The consumer product goods (CPGs) sector experienced a remarkable surge in sales during and after the pandemic. For most consumers, spending priorities shifted away from non-essential luxury items, entertainment, and travel, and the resultant gains in savings were channeled towards discretionary spending in CPGs, particularly through e-commerce platforms.
The market today is a completely different beast. The retail and CPG industry is beset with uncertainties thanks to unpredictable spending patterns, disruptions in supply chains, and geo-political tensions. As a result, nearly every country in the world is experiencing inflation. In the United States, inflation rates exceeded 7% in 2022, hitting a high of 9.1% in June. Though these rates have since abated somewhat, the challenges remain. In a turbulent, disruption-prone environment, CPG players must dig deep and carefully plan their strategies to build resilience and longevity.
The murky waters of retail and CPG
CPGs are innately dynamic products. To be successful, CPG businesses must adopt a proactive approach to forecasting the movements of their goods and making quick decisions. Today, as uncertainty about the future looms large, the situation is further complicated.
After the pandemic, the economy had been operating at full capacity due to high levels of consumption. However, recent political conflicts in Europe have disrupted global supply chains for CPGs, resulting in the increased cost of natural gas and petroleum which went up from $76 per barrel in January 2022 to $110 by March. The surge in product costs has surpassed the rise in wages for an average worker, leading to a decrease in high-value purchases such as cars and homes.
The other factor is changing consumer behavior. Consumers see their interactions with brands as a journey, and we have moved well past the stage of simple, two-step transactions. But this change can be a blessing in disguise. Businesses that align themselves to this evolution can benefit greatly from the changes. They must look to build long-term, value-added relationships with consumers that are built on trust and deep engagement. A survey indicates that almost three-quarters (74%) of consumers are enrolled in at least one CPG loyalty program and 72% of the enrolled reported an increase in overall spending.
A Future Built on Technology
The old ways of running a retail or CPG business are obsolete. Ambitious players must undertake a wholesale reimagination of their business processes to navigate the choppy waters. This begins with digitalization. Organizations amid their digital transformation journeys must also understand the importance of agility and flexibility, both in how they do businesses and the way they manage their workforces. Leaders must develop and implement a digital mindset as a core organizational value. This is the only way to build a culture of innovation, productivity, and adaptability. This involves developing the ability to sense, learn, respond and evolve, much like living organisms, and recognizing that change is the key to achieving business excellence.
From a technological perspective, CPG firms must do their research and invest in a comprehensive but modular suite of services to empower them with intuitive decision-making capabilities at scale, real-time actionable insights, anytime/anywhere experiences and in-depth data visibility across functions. They must focus on tools and systems that enable seamless connectivity and collaboration across business units and between customers and the enterprise.
Supply chains are another area that is ripe for transformation. The entire value chain must be reimagined to build resilience against risks. A recent survey reveals that over 75% of supply chain leaders prioritize digitalization. The implementation of digital and automation technologies not only improves EBIT, sales volumes, cost reduction and cash release, but also strengthens agility and resilience for the entire supply chain.
Digital technologies and analytics can help CPG firms improve forecasting, responsiveness, delivery, planning, and vendor relationships. Advanced analytics along with data-driven cost modeling can help manage commodity purchases effectively and safeguard against volatile input prices and availability. Accelerating automation efforts in manufacturing and warehousing can optimize costs and services. In addition, the deployment of autonomous planning technologies also enhances services and working-capital performance. But, perhaps most importantly, these technologies lead to greater end-user satisfaction.
For CTOs and decision-makers at retail and CPG companies, the chief digital trends to look out for are:
- Cloud adoption: Besides cost optimization, leveraging the cloud opens a world of innovative technology adoption for CPG and retail organizations.
- Data-centricity: CPGs can generate deep insights and smart recommendations with the right data-centric solution.
- AR, VR, 5G, and AI: Studies show that CPGs experience a 30% cost reduction and 20% revenue increase with the adoption of AI and ML on consumer data. Moreover, 5G, cloud, and immersive techs like AR and VR are opening new horizons for faster, innovative, and more convenient consumer experiences.
- Metaverse: Advanced immersive technology can take collaboration and mobility in the customer experience to the next level while also enabling new innovations.
- Robotics: Investments in robotics in retail have the potential to drive efficiency and innovation and have extensive applications within supply chains.
Cautiously optimistic: the mantra for CPG and retail
Despite recent hurdles, the outlook for the CPG industry is still rose. Experts predict steady growth of 2.98% CAGR until 2028 when it will be worth $2,448 billion globally. However, for individual companies, competitive pressure is going to heat up. Customers are increasingly making purchasing decisions in favor of brands that reflect their own cultural values of equity and sustainability. Here too, technology can help companies innovate, transform operations, enhance customer experiences, and create new revenue streams in ways that resonate with customer sentiment.
Rather than reinventing the wheel, CPGs and retailers can partner with established technology experts who have both, the experience and the resources necessary to build and implement cutting-edge solutions. By embracing innovation, fostering deep partnerships, and by adopting a digital mindset, CPG and retail leaders can successfully navigate the headwinds of a volatile world.
Written by Vijay Verma.
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