CPG Executives Identify Two Industry Megatrends

Stephen DeAngelis

September 20, 2013

Earlier this year “more than 200 executives from leading consumer goods and retail organizations” came “together to focus on how, through a set of collaborative initiatives, the industry can continue to bring benefits to consumers.” [“Consumer Goods Forum Identifies Two Megatrends,” Consumer Goods Technology, 3 July 2013] Participants identified two key megatrends that are “likely to have the greatest impact on the consumer goods and retail industry in the coming five to 20 years.” Those trends are: The challenge of today’s digital world; and, the ongoing fight for resources. The article reports that discussions at the Consumer Goods Forum “led to the selection of three initiatives that address these megatrends and highlight the need for swift action.” I’ll discuss those initiatives later in this post. First, I would like to discuss the megatrends in a little more detail.

 

Today’s Digital World

 

There are number of topics that fit under the “Digital World” tent. For consumer packaged goods (CPG) executives, the two most important topics are probably the consumer’s digital path to purchase and how Big Data analytics can be used to inform business decisions and marketing.

 

Digital Path to Purchase

A report sponsored earlier this year by the Grocery Manufacturers Association (GMA) and PwC US, entitled Growth Strategies: Unlocking the Power of the Consumer, concluded, “in the age of the digital consumer, leading CPG companies and retailers benefit from responding to the speed of the connected consumer and balancing operational quality with innovation.” [“Report: CPG Companies, Retailers Shift Focus to ‘New Rules of Consumer Engagement’,” SupplyChainBrain, 24 June 2013] The article continues:

“Top-performing companies see success by identifying their consumers, engaging with them and focusing on innovation that directly reach their customers. The report explores how numerous digital channels, accelerated mobile adoption and direct-to-consumer approach are rewriting the rules of retailing and CPG manufacturing. The report also examines how companies can seize new opportunities by creating lasting brand value. In 2013, more than 40 percent of CPG companies expect to sell products directly to consumers, up from 24 percent in 2012. According to the report, direct-to-consumer is a potent vehicle for testing new products and reaching out to new consumers faster and more effectively than ever before, making the retail store aisle no longer the last mile in the purchase journey. Flexibility will be essential, as companies will also need to manage a new set of risks and security concerns.”

Although retail store aisles may not be the only “last mile” in the path to purchase, they will certainly play that role in many developed countries. In emerging markets, however, the digital path to purchase (almost exclusively pursued using mobile technology) will be a common last mile traveled. The article provides a good segue into the second topic – Big Data analytics. It states, “The report further delves into how companies can gain greater understanding of their customers, as it highlights best-practices for developing loyalists, determining appropriate social media channels that align with business goals, along with successfully identifying target segments within their organization.”

 

Big Data Analytics

Big Data analytics are useful both internally (e.g., to help improve supply chain visibility and foster corporate alignment) and externally (e.g., to gain better market insights and to understand customer behavior). Maria Deutscher asserts, “Forward-thinking retailers are tapping into Big Data to streamline operations and gain a competitive edge over rivals.” [“Three Ways Big Data has Changed Retail Analytics Forever,” Silicon Angle, 2 May 2013] The same thing could be said about any CPG firm. Deutscher, however, focuses on three ways that Big Data analytics have changed retailing as retailers reap “the rewards of Big Data analytics by applying intelligence to new areas.” The areas she goes on to discuss are: price optimization, product placement analysis, and staffing. Manufacturers have different challenges. Puneet Saxena, Vice President of Manufacturing Industry Strategy at JDA, identifies some of those challenges. He writes:

“The manufacturing network has become more complex and geographically disparate. To start with, manufacturers have more channels available to reach their end customers: direct enterprises, retailers, distributors and online. Demand across these channels has become increasingly volatile as customers have become more demanding and unpredictable. Across a diverse range of automotive, consumer electronics, consumer packaged goods, chemicals and pharmaceutical companies, manufacturers have been forced to introduce more new products to retain and grow market share. This unprecedented pace of new product introductions has strained alignment between the sales, engineering, manufacturing, marketing and finance departments internally, as well as with key suppliers externally.” [“Five Core Tenets of Achieving Supply Chain Excellence in Manufacturing,” SupplyChainBrain, 19 June 2013]

Saxena asserts, “Success will come to those companies that can drive business agility through customer-centric, segmented supply chains, end-to-end synchronization and advanced optimization.” All of those tenets rely on mastering Big Data analytics.

