Buffeted by external forces that upended carefully crafted plans, consumer packaged goods (CPG) companies are entering a period of relative stability marked by these main themes: building in-house capability; supply chain and cost transformation; brand elevation; and category excellence.
Overall, the sector expects more pressure to deliver value to shareholders by offering consumers better products and experiences. CPG companies are focused on driving market share by:
- Scaling up portfolios.
- Forging the right deals.
- Deploying analytics to win at e-commerce.
- Modernizing supply chains.
- Doubling down on environmental, social and governance (ESG) commitment.
- Shoring up cloud and data analytics within a robust technology ecosystem
- These strategies can help prepare them to deliver value in the months and years ahead.
1. Reassess CPG product portfolios
CPG leaders are reshaping product portfolios to bolster their ability to grow, even amid disruptive forces. They are closely examining the product categories where they reinvest — at both the premium and value levels — to address consumer needs.
Many are also extending their reach to developing and emerging markets such as China, India and Brazil. With vast swaths of the world’s population residing in these markets, addressing affordability with different consumer needs can drive additional scale.
Kimberly Clark, for example, plans to serve a greater share of consumers in developing and emerging markets through affordable diapers. Newell Brands, with its array of consumer brands, has developed country-specific strategies to expand its global reach.
2. Sleuth out CPG deals that generate value
Deals will likely continue to flourish in 2022, building on the momentum in 2021. Divestiture activity also is likely to be strong, partly due to shareholder pressure to unlock value. Additionally, CPG leaders agree that the ability to react quickly to changing customer behavior may outweigh the benefits of scale.
Alternately, they may lack the advantaged capabilities needed to win and grow. PwC research illustrates that value derives from ensuring the right fit between companies or brands.
McCormick has entered a new and growing segment at scale through the acquisition of trending category leaders. Nomad Foods acquires firms in international markets to complement its presence in that category in domestic markets.
A lifestyle platform extended its brand strength in specific categories, such as cosmetics, to adjacent categories, such as beauty solutions that include both products and services. And a meal solution provider created healthy, customized home-delivery meals by combining the best elements of meal kits, restaurant delivery and home-cooking.
3. Deploy analytics to win at e-commerce
The acceleration of e-commerce during the pandemic forced brands to reevaluate customer engagement strategies and the role played by retailers. The result? Omnichannel data-driven engagement will only continue to grow in the years ahead.
CPG companies recognize that consumers who are eager to hear from their brands through a variety of digital channels can create more long-lasting relationships. Thanks to the wealth of consumer data they possess, they are better positioned than ever to connect directly with consumers on the channels they prefer while still protecting their privacy. CPGs are also increasingly recognizing that they need e-commerce to be profitable; growth at all costs is not the objective.
For example, Kraft used advanced analytics to develop ad customizations for its most popular product depending on whether a household had children or not. General Mills targeted meal prep fatigue in real time to optimize dynamic messaging for Pillsbury, one of its keystone brands, leading to a 25% increase in sales and 5% increase in household penetration.
4. Modernize supply chain management
CPG companies are investing to level up their supply chains for three compelling reasons:
- Improve operational efficiency
- Modernize capabilities
- Boost growth
Some are consolidating complex supply chains while others are building logistics facilities for better control of the overall supply chain. The increasingly prevalent direct-to-consumer business model requires new capabilities, another driver of supply chain modernization.
PwC analysis has found that many companies are embarking on some combination of these steps:
- Prioritizing the supply chain as an investment for resilience and growth rather than a cost center
- Diversifying suppliers and manufacturers across geographies to bolster inventory
- Gaining greater end-to-end supply chain visibility
- Analyzing data to drive more responsive supply chains
Digital tools offer visibility into capacity constraints as well as potential reputational risks from suppliers who may not be in compliance with a company’s vision for environmental sustainability or diversity and inclusion.
Pepsi is building flexible supply chains that can enable consumers to customize drinks and snack packs while improving direct delivery using data-driven supply chain management and a substantial investment in artificial intelligence. Sysco is creating an omnichannel inventory system to help better manage new channels and broaden access.
5. Consumers — and investors — demand sustainable CPG brands
The growing trend of conscious consumerism — buying decisions based on a company’s commitment to environmental, social and governance (ESG) practices — is reshaping business models. In fact, consumers are willing to pay more for certain brands that correspond with their aspirations.
In the wake of a global pandemic and a parallel social justice movement — compounded by geopolitical conflict — customers, investors, regulators, employees, supply chain partners and society as a whole are increasingly asking, and sometimes demanding, that CPG companies make ESG a priority.
Regulatory pressures are also hastening business adoption of ESG initiatives. In March 2022, the SEC gave initial approval to the climate disclosure rule that requires all public companies to include certain climate-related financial metrics in their audited financial statements.
Smuckers has made a commitment to use 100% recyclable, reusable or compostable packaging by 2025, with information on how to recycle on each product. Arm & Hammer aims to be 100% carbon neutral via offsets by 2025 and to reduce water use by 10% annually.
6. Shore up cloud power to enable analytics for margin protection and revenue growth
Hyper aware of inflationary pressures, consumers are looking for price breaks anywhere they can find them. In response, CPG companies are investing in brand equity and revenue growth management capabilities to identify opportunities to protect margin.
They are also employing a variety of approaches to control supply chain costs. To manage profitability, they are reducing discretionary spending. Advanced analytic capabilities, often cloud-based, provide companies more granular data, which leads to greater understanding of input costs and greater precision in setting prices.
Constellation Brands designed, architected and deployed a cloud-based application that allows distributors to order products in bulk more quickly while making it easier for Constellation’s employees to process, track and deliver orders efficiently and on time. As demand scales up or down, so does the system, enabling easier, faster and more efficient order-taking.
Delivering CPG value to stakeholders
For CPG companies, 2021 was a year of growth; 2022 is shaping up to be the year of delivering value. Consumers are demanding more value via better products and experiences while shareholders are also expecting better performance from the sector.
The reality of 2022 is rife with challenges: headwinds from inflation, talent shortages and supply chain risks, compounded by ever-changing geopolitical pressures. But if CPG companies have honed one capability to a fine edge over the past two years, it’s the ability to innovate and transform — to meet uncertainty head on with focus, agility and persistence.
(Courtesy PwC)
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