WHITE SULPHUR SPRINGS, W. Va. -- In order to overcome the challenges that lie ahead, consumer packaged goods manufacturers should follow the example set by innovative supermarket retailers and offer shoppers services to help make their lives a little easier, according to executives at PwC Consulting, a business of PricewaterhouseCoopers. "There's been a lot of innovation in retail in terms of the roles they're [grocers] playing in their consumers' lives -- offering banking services, all kinds of things that make the consumer's life easier, [like] preprepared foods. If you compare that on average to the innovation that's taken place on the manufacturers' side, the retailers are doing better," said Tig Gilliam, Americas lead partner, consumer packaged goods practice, PwC Consulting.
The slowing economy has resulted in less consumer spending in the CPG food arena, according to statistics from the U.S. Department of Commerce. While the share of total spending on CPG products in the United States averaged about 17.5% in 1980, it is currently hovering at about 12% and is expected to drop even more by 2004 (see chart). Conversely, the share of total spending on services in the U.S. has steadily risen from a near 50% in 1980 to close to 60% today.
"There's really nothing new about the trends. Most of the executives in the industry have just become numb to the trends," Gilliam told SN. "There is more clutter in the marketplace in terms of recognition of brands, and somewhere around 2007 may very well be the time that the retailers have reached the point where they now enjoy margins that may exceed those of manufacturers in the sector," he predicted.
In the meantime, brand loyalty is becoming a victim to increasing service-needs, which are diminishing the power of stalwart brand names.
"The CPGs have had the pull position because brands have meant something -- the assurance of quality and value. A real change is coming. Retailers have the direct contact with the consumers. And, they're creating stores and offers which the consumer feels is enhancing their needs; this is where CPG will begin to feel some pain," said Bill Gilmour, global lead partner, consumer packaged goods practice, PwC Consulting.
"In the end, the winner is going to be the person or the company who is the agent of the consumer. It's the person who the consumer will turn to and say, 'This is a person I trust,"' he added.
Gilmour, along with Art Drogue, senior vice president of sales and customer development, Unilever Bestfoods, North America, offered CPG manufacturers a six-step set of solutions for overcoming this challenge during the session "Play Big -- The Consumer Packaged Goods Imperative" during the Grocery Manufacturers of America's annual Executive Conference, held last week at The Greenbrier here.
Steps for ensuring success in the future for CPGs include:
Focus operations for maximum influence
Grab a larger "Share of Consumer Life"
Think like a retailer
Collaborate enterprise-wide
Demand growth by shattering constraints
Operationalize "Bigness"
Much of product innovation has to do with packaging options that meet a lifestyle need. Therefore, Gilmour said, products such as squeezable ice cream tubes that can be resealed and Swiffer mops are most apt to succeed and breathe new life into CPG companies in the future. And, because the majority of grocery shoppers are women, CPGs need to cater to that gender, as retailers do through product placement and promotions. Also, collaboration between players is key.
"You need to understand what drives value in a retailer. Where does the money get lost in a retailer, in terms of giving customer service, developing the merchandise strategy, doing the supply chain logistics, managing store operations? If you really understand that, then you can work out exactly where the retailers need help," Gilmour added.
