At this year’s Grocery Manufacturer’s Association (GMA) Leadership Forum at the Broadmoor, Colorado Springs, we had the opportunity to moderate a panel of four leading CEO’s in North America: Colgate-Palmolive, Hershey’s, Frito-Lay North America and Unilever.
We discussed forces across consumers, channels and products that are exacerbating the already challenging market and adding complexity to the industry.
Diverging consumer segments
Middle class buying power is eroding, shifting to affluent consumers. Household incomes have fallen steadily since the mid-2000s, while the wealthy have seen their share of overall income increase. This income gap has driven an upmarket segment focused on premium offerings while also producing a lower-market segment focused on low-cost products and discount stores.
Increasing demand for healthy ingredients
Rising demand for healthier products is forcing CPGs to revamp entire product lines.
Convergence across categories and industries
Consumer preference for healthy foods has given rise to a number of new product-related innovations. For example, upmarket baby food companies have broadened their focus and tout their product’s ability to appeal to both moms and babies, while multiple CPGs have begun to highlight the restaurant-like qualities of their product lines.
Push to more convenient packaging
Today’s on-the-go consumers want packaging that can satisfy their busy lifestyles. Specifically, they have a hunger for re-sealable packaging, “speed scratch” cooking options and global experiences.
Rise of new channels
Consumers are migrating away from traditional grocers and toward one-stop supercenters. High-income buyers and millennials are making more online and Club purchases for food and beverages. Mass-market buyers are shifting as well, increasingly spending at discount stores and small format grocers. CPGs are modifying their product lines to help these channels generate demand, providing exclusive SKUs.