Trying to paint a picture of the current consumer packaged goods (CPG) space would require an artist experienced in abstract impressionism. Looking at such a picture, viewers would be forced to ask, “What’s going on here?” McKinsey & Company analysts, Tamara Charm, Jason Rico Saavedra, Kelsey Robinson, and Tom Skiles, suggest such a picture should be called “The Great Uncertainty.” They write, “Whether it’s at gas pumps or in grocery stores, people across the United States have been feeling a pinch in their pocketbooks. … Inflation is the highest it’s been in decades, and consumers are worried and jittery, adjusting how they spend and save. But not all consumers are the same. … There’s nuance to how people are responding — depending on age group, income level, and what they’re buying.”[1] Even during the best of times, keeping up with consumers can be difficult — and these aren’t the best of times.
Understanding Consumers
The McKinsey analysts suggest, “Companies should seek to understand the nuanced sentiments and behaviors among different groups of consumers and the categories in which their businesses operate.” In order to understand consumers better, companies need to leverage a cognitive technology solution, like the Enterra Shopper Marketing and Consumer Insights Intelligence System™, which can capture and analyze the myriad variables affecting consumer behavior. Without the assistance of a cognitive technology solution, the nuances mentioned by the McKinsey analysts could be overlooked. Below are some of the less nuanced consumer behaviors experts are seeing.
Changing shopping habits. McKinsey analysts note, “Consumers are changing their shopping habits — but not all in the same way.” A McKinsey survey found, “Seventy-four percent of survey respondents say they’re trading down. … Most of those trading down [actions] either adjusted the quantity or pack size of their purchases (60 percent), which is the primary method of trading down for necessities, or decided to postpone a purchase (44 percent), typically for nonessential items. Across categories — but particularly in footwear, groceries, home improvement, and apparel — more lower-income consumers say they delayed purchases than those with higher incomes. People are also trading down by going to lower-priced stores, switching to brands that cost less, or adopting a buy now, pay later approach.”
Consumers are still spending. Although shopping patterns may be changing, journalist Ray Schultz reports, “Retail sales jumped by 8.8% YoY in January in the U.S., according to Mastercard SpendingPulse. Ecommerce sales grew by 8.4% and in-store by 8.9%. … ‘Consumer spending remains resilient in the first few weeks of 2023,’ says Steve Sadove, Mastercard senior advisor and Former CEO of Saks, Inc. Sadove adds that ‘the overall retail story remains largely positive with January posting a solid month of growth across the country.’”[2]
Age often dictates what consumers buy. Preethi Lodha, a Data Analytics and Insights Manager at the University of Massachusetts, reports that individuals in every age bracket still have money to spend; however, they often spend that money on different things. She breaks down her analysis into five age groups: the Silent Group (individuals born prior to 1945), Boomers (individuals born between 1946 and 1964); Generation X (individuals born between 1965 and 1980); Millennials (individuals born between 1981 and 1996); and Generation Z (individuals born 1997 or later). Although a lot of attention has been given to Generation Z, the Silent Group spends more annually than members of Generation Z ($44,683 to $41,636). The biggest spenders are Generation X ($83,357) followed by Millennials ($69,061), and Boomers ($62,203). It should come as no surprise that housing tops the list of expenditures for all age groups. For all but the Silent Group, transportation is the next largest expenditure. For the Silent Group, healthcare is second largest expenditure. Food ranks among the top five expenditures with every group.
Staying Ahead of Consumers
McKinsey analysts suggest, “With a refreshed view of consumers, retailers should pivot to promising combinations of consumers, subcategories, and strategies and place big bets with potential to double growth. Companies that make bold moves during uncertain times generate greater returns in future business cycles.” Obviously, that is easier said than done. The Progressive Grocer (PG) staff asked a number of CPG executives, “What does it take to be ahead of what’s next?”[4] Scott Aakre, an executive with Hormel Foods, told the staff that trying to stay ahead of consumers was “’really an art and a science,’ relying as it does on an ‘it’ factor that goes far beyond shopper analyses or the latest tech solutions.” Below are some of the answers provided by other CPG executives.
Craig Slavtcheff, Executive Vice President and Chief R&D and Innovation Officer at Campbell Soup Co., told the PG staff, “Using artificial-intelligence and machine-learning tools, we track and curate billions of data points to find inspirations, and enlist a broad swath of employees to translate these signals into insights and then prototypes. We then leverage agile design methodology to accelerate the development of new products that resonate with consumers.”
Ariel Dalton, Senior Vice President of Commercial Leadership at Danone North America, told the PG staff, “We invest in research and tools to stay at the forefront of developing consumer needs, and then build our retail strategies in line with those insights to drive incremental growth for the category.”
Mike Gilroy, Vice President of Trade Development at Mars Wrigley, told the PG staff, “As Gen Z continues to gain buying power, we’re looking at generational trends to make sure we’re staying relevant and bringing in new users while also satisfying existing users.”
Concluding Thoughts
The above discussion should make it abundantly clear that data collection and analysis plays an essential role in today’s CPG space. McKinsey analysts conclude, “Companies should continuously track swings in sentiment and spending, and leverage real-time insights and analytics to craft the right assortment, offering, and personalized customer touchpoints and communications.” As I pointed out during an interview with technology journalist Lisa Morgan, “The only way to minimize risks and exploit opportunities at scale is to have a system that has decision-making built into the technological platform.”[5] I explained to her that the Enterra Revenue Growth Intelligence System™ (ERGIS™) system, which uses Autonomous Decision Science™ (ADS®), can automate trade promotion and pricing processes as well provide “business war gaming.” This approach uses a game theory framework to help CPG companies understand competition in the marketplace. The system is also capable of making decisions so users can beat their competitors and make the organization resilient to changes they’re facing in the marketplace. In other words, it helps organizations keep up with consumers.
Footnotes
[1] Tamara Charm, Jason Rico Saavedra, Kelsey Robinson, and Tom Skiles, “The Great Uncertainty: US consumer confidence and behavior during inflationary times,” McKinsey & Company, 16 August 2022.
[2] Ray Schultz, “Retail Sales Grew By 8.8% In January: Report,” MediaPost, 10 February 2023.
[3] Preethi Lodha, “How Do Americans Spend Their Money, By Generation?” Visual Capitalist, 2 September 2022.
[4] Staff, “How CPGs Anticipate the Needs of Shoppers,” Progressive Grocer, 23 January 2023.
[5] Lisa Morgan, “Decision intelligence changes operations across industries,” TechTarget, 23 January 2023.
