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2023 – The Year of CPG Normalization?


Happy 2023! What does it have in store for the CPG industry?

We’ve reviewed a slew of pundits’ 2023 crystal balls and arrived at a shortlist of consistent trends that CPG players need to act on and leverage. Here goes.

Multiple channels, more data complexity

Proliferation and digitization of commerce channels continues apace, despite the return of shoppers to physical stores. Increasing numbers of CPG players are testing or fulfilling direct-to-consumer (DTC). Consumers are shopping instore and online via apps, QR codes, AR, interactive displays, social commerce, and livestream retail. Not to mention digital item purchase in the metaverse. (According to one study, nearly 75% of Gen Z shoppers have purchased digital items within video games.)

CPGs need to not only push and plan for omnichannel sales and promotions, including curbside pickup and direct-to-trunk delivery, but make sense of the resulting sales strands.

All of which means there is more complexity with more data to manage from more channels. This makes data harmonization and centralization even more important, to enable a single point of analysis that combines trends whilst enabling individual channel sales attribution and identification.

Retail Execution still paramount

Having just discussed channel, particularly digital, proliferation briefly above it is important to underscore that far from being dead, the role of physical stores has expanded not contracted and quality accurate retail execution in physical stores remains of paramount importance as consumers return to physical environments. Physical environments aren’t just the backroom dark store fulfilment house for online sales. Far from it, a recent Forrester report indicated that in 2024 72 percent of U.S. retail sales will still occur in physical stores. This is because much shopping remains a tactile experience often difficult to fully replicate in digital environments.

In addition, inflation-driven consumer cost-cutting measures, including saving money on home delivery fees, further serve to push physical store traffic.

Further, given ongoing labor shortages on both the manufacturer and retailer sides, the onus is on delivering a professional retail experience with fewer people. This requires accurate demand forecasting.

The importance of the physical store environment means CPG companies need to rely even more heavily on data to resolve, prevent and/or predict instore product availability and findability issues.

Inflation makes revenue growth management tricky

In the current environment, even with inflation set to gradually ease during 2023, consumers are exhibiting trading down behaviors. Only buying what’s on promotion, trading down from premium and mainstream to value brands and private label products, shopping value channels, looking for lower cost ingredients for meal solutions. Deferring purchase of non-essential household and beauty items that often come with a higher dollar outlay per unit.

One of the chief challenges for the industry this year is how to drive revenue and spend upward beyond merely taking price up to cover increasing supply costs, without potentially losing sales in the process.

Trade promotions get a whole lot more complex

With the proliferation of commerce channels and communications touchpoints, trade promotions are no longer just about shelf tickets and store circular inclusions. The number of inputs into promotions, such as retail media networks, increasing CPG inclusion in shopping events such as Amazon Prime day, and communication of promotions on brand and retailer social media and livestream channels has made trade promotion management and optimization much more complex. Stock forecasting for promotions now needs to take into account a raft of channels and different promotion types, not just the traditional instore price promotion calendar. And to cater for unknown unknowns, such as significant sales spikes due to TikTok and other influencers, macro and micro (think: Ocean Spray, L’Oreal’s CeraVe skincare).

Given the aforementioned labor shortages, promotions planning, and supply forecasting is becoming increasingly reliant on predictive software.

Foodservice ups and downs, but sustainability a growing constant

Whilst consumer return to foodservice has been patchy due to inflation and, in some quarters, ongoing consumer COVID caution, sustainability is an ongoing trend. Consumers and businesses are increasingly looking for more sustainable delivery options; the ‘say-do’ gap on this is narrowing. Examples include electric vehicle use, green delivery timeslots, dark stores, and delivery consolidation. Food and beverage brands are cutting carbon emissions using regenerative agriculture practices including improving soil health and preventing erosion. They could shout more loudly about these innovations.

All in all, 2023 is likely to be a tough and often awkward ‘transitional’ year to navigate from an execution, promotion, and revenue growth management perspective. Streamlining and centralizing data in order to have the most holistic view of fast-changing circumstances will be the name of the game.

To discover how to use TPO to improve your forecasting and S&OP accuracy, click here.