According to Pat Conroy – Deloitte’s vice-chairman and U.S. Consumer Products leader – the following are key issues that Consumer Packaged Goods companies will in face in 2012, as well as recommended steps that CPG companies should take to excel in the New Year.
Key Issues Facing CPG Companies in 2012:
Ø Higher commodity costs: Due to supply and demand uncertainty and imbalances, supply costs have increased for food, beverage, personal goods, household goods, and apparel.
Ø Diverging consumer segments: At the low end of the income continuum are consumers that still feel the lasting sting of the Great Recession and have embraced frugality out of necessity. At the high end, more affluent consumers have not only embraced common tactics such as searching for discounts, shopping across channels, and embracing store brands to save, but they also still purchase premium items as well as selectively splurge on luxury products.
Ø Growth of dollar, discount, and online channels: Dollar stores, various other discount channels, and online commerce – including mobile-enhanced shopping – are washing away basis points of market share from traditional retailers and incumbent national brands.
Ø Dearth of innovation: A seemingly unending proliferation of minor product extensions and “me-too” products are crowding out investment in innovative products that could expand markets and compel consumers to change the way they enjoy and emotionally connect with brands.
Steps CPG Companies Should Take to Excel in 2012:
Ø Pursuing more sophisticated hedging and risk mitigation strategies: Economic uncertainty is whipsawing through the supply chain in the form of rising and increasingly volatile commodity prices. As a result, some consumer product companies are upping their game on more sophisticated commodity and currency hedging to help manage risk and align the treasury group more closely with procurement, research and development (R&D), and brand teams.
Ø Developing distinct product and marketing strategies for diverging consumer segments: Consumer product companies can revamp their product lineup at the low end with value brands, and at the premium end with distinct innovation. Retailers and brands are understandably reluctant to pass on commodity cost increases via price increases or fewer promotions at the low end of their product lineup.
Ø Embracing dollar, discount, and online channels: Some consumer product companies have jumped in head first to the dollar store market, recognizing that many consumers are including them as a regular shopping channel for products they previously purchased at traditional grocery stores, mass merchandisers, or malls. They have developed channel-specific brand extensions, created smaller product packages to meet target prices, refined their supply chain for unique distribution requirements, and embraced the very different point-of-sale environment present in dollar stores.
Ø Stress-testing your business model: It is common practice to monitor economic indicators. But CPG companies should also stress-test their business models with the primary vectors of uncertainty in the industry. For example, what would happen if costs doubled and half of today’s consumers were unwilling to pay more?
Ø Looking to technology innovation from mobile, social, and the cloud: Finally, some consumer product companies are looking to technology innovation for a competitive advantage. They are harnessing mobile (and social and online commerce) technologies to help consumers with the pre-store planning process, the in-store shopping experience, and the ongoing post-purchase consumer dialogue. Additionally, they are looking to cloud computing to provide a structural cost advantage and realize an agility advantage in serving new markets around the world.