For years the conventional wisdom had been that consumers would continue to spend on the daily requirements which were catered to by CPG industries and that hence these companies were insulated from economic cycles that affect the global businesses. All this has changed in the past few years with CPG manufacturers as :-
i) Companies are struggling to grow in developed countries with an ever decreasing population and hence lower demand for products.
ii) The demand or pull is from emerging markets where traditional selling and marketing methods no longer work and companies need to adapt to the new product requirements as well as regulatory pressures in the new geographies.
iii)All across the globe, consumers becoming increasingly price selective and less brand conscious in all markets. Consumers are more likely to go with a fixed budget and spend more on certain products while tighten their spend on other ones.
iv) To add to all their woes, the commodity prices have been increasing year over year whereas consumer spend has not been growing at the same rate.
v) Brand loyalty has taken a back seat and price consciousness is the new mantra for shoppers around the world.
vi) Supply Chains have become increasingly complex and large retailers have their own plans for promoting and stacking products to achieve their business objectives.
Now, more than ever, CPG companies are looking to consolidate and stay ahead of their competitors by:-
a) Increase market penetration and demand in emerging economies :- CPG manufacturers are looking towards new markets in Asia and Africa to bring about the much required spurt in volumes. Whereas, the population in emerging economies is growing fast enough to make the overall world average of 11% population increase, the population in developed economies is decreasing with each passing year. These emerging markets need a different mindsets and a different approach like Unilever has incorporated in India by using women in villages as their primary salespeople under the "Shakti" initiative for women empowerment. This has given them the much needed penetration in rural markets to fulfill demand generated from media channels. Each of these emerging markets, in turn, have their own regulatory issues that the manufacturers and retailers have to adhere to while still being in line with their global reporting requirements.
This requires a consolidated reporting mechanism to aggregate different financial data from each of the geographies and then use it to automatically generate the balance sheet and reports for the HQ. Not only this, but would also require financial management tools like period end closure and disclosure management as well as financial planning tools to be able to cross the hurdle of multiple reporting laws in different geographies.
b) Grow global and local sourcing and supply networks to decrease costs:- CPG manufacturers have increased their product mix over the past few decades and hence the number of suppliers has increased manifold. if that was not enough then consider the choice of lowest price supplier with the lowest cost of sourcing the raw material from. On the demand side, emerging economies still have a large populace situated in smaller towns and villages which do not even have proper mode of road transport available. For example, for the price conscious Indian buyer where a large population still buys from the "mom and pop" store next door (due to their ability to sell on credit), the larger supply chains of developed markets are no longer viable and smaller, more effective product mix and smaller batch sizes of supply have to be maintained and supplied with minimal cost.
CPG manufacturers need to work closely with their retailers and decrease the cost of inventory by closely monitoring the demand from the shoppers. This would require an advanced and collaborative planning solution for optimizing inventory maintained at the retailer and sourcing quantities from the suppliers.
c) Innovate and introduce new products based on geographical demand and conditions :- Consumers increasingly need to be provided with innovative products to generate demand in previously unknown categories as well as increase respond to the latest market trends.
Launching a new product and ensuring that it is successful individually as well as in the context of cannibalization of similar products from the manufacturer needs to be considered. moreover, a halo effect that would result in increased buying of other related products would be an added advantage.
Companies would need to assess the costs involved in developing new products as against the projected revenues generated from the launch, both in meeting short term and long term strategic objectives for the manufacturer. CPG manufacturers need tools to help them accurately project the new product launch's performance based on alternative scenarios and assumptions as well be able to predict demand.
d) Streamline promotional spend and get more value for marketing budgets allocated to retailers :- CPG manufacturers have long realized the benefits of "Shopper Marketing" and that they need to be able to generate demand by targeting their end-customers who are the shoppers and not the retailers. Customers need to be targeted by creating brand consciousness as well a unique experience associated with the brand across multitude of channels.
Manufacturers need to sense the demand from the shoppers and accordingly plan and execute the next wave of marketing campaigns and promotions to increase their revenues. moreover, the inputs from the demand should go into planning the inventory quantities at the respective retailers and consequently tied back to the sourcing quantities from the suppliers. CPG manufacturers also need to effectively plan the next promotion to generate the required lift in volumes as per the stated objectives as well as manage their funds to attain the same. Lastly, manufacturers need to tie back the demand from shoppers and trade promotion effectivity to plan the execution of retail supply and use the data collected from the visit audits to monitor out of compliance issues at the retailers.
