The vendors of the consumer’s packaged goods industry are expected to face two major challenge in 2015. The first is slow or negative growth in disposable income of people. The second is changing consumer attitude towards brands and products, especially as fragmentation of the industry takes another turn. This means that companies should change the route that they take to reach their consumers in terms of communicating and distributing their products.
In most markets, wages has been static for the last five years despite the economies doing well. This is because the after tax the wages earned, especially by the middle class, young people and families led them to depress their capability in consumer spending. Growth in developing countries is better than the United States and Europe. However, the slowdown is also catching up in emerging countries like China, where, despite the companies hoping for high sales, there has been lower than expected consumer spending. The weakening consumer disposable income would continue inspite of the way the macro GNP uncertainties break.
On the other hand, in both the developed and developing countries, there is a wide variety of consumers, now more than at any time in the recent past. This great fragmentation has manifested into consumer buying behavior and market response. Growth is being recorded at both ends of the spectrum, at the top of the market, where consumers spend on high quality food and other packaged goods, and at the lower end, where consumers focus on value. However, the traditional middle of the market has shrunk considerably.
The Vagrant Consumer
As per research on the consumer packaged goods industry, individual consumer’s behavior are becoming pluralistic in nature. To cite a pluralistic nature, we see spirit buyers consume a premium brand in a bar, and yet a less costly label for home for personal consumption, and yet cheaper when he or she has to entertain guests. This variegated shopping trend has spread even to the grocery basket. Each week there are fewer and fewer consumers who are making one big stocking up trip; instead they are choosing a premium store in addition to frequent online purchases. Now, more shoppers have become inclined to spend time for hunting bargains.
Furthermore, few years back, the CPG and FMCG industry had only a handful of sales channels, namely, the supermarket, hypermarkets and traditional small and large retailers in emerging economies. Since then, various other routes have made significant inroads, including the low variety outlets, for example, Europe’s Aldi and Lidl. These two sell a limited range of private label grocery items in smaller stores. Besides these specialized stores, online merchants are also having an impact on CPG landscape. The savings, product quality and variety generated by expanding their business across multiple channels have surprised the economizing consumers. In the coming years, we expect to see more such innovations on part of the consumer goods industry players wherein they try to expand their customer base.
With a greater demand for products and brands in different sizes and packaging and sales method, most CPG companies have seen their SKUs to proliferate, despite there being little increase in overall consumption. Improved outcome could be seen at smaller food and beverage suppliers, who are greatly benefitting from increased consumer demand for variety and authenticity.
Wide Array of Media
With the rise in digital content and proliferation of online devices, the consumer’s media usage has also become fragmented – from the web, mobile, and social sites to radio, TV and print.Each platform comes with its own requirements, economies and audience appeal, which calls for specialized attention. However, at the same time, the media campaigns need to be closely coordinated for effective consumer messaging.
Meanwhile, all these transitions challenge the way CPG companies manage their brand and business and portfolios, and often calls for rethinking about their go-to-market approach, with thorough analysis of analytics. However, it is not only about the insight; it also about using it wisely to determine methods to manage costs. The more the vendor knows about customer needs and preferences, the company would be more focused and smarter in its approach in managing its own economies cost effectively. This will help in delivering variety and value to the consumer.
Moreover, companies need to cover more retail channels, for which they need to simplify trade terms and promotional spending. With the recent recession hitting hard, marketing and promotional campaigns have overlapped as CPG companies tried their best to chase limited sales volume. Current practices employed just add cost to both the vendors and retailers. Analytics would help with this also, as they will tell which marketing efforts are worthwhile and how to make a single campaign can take care of several aspects.
All this means large CPG companies need to minimize and concentrate their business portfolios to succeed in this fragmented marketplace, rethinking entire categories of brands. To cite an instance, Kraft Foods split into two in 2012, spinning off its instant consumption oriented snack and confectionary into Mondelez International.
Furthermore, the fragmentation of the marketplace has led companies to innovate themselves into managing more digital merchandising and communication paths. For many, it is all about consolidating the lessons from using digital channels. The good news is that data and analytics would play a very important role in managing costs in today’s wage restricted consumer environment.
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