Challenges for the consumer goods industry

Driving growth is the central challenge facing consumer product companies today. Companies not only have to contend with the impact of the global economic situation on consumer spending but also contend with the emergence of a more demanding and digitally empowered consumer: Restrained consumer spending in the US, and slowing growth in many international markets:Deloittes US Economic Forecast is relatively optimistic, with the most likely scenario being acceleration in growth in the next year or two. However, overall US consumer spending is likely to remain relatively restrained due to factors such as the currently moderate wage growth, a comparatively high savings rate, and rising income and wealth inequality1. These aspects likely shaped the recessionary mindset we observed in The 2014 American Pantry Study.2Seventy nine percent of consumers believed that the US economy was currently in a recession in January 2014, and 94 percent said that even if the economy improved, they would remain cautious and keep spending at current levels. Moreover, 83 percent said they were looking closely at every spending category to see where they could save. The lackluster sales in the CP industry seem to be a reflection of restrained consumer spending, where unit sales have largely been flat in recent years. According to Deloittes Global Economic Outlook, the global economy is showing a few signs of strength and several signs of weakness. While the US economy appears to be on a growth path, several markets (e.g., Germany, Italy, Japan, Brazil, China, and Russia) are showing signs of weakness3. Many CP companies are still hopeful that emerging markets beyond BRIC will drive growth. More demanding and digitally-empowered consumers:Todays consumers have harnessed the power of the Internet and social media to make more informed decisions. Websites, social media, and mobile apps are increasingly used for product research, price comparison, or product purchases. The New Digital Divide estimates that digital - across all platforms such as computers and mobile devices - influenced 36 percent of in-store retail sales across all product categories in 20134. Consumers want more transparency (e.g., visibility into ingredients and production processes5, transparency about how personal data will be used by companies6), more control (e.g., what personal data can and cannot be accessed or shared by companies7), and do not hesitate to vocalize their concerns. As negative stories can damage brands and shape public opinion, CP companies need to be quick to respond to consumer concerns and feedback.Potentially disrupting trends include: Further consolidation in the US grocery retail market:The USDA Economic Research Service (ERS) has observed a long-term trend of increased concentration of sales among the leading retailers in the US grocery market. In 2013, the top 20 retailers accounted for nearly 64 percent of US grocery sales, up from almost 60 percent pre-recession (2006) and about 39 percent in 1992. The USDA ERS also noted that M&A activity in the grocery retail market in 2013 was at its highest level since 20078. Considering the rising competition between traditional and non-traditional grocery channels (e.g., dollar, club, online, and specialty grocery stores) and the prevailing environment of relatively restrained consumer spending, it would be surprising to see a slowdown in M&A activity over the coming year. CP companies should be prepared to navigate these changes in the retail market. The rising importance of digital commerce:A decade after online shopping became mainstream, e-commerce for consumer packaged goods (CPG) is finally arriving. While e-commerce is a small proportion of US retail sales, online retail growth is outpacing overall growth. According to the Retail Indicator Branch of the US Census Bureau, between 2000 and 2012, e-commerce sales across all retail channels (including non-CPG retail) grew by 19.1 percent annually, while overall sales only grew by an average of 3.2 percent annually.9Recent research suggests that many packaged goods companies may be less prepared to capitalize on e-commerce than they should beor than many CPG executives would like to be.10In a 2013 study comparing consumers and CPG executives views on e-commerce, fully 92 percent of CPG executive respondents agreed with the statement, The e-commerce channel is a strategic sales channel for CPG companies. Yet only 43 percent of these same executives thought that their company had a clear, well-understood digital commerce strategy, indicating a substantial gap between e-commerces perceived importance and CPG companies readiness to execute. Emergence of new business models:In recent years we have seen the emergence of several small startups in the CP industry who are trying to woo consumers away from the traditional industry leaders. These smaller players often demonstrate the willingness to serve a niche market rather than the mass market and use the power of digital and social media to forge a more personal and recurring connection with consumers. They tend to deviate from the typical approach of CP companies when it comes to business model and route to consumer. For instance, some companies are offering direct-to-consumer online subscription-based deliveries in several categories such as coffee, razor blades, and snack boxes. These ventures seem to have caught the attention of larger CP companies, as we have seen some follow with their own subscription-based service. Established CP companies need to evaluate their operating structures and aim to become more nimble and responsive to these shifts in the competitive environment as even small companies may collectively start making dents in the sales of large companies in some categories.Source : Deloitte

Recommended by : Steve Rogers ( steve_rogers2014@outlook.com )