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By Shiv Iyer, Accenture managing director, consumer goods consulting
For many years, CPG companies were able to make the most out of macroeconomics waves and market opportunities and were generally outperforming 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, businesses must pivot their focus to reinvesting savings to drive growth.
So what is happening in today’s market place? At Accenture we are seeing forces across consumers, channels and products that are exacerbating the already challenging CPG 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. CPG companies are trying to respond and protect their prominent categories by reformulating ingredients, adjusting marketing messages and shifting trade spend. As an example, cereal sales are eroding as consumers now want higher-protein dairy offerings. In response, CPG companies that offer cereals are now infusing products such as added protein and increasing yogurt exposure.
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. All of this suggests that delineations between products, and even industry sectors, are rapidly becoming a thing of the past.
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. Many grocery manufacturers are striving to appeal to such consumer preferences through products which are stored in convenient, eco-friendly pouches and come in a variety of flavors.