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Trends in The Consumer Packaged Goods Industry

The market for consumer packaged goods (CPG) is undergoing a significant transformation. What used to be a simple, predictable market has become complex and unpredictable due to fast-changing consumer preferences, globalization and localization, and the rise of the internet. Today, CPG firms can no longer rely on traditional channels, mass marketing activities, and a homogenous market.

In this post, we explore five trends that changed the dynamics of the CPG industry today and the years to come:

Trend #1: When it comes to channels, it hurts to get caught in between.

  • Big Four accounting and auditing firm, PricewaterhouseCoopers (PwC), reports that discount channels and high-end companies are thriving while retailers in between, like grocery stores, are suffering. CPG firms that are supplying these retailers are no exception.
  • According to PwC, the share of grocery stores to total CPG sales is expected to decrease from 45% this year to 37% in 2025. Thrift stores such as Walmart and warehouse clubs like Costco are expected to benefit from this as they offer the lowest cost CPG products to consumers. On the other hand, high-end boutiques will continue to thrive thanks to their rich and upper middle class customers, who purchase based on brand and perceived value rather than price. Convenience stores, while not being able to offer the lowest price, will also still thrive as they compete not on price, but on proximity. Then, there are also the online retailers.

Trend #2: The World is Increasingly Turning to Online Solutions — and Shopping is No Exception

  • Online shopping has exploded in the last five years or so. And as consumers get even more connected through faster internet connections, more powerful smartphones, and commerce-ready applications, online shopping will continue to grow. Amazon, the world’s largest online retailer, has grown its sales from $16 billion in 2010 to $80 billion in 2016. In fact, almost half of US households are reported to have Amazon Prime memberships, which give members free overnight shipping and free access to digital products such as videos and ebooks. This raises the amount they spend on Amazon as the average member spends around $1,100 a year while non-members spend only around $600 per year.
  • CPG manufacturers and other retailers are responding to this trend by selling their products on Amazon and other online retailers. Some even create their own online sales channels. For CPG and retail companies, having an online channel is becoming a non-negotiable requirement.

Trend #3: Smaller Brands are Paying Attention to Telling their Story

  • Consumers are becoming more price sensitive to homogenous products, including most CPG products. For essential goods such as food and household products, consumers usually buy those with the lowest price. These products are offered by leading manufacturers such as Procter and Gamble and Coca-cola as they have the means to cut costs and compete based on price. Furthermore, they also have the resources to secure shelf placement in leading retail stores, which further influences customer selection of their products in a homogenous market.
  • However, smaller CPG companies are finding success by finding niches and selling stories instead of competing on cost. For example, The Body Shop competes with larger cosmetics brands through its transparency and commitment to their people and the environment. The Body Shop caters to consumers who use only all-natural products.

Trend #4: Globalization Continues to Open Up New Markets… and New Challenges

  • The United States and Europe are considered mature economies where CPG companies compete primarily to retain and/or gain market share. On the other hand, emerging economies such as China and Russia are opening up new markets for new and established CPG companies. Furthermore, developing countries in Southeast Asia such as Indonesia, Malaysia, and the Philippines are prime destinations for expansion thanks to their young middle class with a growing disposable income.
  • However, with these new opportunities also come new challenges. When expanding to other countries, successful CPG companies should carefully consider differences in culture and preferences by localizing their products and/or introducing new products altogether. This requires additional effort and investments as they often need to change their packaging — even their formula — to tailor to the local market. They also need to comply with local regulatory standards which may significantly differ from those of the CPG companies’ home countries. For example, compliance with the Food Safety Modernization Act (FSMA) of the U.S. Food and Drug Administration (FDA) does not automatically guarantee compliance with other nations’ food safety standards. Finally, globalization also significantly affects CPG companies’ supply chains. Aside from ensuring the fulfillment of orders through greater capacities and efficiencies in production and delivery, CPG companies also connect their supply chain systems to suppliers and partners across the globe, making their supply chain more rigorous and complex. This leads us to the fifth trend.

Trend #5: Increasing Pressure to Make the Supply Chain More Agile

  • Globalization puts pressure on CPG companies to fulfill more and more orders from consumers all over the world. At the same time, it challenges CPG companies to work with local and international suppliers and third-party delivery firms to meet consumers’ expectations of faster fulfillment and more localized and customized products. The supply chain has evolved from merely a production, order, and delivery fulfillment function to a well-integrated function — that is, integrating the CPG companies’ systems with those of suppliers, other partners, and even customers. It has also evolved to an end-to-end function from materials procurement all the way down to responding to consumer feedback.
  • In response, CPG companies are utilizing enabling technologies such as supply chain systems, Big Data analytics solutions, and integration platforms in order to become more agile. Supply chain systems and Big Data analytics solutions enable CPG companies to find bottlenecks in the supply chain, respond quickly to unforeseen supply issues, adapt to changing consumer behavior and preferences, and forecast demand faster — that is, from monthly to weekly and even daily forecasts. For example, McKinsey reported that in a survey of U.S. companies, 100% of companies with best practices in customer and channel management collect and utilize data from online retailers such as Amazon to better understand their consumers.
  • Integration platforms are the glue that holds all the systems together: the CPG companies’ supply chain systems, their suppliers’ and partners’ systems, their CRM systems, their Big Data analytics, and other tools. Integration platforms are what enable CPG companies to harness the power of data coming from separate and disparate sources.

Stay Ahead of CPG Industry Trends with Data Management and Integration Tools

In today’s information age, data is the game changer. Data helps CPG companies make objective decisions about product categories, product placements and promotions, distribution channels, and supply chains. Finding a niche can be done by diving deeper into data.

However, the amount of data can be overwhelming for CPG companies. For every product a CPG manufacturer creates, it generates a staggering amount of data such as price quotes, promotions, purchase orders, ship notices, invoices, and item details that need to be shared across the supply chain. Furthermore, globalization requires CPG companies to extend their supply chains with those of suppliers, partners, and customers, and meet local and international regulatory standards. But with the proper data management and integration tools, CPG companies can harness and reap the benefits of data.

Delivered through The OpenText Alloy Platform, OpenText’s data solutions for the retail and CPG Industry provide everything an enterprise needs to globally manage mission-critical data such as procurement, order fulfillment, delivery, and compliance. OpenText’s data solutions also seamlessly and securely integrate an enterprise’s systems with its partners through Business-to-Business (B2B) integrations and Electronic Data Interchange (EDI).

OpenText’s data solutions integrate ever-growing numbers of cloud applications and data sources. Through its managed services approach, OpenText provides visibility into the flow of data without encumbering users with the technical side of data integration. OpenText also focuses on compliance and unification of integration and data management capabilities, and is well suited to solving today’s (and tomorrow’s) integration challenges. Contact us to learn more about the OpenText ALLOY™ Platform.

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OpenText

OpenText is the leader in Enterprise Information Management (EIM). Our EIM products enable businesses to grow faster, lower operational costs, and reduce information governance and security risks by improving business insight, impact and process speed.

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