The Coronavirus pandemic has indefinitely and will continue to change the Consumer Packaged Goods (CPG) industry. The primary reason for everlasting impacts is because the industry is so heavily linked to consumer demand and behaviour and the pandemic has transformed how people live and work for the foreseeable. Numerous trends have emerged as a result.
Firstly, the concept of Direct-to-Consumer (DTC) is not new but could become a more inviting option for CPG companies as the pandemic has worsened the closure of high streets. The industry has historically been reliant on grocery stores for distribution of goods but will be forced to look for other ways in which to sell and move products as consumers move online.
Coca-Cola set up a DTC channel via its ‘Share a Coke’ initiative in 2011. The company now offers personalised apparel, bottles and gifts. Though this is an example of a CPG company utilising DTC it does not appear this could be scaled up. Economies of scale are key in CPG; low unit prices, high quantities and specialised transportation are stumbling blocks for many companies. Whilst cutting the middleman may reduce costs and save on the complexity of supply chains it may not be feasible for the majority of companies.
Secondly, sustainability has been gaining traction for some time now. However, during the pandemic businesses have had to put it on the back burner whilst focusing on recovery. On the other hand, there has been a surge in consumer awareness and a trend appears to be forming for environmental consideration. This means a move away from single-use plastics, decreased use in cars and buying ‘environmentally friendly’ labelled goods. This does not bode well for the current model of the CPG sector which packages most goods in plastic and traditionally are made using harmful and polluting substances.
As the importance of hygiene increases, whilst environmental awareness also rises, Unilever has seen unprecedented demand for its products like Cif, Omo and Domestos. In early September 2020, the company pledged to stop using fossil fuels in its cleaning products as part of its Clean Future initiative. It is putting around €1bn towards the cause. Unilever’s Home Care division President said, “there is demand for affordable sustainable products that are just as good as conventional ones”.
Finally, private label competition is an ongoing challenge for CPG companies. According to Hitachi Solutions, it has been outpacing US brand growth for both edible and non-edible goods in the last three years. Unfortunately, for CPG companies the panic buying that ensued amid the spread of the virus left many shelves empty across the world. The products left tended to be supermarket own brand or private label, strengthening the advantage over CPG brands. Private label goods are likely to be produced closer to the end market making them easily accessible in a crisis and are generally more affordable, pushing out CGP brands in this instance, and seemingly more often.
It is important for CPG companies to be quick to pick up on trends as previous insights and trends may no longer be applicable. Health and safety, amid the pandemic and in the future, is a number one priority for many, driving the trend of online shopping and the decline in visits to physical stores. As restrictions have eased, confidence as risen slowly but it is true to say people have reduced the amount of time spent in public places i.e. supermarkets. Brands have much to contend with as the world emerges from COVID. Many industries are faced with unprecedented situations and enormous change which will feed down to consumers, ultimately changing their requirements and demand. For companies to overcome and prosper from this it is vital they keep up and innovate in their products, operations and logistics solutions.
Source: Transport Intelligence, September 17, 2020
Author: Holly Stewart