In the past decade, the way people shop and engage with CPG brands has undergone an unprecedented change in the market. Enhancing products and offering a superior customer experience have been prime movers of CPG companies as customer demands are fast-changing. Purchasing has undergone a tectonic shift as more and more product categories are resorting to online channels than brick-and-mortar stores. As activist investors embark upon a new wave of consolidation, and government trade regulations get more stringent, CPG companies are driven to reinvent themselves.
Developments in technology paved the way for innovations in CPG industry and multiple channels to interact with and engage consumers. With the rise in consumer awareness, CPG companies have broken out of conventional market strategies and adopted disruptive methods to capture business. Recent years saw a steady growth of direct-to-customer brands, reprisal of pop-up stores and online retailers setting up brick-and-mortar stores, all attributed to the use of cutting-edge technology.
In the coming years, the transformative trends in the CPG industry will be driven by data and technology, services that focus on customer centricity and smart supply chains. In this article, we outline the ten trends that will most affect the consumer-goods sector in 2020 and beyond.
The 10 CPG Industry Trends
1. Omnichannel Sales And Customer Engagement
As consumers take presence across multiple channels, companies are challenged to effectively engage them and provide an undiminished shopping experience across all these channels to improve their sales. The central idea to omnichannel customer engagement is to deliver a personalised experience and gain a better understanding of the customers to instill a culture of customer centricity across the organisation.
As leading digital platforms like Amazon and Walmart provide a par-excellence experience across multiple platforms, the imperative of emerging companies will be to meet and perhaps raise the bar set by these giants in order to thrive and prosper.
2. Manufacturers Will Produce Locally
With restraints from tariffs, trade regulations and waste reduction, CPG manufacturers recourse to produce locally, cut down on imports and look for opportunities that make a difference in their trade economics. CPG companies will revamp their supply chain to align locally produced products and consumer inclination towards sustainable products.
3. Private Label Rivalry
Private-labels show an upward trend in capitalizing market share in the U.S.A. Rise in consumer preference to private labels as an affordable alternative to national brands has fostered profitability among retailers.
Despite the increase in sales across CPG categories, top CPG brands witnessed a decrease and the cause has been cited due to increased fragmentation of customer preference for private brands.
Millennials prefer private labels over national brands due to their cost effectiveness. Reports evaluate 25-30% market share by private labels across many categories and a growth of 4.1% in 2019 compared to national brands at 1.4%.
4. Smart Supply Chains
Growth of private label brands is blurring the lines between retailers and manufacturers as retailers try to capture the entire supply chain in the business, which has created an organic shift to granular end-to-end supply chain analytics. The success for brands and retailers looking to prosper in the years to come will depend on the thoroughness and granularity of their business intelligence.
Consumers want to have a first-hand experience of the products they’re going to buy and also have the convenience of shopping from home. This arrangement for long has been mutually exclusive. However, with the advent of augmented reality (AR) consumers can now have the feel of the product while being physically distant from it. AR is already accessible on smartphones and is expected to grow in its popularity as cloud enabled technologies grow more powerful. Augmented Reality is expected to revamp the traditional brick-and-mortar store by allowing consumers to virtually experience the products in stores.
6. Using Big Data And Advanced Analytics
Retailers and CPG companies capture torrential amounts of data from transactions and also have access to a wide array of information from the media. Big Data and advanced analytics opens the floodgates of opportunities for CPG companies to use data to their benefit. In developing portfolios and products, enterprises can leverage data to identify various consumer segments, gain actionable insights to target valuable opportunities and also have granular information on consumer behaviour.
Some prolific use cases of advanced analytics have been for trend predictions, assortment, personalized pricing and more importantly trade promotion optimization.
According to Nielsen Holdings, 40% of trade promotion spending doesn’t drive the desired results. Most revenue management managers are unable to measure the effectiveness of trade promotions and don’t leverage data to run the right promotions. Trade promotion optimization softwares use big data and AI to not only help manufacturers measure trade promotion ROI but also recommend the right promotion to be run at the right time and location.
7. Expansion Of Functional Foods And Beverages
Consumers’ motivation and emphasis on health and wellness has been a prime influence on purchase decisions made on food and beverages. This has led to a substantial increase in sales of food and beverages with added nutritional benefits, like electrolytes, minerals, adaptogens, and prebiotics with an expected revenue of $275 billion by 2025 according to reports by Acosta.
8. Seamless Stores, Curated Experiences
New cashier-less stores like Amazon Go, have become popular and proliferated the market in recent years. These stores use mobile applications for billing and payments and consumers can now shop without having to go through a long waiting line to get their groceries billed.
Food delivery services such as DoorDash and Uber Eats will grow in their presence as more consumers vouch for the convenience of ordering from their favourite restaurant.
9. Non-Traditional Channel Growth
Small store formats and club channel retailers are expected to see a strong growth in sales which is attributed to their offer of differentiated items. These retailers are succeeding by focusing on locally manufactured speciality and curated products and through their own brands as well.
10. 5G Will Revolutionize The Internet Of Things For Retail
With the advent of 5G, there will be a seamless experience with IoT devices and consumers will be able to operate to many more smart technologies with virtually no delay. As more consumers stay connected, retailers will be able to leverage data to their business.
5G is foreseen to transform smart packaging and delivery in the CPG industry. By using IoT sensors, manufacturers can collect real-time data on internal package conditions for food and medications that are valuable feedback to design packing methods.
In order to sustain and stay competitive, CPG companies have to quickly adopt various emerging trends across the market, technology, people and processes. In 2020 and beyond we can expect the consumer landscape to become more complex. More and more CPG companies will start using data and emerging technologies for meaningful use cases.
If you’d like to learn more about this topic, please feel free to get in touch with one of our CPG and AI experts for a personalized consultation.