Although the CPG industry is mature, it’s witnessing transformative change. In the past decade, it experienced limited growth, with the exception of a few innovative categories. There’s an all-out assault on everyday price because LIDL and Aldi are aggressively increasing their footprint. Walmart is issuing penalties for late deliveries. Amazon said it would charge manufacturers more for premium shelf space. Retailer collaboration is just not happening.
The hardships faced by consumer goods companies is a classic business tale. A WSJ article explains, “an industry creates winning products, carves out strong market positions and enjoys reliable, sustained revenue — only to be too slow to adapt to changes that threaten those cash cows.”
When external disruption threatens sales performance, what should a CPG company do?
Industry expert Wayne Spencer explains, that during a time when manufacturers and retailers have more data at their fingertips about what consumers buy, when they buy it, and why they’ve bought it, both parties remain latched to the notion that success is “either”, but not “us.”
Reactionary Price Cuts
Unfortunately, the first response to competitive pressure is to reduce prices. A retailer’s knee jerk reaction plays right into the hands of newer players in the CPG sector; they have a lower cost of distribution with equal leverage in buying power with manufacturer vendors.
For LIDL, Aldi and Amazon – the strategy is to get the conventional grocery retailers to chase the low price and ignore their key strength – the periphery of the store where fresh produce, bakery, meats and seafood exist today. Unfortunately, focusing on this customer advantage without getting the center store SKU distribution optimized, will not solve margin erosion.
The Power of a Growth Mindset
Manufacturers strategize on a response to blanket cost cutting and many foundational CPGs remain on the hunt for a solution to prevent further financial loss.
Instead of getting caught in the cycle of looking to the past for a solution to a new problem, it is truly in the best interest of the CPG manufacturer and the retailer to sit down in a non-confrontational setting to conduct collaborative distribution and merchandising planning.
How? By utilizing the power of optimization databases.
It’s going to take more than desire for CPG companies and retailers to achieve the results they want. Companies facing these issues need the help of analytics to measure and predict outcomes.
To really optimize the category and marketing investment as to actually impact revenue, collaboration must be a priority. Collaboration enables manufacturers and retailers in a position to reach the consumer in the most efficient and effective way.
With the right systems, CPGs can provide a database with real-time information on category performance of a SKU and an optimized mutual category merchandising plan.
Although this initial but necessary exercise will be painful to the retailer and manufacturer, the end result is a more efficient distribution base. It will also minimize costly out of stocks and maximize the profitability of the categories, brands and individual SKUs.
To stay competitive and financially stable, CPG companies need to find ways to innovate. Adopting a collaborative approach can be driven by the power of predictive modeling. Together, CPGs and retailers can set guardrails and map trade strategy focused on achievement rather than savings.