4 trends that will shake up the future of the CPG industry
Over the past quarter-century, the consumer-packaged-goods (CPG) industry’s growth has been nothing short of exhilarating. It’s projected to make about $721.8 billion in sales in 2020.
Today, CPG manufacturers face a confluence of rapidly evolving technologies, consumer demographic shifts, and changing consumer preferences. No one knows with certainty, how the marketplace dynamics will eventually play out over the next decade, so consumer product companies should be prepared to operate amid uncertainty.
To help prepare for change and uncertainty, we present four trends that will impact the industry in the future and that CPG companies should keep in mind as they try to chart a clear path to 2020 and beyond.
- The rise of the digital consumer
- Impact of demographic shifts on consumption patterns
- Direct-to-consumer and multi-channel presence will become the standard
- Consumer spending will shift toward customized products and experiences
The rise of the Digital Consumer
Todays’ consumers are more reliant than ever on referrals: 70% look for user reviews for information before they make a purchase.
With the rise of the digital consumer, digital marketing will have to adjust and stop functioning as a one-way communication to consumers. In the following decade, we will witness an even greater push for user-generated content.
While this method can be difficult to control, it has proven to be one of the best ways to influence digital consumers’ opinion. To succeed in the digital consumer era, CPG companies will have to invest in advanced marketing platforms that will help them tap into new media outlets which will require rigorous performance tracking and extensive digital-marketing analytics.
Manufacturers in other consumer facing industries like Nike have successfully reached the digital consumer by shifting them to e-commerce, letting them customize the products they want and allowing them to conduct transactions directly on their website, instead of forcing them to go to a retailer.
To follow this example, CPG companies must make the right strategic choice. There are some that already took up the challenge like Procter & Gable when they released an e-commerce site called pgstore.com. However, launching a branded e-commerce site may prove unfavorable for some, so the alternative would be to go through online retail platforms such as Amazon.com who offers direct access to consumers.
With all this digital disruption, CPG companies will face some significant strategic questions like how to leverage online retail channels and build a successful business, and how to take advantage of technology driven opportunities to understand digital consumers more deeply and connect with them. The winning CPG companies will be those that invest time, money and effort to keep up the pace with the digital consumer.
Major demographic shifts will affect consumption patterns
With the world’s population aging quickly, there will be profound demographic changes across all consumer markets that will shift the center of gravity towards the developing world over the following decade.
According got the United Nations projections, the total population of people older than 65 will increase up to 1 billion over the next 20 years, and by 2030, one in four Western Europeans will be elderly, as will one in five North Americans.
However, this trend will be just as present in the developing world: China’s over-65 population will double to 16 percent of its total population, while India’s will almost double, reaching 8.5 percent.
Although aging population represents one significant global demographic trend for which CPG companies must prepare, it is important to mention that by 2030, Hispanics will make up 23 percent of the population in the United States, while the white population will fall from 65 percent to 55 percent.
According to the Census Bureau predictions, the majority of children will be nonwhite by 2023. Moreover, despite the global aging trend, pockets of younger consumers are growing in key markets. In sub-Saharan Africa, where many observers expect rapid economic growth in the coming decade, the United Nations predicts the under 50 population will grow 23 percent, reaching about 700 million by 2020.
Direct- to- consumer and multi-channel presence will become the standard
Direct to consumer (D2C) efforts in the CPG sector are still in their early days, lagging far behind D2C players in the apparel categories. For instance, Nike is already generating more than $9 billion from D2C efforts.
CPG manufacturers should carefully study how consumers typically shop for their products and brands, and how their products’ characteristics would affect online fulfillment.
In the next decade, we will witness many CPG manufacturers going directly to the customer to counter the threat of disruptors, and in response to constant margin pressure from retailers.
The majority of CPG manufacturers will start adopting a multi-channel strategy so they can reach consumers directly through digital channels. Customers expect a seamless experience so CPG companies need to craft seamless multi-channel consumer access across traditional and emerging channels, embracing the digitally enhanced path to purchase.
There have been some CPG manufacturers who are getting into the direct-to-consumer (D2C) game by scooping up new fast-growing companies, like Unilever’s $1 billion acquisition of Dollar Shave Club, and Campbell Soup’s $10 million investment in meal-kit company Chef’d.
Smaller new players who are coming in the CPG market are giving established manufacturers and retailers a run for their money. Start-ups NatureBox and Graze have quickly captured online market share and grown into hundred-million-dollar businesses.
Consumer spending will shift toward customized products and experiences
Compared to ten years ago the North American retail landscape now looks entirely different. Today, consumers stand in stores while using their smartphones to compare prices and product reviews; family and friends instantly weigh in on shopping decisions via social media, and when they’re ready to buy an ever-growing list of online retailers deliver products directly to them, and some offer same day delivery.
These shifts have led many industry observers to forecast the end of retail as we know it. Some predict that retail will change more in the next ten years than it has over the past century.
Today, mass customization is readily available through websites that offer products ranging from personalized printing on small chocolates and unique protein bars blended with consumer selected ingredients, to bespoke apparel and monogrammed products. Although these customized offerings typically come with at least some level of premium pricing, the consumer weighs that extra cost against the ability to make their products unique.
According to a report by Deloitte, 1 in 5 customers who expressed interest in a personalized product are willing to pay a 20% premium, and 70% of US and UK consumers said they expect customized experiences with the brands they interact with.
The demand for customized products and experiences will continue to grow and evolve in the next decade, so CPG manufacturers need to come up with new and innovative ways to exceed the customers’ expectations. Significant changes are inevitable, and CPG manufacturers must act now to win in the long term.
This post was written by Brian J Friedman, SoftClouds’ VP Global Strategic Sales, has a background in technology, business development, corporate management and sales. Brian has been responsible for the creation and growth of numerous companies developing successful long-term relationships that have resulted in double-digit sales growth and continuing business expansion.