Consumer packaged goods, or CPG, are greatly affected by consumer shopping patterns. Any change to a consumer’s health, wealth, or wellness can affect how they approach this industry. This is why regular examination of each target demographic is so important as it establishes industry trends which can then be evaluated.
CPG sales have remained sluggish since the recession years of 2007-2009, with dollar sales up only 2% since then and the number of shopping trips down 2%.
This is why one of the main CPG industry trends being seen today is a shift toward a more niche offering, even by major retailers. You’ll see neighborhood localization, private label or brand offerings and even perimeter changes to reduce potential obstacles to customer spending.
Facts About the CPG Industry You Need to Know
- US-listed CPG companies have increased total returns to shareholders by an annual average of 10% over the past 25 years. This performance has been broader than the S&P 500.
- The number of SKUs has grown by 50% in just the past 7 years.
- Emerging markets have contributed more than half the global revenue of the Coca-Cola Company since 2006, and almost half of PepsiCo’s 2009 revenue was generated outside of the United States.
- Over the next 10 years, the CPG industry could see up to 1 billion new customers, many of which may have a preference for Earth-friendly products.
- Each new customer the CPG industry gains over the next 10 years are expected to spend between $10-$100 per day.
- China, India, and Indonesia have given the CPG industry 18% of its recent growth. By 2020, that share is expected to reach 30%.
- 85% of the growth within the Middle Class of the CPG industry is expected to occur in the APAC region.
- $65 billion in grocery spending will switch from Boomers to Millennials by 2020.
- CPG performance was weakest in the frozen food sector, where unit sales declined 1.5%, while beverage spending grew 2.9%.
The world’s population is exploding and that offers a lot of potential for the CPG industry. Because of the trend toward localization, globalization is less of a factor when it comes to the local consumer. This is why we are seeing so many new products hit the market. Instead of looking for mass market opportunities and limited consumer choice, many within the industry are expanding product lines to include multiple choices. Think about how many different flavors of Coca-Cola or Pepsi there are now compared to 20 years ago and you’ll get a picture of where the rest of the industry is headed.
Demographics Affect the CPG Industry
- Singles living alone have shifted from 17.1% in the 1970s to 27.5% today.
- Married couples with children have shifted from 40.3% to 19.6% of the population.
- Population growth will skew to younger and more multicultural, with 89% of population growth from multicultural, mainly Hispanic, in the next 10 years.
- Shifts to e-commerce and to other buyer channels may result in lost sales of 10% by traditional food retailers in the next decade.
- Less than half of Millennials typically shop in traditional grocery stores, compared to 57% of Generation X, 60% of Boomers and 64% of the Silent generation.
- The number of retailers in a shopper’s “portfolio” decreased from 12.4 in any given month in 2007 to 9.7 in 2014.
- Unit sales in the grocery channel have declined by 1.2 billion units even though this channel is the preference for food purchases.
- The United Nations projects that the total population of people older than 65 will double to 1 billion over the next 20 years, with 1 in 4 Western Europeans being elderly and 1 in 5 North Americans.
- China’s over-65 population will double to 16% of its total population, while India’s will almost double, reaching 8.5%.
- In the US, Hispanics will make up 23% of the population in 2030, up from 16% today.
- The United Nations also predicts the under-50 population will grow 23 percent, reaching about 700 million by 2020.
As technologies continue to improve, Millennials are especially embracing the idea of having the internet be their primary method of creating a tailored shopping experience. Those in the CPG industry who have been able to adapt to this preference are expected to see continued increases in revenues from their online efforts. Millennials are driving a new shopping experience, looking for health and wellness products in every category, including groceries, so that they can have something personalized to them. For companies that don’t make the necessary changes, their journey within the CPG industry will only get tougher.
Going Global But Stay Local in the CPG Industry
- Wrigley has captured 40% of the $2 billion Chinese market by including regular launches of products that are specifically tailored to consumers, including grapefruit and herbal essence gums.
- By created a local supply base in Yunnan, Nestlé has been able to cut product costs in China by 30% and now has 99% local sourcing.
- In China, the online retail market more than doubled annually from 2010-2012.
- Private-label opportunists who are emphasizing the value trend have become a serious influence across multiple CPG categories, accounting for more than 40% of supermarket sales in the United Kingdom, more than 30% in Germany, and more than 15% in the United States.
- Millennials have stronger connections with brands that promote sustainability in addition to corporate responsibility, so products with quality seals that prevent waste is a viable CPG industry trend.
The trend for Millennials is to embrace fast, fresh, and convenient while being able to try something new. This requires the CPG industry to source products from around the world, but still be able to provide them in a customized way to their local customers. This isn’t just happening in the US or Europe either, because data from China proves that people want the confidence to purchase from an established brand. They also want to know that what they’re purchasing is coming from local resources so they can support local suppliers and growers.
Where Products Are Placed May Indicate a Sale
- The center of a store continues to provide up to 80% of total store profitability.
- E-commerce now represents a $155 billion market, an estimated 6% of total retail sales.
- Consumers are more reliant than ever on referrals: 70% look to user reviews to inform their purchase decisions.
- Unilever used co-creation with its social media community to develop Axe Twist, a fragrance that changes throughout the day.
- A major chocolate company reduced its pack size in the United Kingdom from 150 grams to 125 grams in order to keep the £1 pack price.
- The grocery channel continues to capture the lion’s share of total CPG spending at 43%, while club spending seized 11%, and drug spending took 7%.
- 57% of consumers have made their purchasing decisions before they enter the retail store, so marketers must continue their efforts to engage shoppers early in the planning process.
- 33% of shoppers say that they choose brands based on the coupons they clip at home.
- 29% of consumers say that shopping decisions are based on shopper loyalty card discount programs.
Product placement is being transformed in 2016 and beyond. Although location and shelf preferences will still sway consumer spending, more consumers than ever before are pre-planning their shopping trips around their preferred brands and product choices. By placing items near the center of a store that are in high demand and surrounding them with additional related offerings and e-commerce solutions, the CPG industry has an opportunity to continue experiencing global growth. Companies like Unilever, who are seeking out the feedback from their consumers about what types of products are wanted, are going to find the greatest levels of success in this area.
How the CPG Industry Gets Lean and Meaningful
- By building a comprehensive data set of sources, the CPG industry can better match specific product choices to specific consumers.
- Analytical skills, routines, and tools from online data capturing can help the CPG industry be able to identify trends in behavior that can translate into e-commerce sales.
- The CPG industry must translate these data insights into actions at every level of consumer interaction, including the product and brand levels.
- Interactions between retail channels must become streamlined.
- The goal is simple: to manage complexity instead of attempting to minimize it.
As population demographics shift, spending power shifts alongside those changes. The CPG industry must be able to keep pace with these changes if it wishes to continue experiencing growth. Many companies have already started to make these changes so they can make a greater local impact for their consumers. As this process continues to develop, the industry will likely see continued growth in many of its sectors.