Year in Review: 5 Lessons the CPG Industry Learned in 2018

The end of the calendar year always holds a special place in my mind. It’s a time filled with both reflection of the past and optimism for the future. Looking back at 2018, I felt as if this year changed faster and more aggressively than any other time in recent history.

As a CPG industry management and strategy consultant, my professional life was not insulated from this extreme environmental change. The CPG industry had a transformative year that gave us many lessons to learn from and optimistically apply to the future. It is often said that we must look back in order to understand the things that lie ahead, so here are the five most important lessons the CPG industry learned this year.

The Battle Between David vs. Goliath Has Only Just Begun

The barriers to entry for CPG startups to get on the “digital shelf” are lower than the barriers to get on traditional food, drug, mass and convenience (FDMC) store shelves — especially when it comes to marketing and distribution. This means that the gap between organizing an initial idea and successfully taking that idea to market has significantly decreased over time. This perfect storm of positive environmental attributes, created by the Internet, has also forged a double-edged sword of increased global competition.

In fact, sales among “extra small” CPG brands (those with annual sales under $100 million) rose 4.9% in 2018, while sales among large brands (those exceeding $5.5 billion in sales) grew by just 0.6%, according to an October 2018 study from market research firm IRI (cited by Forbes).

In the CPG industry, size and scale of physical distribution points used to be one of the most important success factors, but the Internet has subsequently leveled the playing field for smaller brands to reach consumers in unprecedented ways.

Image Source: Forbes

E-commerce Grocery Is Here to Stay

The excitement surrounding e-commerce grocery isn’t necessarily a new feeling in 2018. Since the late 1990s, grocery has been an early digital focus, as it is the largest single retail sector. Despite its almost two decades of struggles, this was a defining year due to growth led by traditional grocery chains such as Walmart, Kroger, Target and Amazon-owned Whole Foods. Traditional grocery chains’ established networks of physical locations created an explosion of popularity in both click-and-collect and on-demand delivery fulfillment models.

According to a July 2019 study from Brick Meets Click, online’s share of total grocery spending reached 5.5% in 2018. This number is expected to almost double in the next four years to over 8% by 2022, which equates to a gigantic $133.8 billion. This type of momentum has given even the biggest doubters a reason to believe that e-commerce grocery is here to stay.

In fact, CPG brands can no longer avoid e-commerce and stay relevant. The vast majority of growth in the industry now comes from the e-commerce channel. This shift has caused brands to look at the importance of strategies that focus on attaining maximum search visibility on internet retailers’ websites. To succeed, CPG brands must ensure their products stand out as boldly in the digital world as they do on the physical shelf.

Convenience Is King

The combination of the super connected consumer and their busy lifestyles is changing shopping expectations. Today’s shoppers no longer have the time or desire to wander store aisles looking for the products they need. While online grocery shopping caters to these changing habits, automated subscription services offer an additional level of convenience. These services, which ensure products are delivered on a regularly scheduled basis, are far from huge, but they are exerting a growing influence over the market; it’s estimated that 14% of consumers will have used some form of subscription or automatic ordering service by the end of 2018.

Similarly, convenient on-the-go product formats continue to win in the market. As an example, the ready-to-drink format is currently the fastest-growing segment in the coffee market. Single-serve coffee pods, another convenient format, continue to be popular despite recent negative sentiment in the market regarding their environmental impacts. Recent search engine data from OneSpace shows that these single-serve pods account for two-thirds of the searches related to coffee formats. Additionally, all four of Amazon’s best-selling coffee products in Q2 2018 were K-Cup pods.

Millennials Support Sustainability

Even the most ordinary CPGs can appeal to Millennials by connecting with something larger than the product itself. For example, one of the biggest causes supported by Millennials is sustainability. In fact, almost 85% of Millennials have said that it is “extremely” or “very” important that companies implement programs to improve the environment. This is compared to 79% of Gen Xers and 72% of Baby Boomers.

While the environmental impact of products may not be as important to older generations as it is to Millennials, sales of products with measured levels of sustainability and transparency are outpacing sales of conventional products across the board.

Image Source: Nielsen

To win with Millennials (as well as environmentally-conscious Gen Xers and Baby Boomers), CPG brands should promote sustainability as part of their corporate responsibility. Make it clear why and how products are created with the environment in mind. Promote eco-friendly initiatives and embed them into your company’s culture.

Brands and Retailers Are Both Friends and Foes

As 2018 ends, the competition between legacy CPG brands and retailer-owned private-labels seems to be at an all-time high. It’s true that private-label brands are nothing new to the CPG industry. Big-name brands have shared shelf space with them for decades.

The main difference is that these ”generic” brands are now seen less as “trade downs” by consumers and more as huge revenue and profit drivers for FDMC retailers. Because of that, these retailers have heightened aspirations. Amazon, for example, recently announced a “private label accelerator” that will lean on manufacturers to provide expertise in creating more products to add to their growing assortment. As more retailers invest in diversifying and improving their private-label offerings, Kantar Retail’s grocery analysts have predicted that sales growth of these products between 2017 and 2022 will outpace the previous five years.

As retail partners push private labels more aggressively, CPG brands have started to seek control of their own points of sale. One of the biggest and broadest shifts is with big brands developing their own direct-to-consumer e-commerce websites. This allows them to control the buying process and offer experiences that are best delivered without wholesalers and third-party retailers. Additionally, some brands are vertically integrating themselves by opening their own stores.

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