There is no doubt that the next battle for retail dominance and shopper-mind-share is going to be fought in emerging markets for the consumer goods' manufacturers, but at the same time companies need to continually innovate in their existing markets. For eg, ConAgra foods started a whole campaign around using their sauce and related ingredients (also from ConAgra) to create unique recipes as part of their campaign which resulted in not only an increase in the base sauce's demand but also generated a halo effect on other products recommended in the recipe.
i) Companies are struggling to grow in developed countries with an ever decreasing population and hence lower demand for products.
ii) The demand or pull is from emerging markets where traditional selling and marketing methods no longer work and companies need to adapt to the new product requirements as well as regulatory pressures in the new geographies.
iii)All across the globe, consumers becoming increasingly price selective and less brand conscious in all markets. Consumers are more likely to go with a fixed budget and spend more on certain products while tighten their spend on other ones.
iv) To add to all their woes, the commodity prices have been increasing year over year whereas consumer spend has not been growing at the same rate.
v) Brand loyalty has taken a back seat and price consciousness is the new mantra for shoppers around the world.
vi) Supply Chains have become increasingly complex and large retailers have their own plans for promoting and stacking products to achieve their business objectives.
Now, more than ever, CPG companies are looking to consolidate and stay ahead of their competitors by:-
a) Increase market penetration and demand in emerging economies :- CPG manufacturers are looking towards new markets in Asia and Africa to bring about the much required spurt in volumes. Whereas, the population in emerging economies is growing fast enough to make the overall world average of 11% population increase, the population in developed economies is decreasing with each passing year. These emerging markets need a different mindsets and a different approach like Unilever has incorporated in India by using women in villages as their primary salespeople under the "Shakti" initiative for women empowerment. This has given them the much needed penetration in rural markets to fulfill demand generated from media channels. Each of these emerging markets, in turn, have their own regulatory issues that the manufacturers and retailers have to adhere to while still being in line with their global reporting requirements.
This requires a consolidated reporting mechanism to aggregate different financial data from each of the geographies and then use it to automatically generate the balance sheet and reports for the HQ. Not only this, but would also require financial management tools like period end closure and disclosure management as well as financial planning tools to be able to cross the hurdle of multiple reporting laws in different geographies.
b) Grow global and local sourcing and supply networks to decrease costs:- CPG manufacturers have increased their product mix over the past few decades and hence the number of suppliers has increased manifold. if that was not enough then consider the choice of lowest price supplier with the lowest cost of sourcing the raw material from. On the demand side, emerging economies still have a large populace situated in smaller towns and villages which do not even have proper mode of road transport available. For example, for the price conscious Indian buyer where a large population still buys from the "mom and pop" store next door (due to their ability to sell on credit), the larger supply chains of developed markets are no longer viable and smaller, more effective product mix and smaller batch sizes of supply have to be maintained and supplied with minimal cost.
CPG manufacturers need to work closely with their retailers and decrease the cost of inventory by closely monitoring the demand from the shoppers. This would require an advanced and collaborative planning solution for optimizing inventory maintained at the retailer and sourcing quantities from the suppliers.
c) Innovate and introduce new products based on geographical demand and conditions :- Consumers increasingly need to be provided with innovative products to generate demand in previously unknown categories as well as increase respond to the latest market trends.
Launching a new product and ensuring that it is successful individually as well as in the context of cannibalization of similar products from the manufacturer needs to be considered. moreover, a halo effect that would result in increased buying of other related products would be an added advantage.
Companies would need to assess the costs involved in developing new products as against the projected revenues generated from the launch, both in meeting short term and long term strategic objectives for the manufacturer. CPG manufacturers need tools to help them accurately project the new product launch's performance based on alternative scenarios and assumptions as well be able to predict demand.
d) Streamline promotional spend and get more value for marketing budgets allocated to retailers :- CPG manufacturers have long realized the benefits of "Shopper Marketing" and that they need to be able to generate demand by targeting their end-customers who are the shoppers and not the retailers. Customers need to be targeted by creating brand consciousness as well a unique experience associated with the brand across multitude of channels.
Manufacturers need to sense the demand from the shoppers and accordingly plan and execute the next wave of marketing campaigns and promotions to increase their revenues. moreover, the inputs from the demand should go into planning the inventory quantities at the respective retailers and consequently tied back to the sourcing quantities from the suppliers. CPG manufacturers also need to effectively plan the next promotion to generate the required lift in volumes as per the stated objectives as well as manage their funds to attain the same. Lastly, manufacturers need to tie back the demand from shoppers and trade promotion effectivity to plan the execution of retail supply and use the data collected from the visit audits to monitor out of compliance issues at the retailers.
There is no doubt that the next battle for retail dominance and shopper-mind-share is going to be fought in emerging markets for the consumer goods' manufacturers, but at the same time companies need to continually innovate in their existing markets. For eg, ConAgra foods started a whole campaign around using their sauce and related ingredients (also from ConAgra) to create unique recipes as part of their campaign which resulted in not only an increase in the base sauce's demand but also generated a halo effect on other products recommended in the recipe.