Innovation will be a driving force for CPGs in 2019
The past year witnessed CPG innovation and experimentation in several crucial areas — such as cross-channel customer interactions, new products and brands and exciting product displays — with implications for the industry at large.
The year ahead promises to continue with this pace of change, bringing with it a myriad of new and exciting developments. Here's a quick look at five CPG trends to watch closely in the coming year.
Alternative Paths to the Consumer
As digital shopping continues to mature in grocery and retail, CPG brands are making changes to better interact with shoppers across all of their preferred touchpoints. In doing so, they have forged a wider range of paths to the consumer, from working with online retailers to leveraging subscription services or even selling direct.
For example, more CPG brands are shifting focus from brick-and-mortar to non-traditional channels in order to better reach shoppers and end consumers. Some, such as nimble start-up brands, are eager to capitalize on the wide reach of large online retailers, while other more established brands may be warier, given the price pressures that accompany the new channel.
However, effectively reaching customers across a variety of channels is a difficult task with only an internal view of data. By leveraging third-party insights, CPG brands can better understand customer channel preferences, brand affinities, and segmentations. As traditional retail channels weather mounting headwinds, it will be crucial for CPGs to adapt and capitalize on diverse distribution strategies to stay ahead of the curve.
Doubling Down on Innovation
CPG companies focused on niche market segments or localities have been growing at a 2.3% yearly rate, compared with only 0.2% for the sector overall. As these upstart brands start carving away share, established CPGs are doubling down on innovation initiatives to counter – and sometimes capture – start-up creativity while not falling into the trap of smothering them with their legacy business processes.
For example, Kraft Heinz Evolv Ventures, an internal business incubator, launched in late 2018 with a $100 million venture capital fund. The group has already made innovative moves in the space, acquiring the startup Wellio, which has been working to bring AI to the subscription home-cooked meal kit model.
Not all innovations are complete overhauls, though. New product formats like riced cauliflower helped B&G Foods turn sales around for their Green Giant brand by adapting existing vegetable products to the formats consumers look for today.
As established brands continue to breathe life into existing categories through product innovations, it'll be important to understand how new product launches and enhancements are impacting shopping behavior. Specifically, are they attracting new consumers, or are they encouraging substitution from existing consumers? When it comes to substitution behaviors, are consumers trading up from lower-margin items, or down from higher-margin offerings? Getting the right answer to these questions will be vital to successfully scaling these initiatives in 2019.
Capitalizing on New Data Sources
Leading companies today are learning how to leverage the myriad data sources, from loyalty programs, digital interactions, and offer redemptions to in-store sensing like video path trackers and smart shelves. The digital selling channel generates its own floods of behavioral information on different customer segments, including browsing paths, products viewed, shopping carts, conversions, loyalty, transactions and web interactions.
Partnering with retailers and aggregating these data sources enables CPGs to generate cohesive shopper insights — but an internal view of data can only take brands so far. Analytical leaders are finding added value in also incorporating broader, sometimes non-intuitive industry insights – such as customer segment performance and economic metrics –into analyses to contextualize performance and identify untapped opportunities for improvement in areas such as personalization and customer engagement.
However, even a wealth of data from different sources won't guarantee success for CPG brands on its own. Companies need strategies that can help them use this data to inform their marketing and product development. With powerful analytical platforms and a clear strategy, CPG companies can leverage their rich data sets to reach and engage consumers in memorable ways that separate their brands from the pack.
CPGs Zero In on Flow and Space Allocation
Re-order buttons, digital voice assistants and other IoT innovations have generated considerable buzz in the CPG world in the past two years. But, with adoption still relatively slow, the tipping point for in-home ordering is likely at least a few years out.
While CPGs are testing the waters with these innovations, executives recognize that they must maintain a primary focus on the channel where the vast majority of purchases still happen — the store. To do so requires a laser-sharp focus on architecting the right flow and optimizing space allocation across one's network.
Every space and assortment decision is a trade-off — within a category or between two or more. The challenge lies in understanding the most productive use of every foot of space, and how that varies by retail partner and by market. Advanced analytics can help leading CPGs answer the million-dollar question: Given the incremental impact of space changes and the diminishing returns every category has when adding space, how much sales or profit will an added foot of space generate for a given product or category? By arming themselves with granular data and rich analyses, CPGs can make better-supported recommendations about the contribution their products make to store sales, baskets and profits. The dream of every supplier and merchant (and nightmare of every store operator) remains the "store within a store" approach, albeit continually updated with new technology solutions. The key to success will continue to be execution that is feasible in high-volume environments and can achieve a reasonable return on sizable cost investments.
Refining In-Store Servicing
In-store servicing is a required element of the value equation for retailers and a crucial activity for brands that benefit from high levels of planogram compliance, timely restocking and promotion execution.
New wrinkles in these activities are arriving on two fronts worth watching.
The first is the gig economy, which gives brands the opportunity to hire freelance workers to perform short-term jobs like spot audits of stores in a particular area. While mobile apps like Field Agent pioneered the concept, larger gig-economy companies like Uber are beginning to move into the space.
The second is in the form of "smart shelves," which use digitally connected technology to self-monitor inventory status and facilitate price changes and reordering. Solutions that employ video and pressure-sensors, as well as RFID, continue to be tested.
Knowing what is happening in stores, however, is only half the equation – CPGs must go a step further and leverage these insights to optimize how they service retailers, how they train employees, and how they best capitalize on prime shelf real estate while optimizing their investments.
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