 

Ongoing Fight for Resources

 

I think the CPG executives who identified this megatrend made a mistake labeling it as an “ongoing fight.” They would have been better served (and opened up more innovative thinking) if they would have labeled this megatrend something like: The Search for Sustainable Resources. Perspective can make all the difference when it comes to finding innovative solutions. Steve Hall argues that procurement professionals are going to lead the fight (or champion the innovations) that marry business and sustainability strategies. [“Sustainable Sourcing: Procurement can be where sustainability and strategy meet,” Procurement Leaders, 22 September 2011] Hall supports the arguments of Eric Lowitt, a frequent author on the topic of sustainable strategy, who believes “that you shouldn’t have a sustainability strategy because it doesn’t naturally integrate with the overall business strategy. Which isn’t to say that a business shouldn’t have sustainable goals, but that there needs to be top level commitment to integrating them into a competitive strategy.” I’ve consistently argued that the only sustainability efforts that are going to succeed are those based on sound business decisions. If CPG executives truly believe that the “fight for resources” is a game-changing megatrend, then they need to take the subject of sustainability much more seriously. As Hall puts it, “Procurement is placed to play a vital part in connecting sustainability strategies with results and value that stakeholders can see.”

 

CPG Initiatives

 

As promised above, I want to end this post with a discussion of the “three initiatives that address these megatrends” identified by CPG executives during the Consumer Goods Forum. They are:

 

  • Consumer Engagement Protocol: This initiative is designed to address the changes being witnessed in consumer behavior. The potential power of user-generated and social media technology platforms to disrupt established institutions and the associated brand equity is undeniable. However, there are opportunities to connect directly with consumers as shoppers look for improved transparency in digital channels. At the same time, there is an inherent need to mitigate risks from privacy invasion. Increasingly, companies recognize the requirement to be proactive vs. being regulated in this area, but currently there is no voluntary global commitment concerning this in the consumer goods and retail industry. The project is focused on establishing guidelines for digital engagement with consumers.
  • Next-Generation Product Identification: Today, in a world of rapidly expanding online commerce solutions, barcodes are unable to provide companies and consumers with the rich digital product information they seek. Consumer barcodes do not uniquely identify product or package variations that carry the same product identifier, meaning minor product variations cannot be accurately disclosed. This initiative focuses on connecting the dots to improve supply chain transparency, efficiency and traceability. The goal is to provide the industry and the consumer with accurate product information by using new technology capabilities for product identification to replace the current barcode.
  • Sustainable Packaging Coalition: This potential initiative is designed to establish a coalition of companies to work together on non-competitive topics to improve the sustainability of packaging across the different value chain stages. The focus of potential activities will be around the three R’s of packaging and packaging components: Redefine, Reduce and Reuse.”

 

Peter Florenz, corporate vice president & global head of governmental relations and public affairs, Henkel AG & Co KGaA, and co-chair of The Consumer Goods Forum’s Emerging Trends Steering Committee, stated, “This is a historic moment. … The next 10 years will mark a radical change in how products are sourced and purchased.” Sabine Ritter, executive vice president, strategy, industry initiatives, strategic alliances at The Consumer Goods Forum, added, “The industry is at a critical tipping point and must ensure its future by implementing these initiatives to drive innovation. Success is hard to quantify but we must focus on collaboration and non-competitive improvements that will protect consumers and the vital components that will create one of the most innovative and forward-thinking sectors.” Obviously, CPG companies will continue to look for innovations that will provide them an edge over their competitors; however, it is a bit disappointing that none of the identified initiatives really addressed how to deal with the resource challenge.