Consumer Products Companies Must Adapt to Surging Market Challenges: A Call for Digital Transformation
In the face of declining shareholder returns and mounting economic pressures, consumer products companies find themselves needing a serious reinvention. The latest Consumer Products Report published by Bain & Company reveals that global sales for consumer goods have continued to slow down, which can be attributed to a temporary end to unsustainable price hikes and an alarming stagnation in volume growth. According to the report, global sales saw only a 7.5% growth in 2024 compared to 9.3% in 2023 and a robust 9.8% in 2022.
This deceleration poses significant challenges for major Consumer Packaged Goods (CPGs) companies, as consumer behavior is shifting amid ongoing inflation concerns and an unyielding cost-of-living crisis. Richard Webster, head of Bain's global Consumer Products practice, warns that the old models of growth, primarily reliant on price increases, are no longer viable in this new market landscape. Thus, the need for these companies to pivot towards an AI-driven, technologically advanced approach has never been more urgent.
Emerging markets, in stark contrast, are displaying stronger resilience. With a reported 11% increase in retail sales value year-over-year, developing economies are proving to be the lifeblood of growth in a significantly softened global marketplace. Surprisingly, these markets recorded a 3% volume growth that outpaces the developed markets, where CPG sales dropped from 7.7% to just 4.5%. This shift highlights the stark divide between growing and struggling markets, emphasizing the strategic importance of re-evaluating global focus areas.
As the industry grapples with these challenges, consumer preferences are also evolving. Major CPGs are witnessing a shift away from traditional mass-market products towards more niche, insurgent brands that are attaining impressive growth rates. These insurgent brands now account for up to 40% of total consumer market growth in the U.S., indicating a fundamental change in purchasing behavior. Bain's findings illustrate a 1.2% revenue growth among the top 50 consumer brands during the first half of 2024, underscoring the pressing need for established brands to enhance their market positioning.
The growing consumer consciousness regarding health and sustainability is demanding CPGs to evolve as well. With consumers increasingly wary of ultra-processed foods and seeking healthier options fortified by innovations like GLP-1s, it is essential for these companies to align their offerings with the latest consumer health trends.
Another critical area highlighted by Bain's report is the underutilization of AI technologies within the sector. Despite a recognition of AI's significance by 90% of CPG executives, only 37% prioritize its integration, and a mere 6% have devised actionable plans to leverage AI for enhancing business value. This oversight is particularly alarming given the major technological advancements in resource planning and AI capabilities that present innovative opportunities for operational improvements. Successful companies within the retail sector are already employing AI strategies to streamline supply chains, develop automated content, and deliver targeted marketing strategies. However, many CPGs remain laggards in this regard, ultimately jeopardizing their competitive advantage.
To reclaim their footing and win back investor confidence, CPGs need a comprehensive strategy. They must focus on rediscovering volume growth to counteract the encroachment of smaller players that have adapted more adeptly to shifting consumer demands. Investing in productivity improvements will be crucial to enhance margins, allowing for more capital to be allocated for strategic priorities in technology and advertising.
The reinvention can unfold in three essential pillars: defining sustainable growth by optimizing existing profit sources while exploring new markets, continuously enhancing operational productivity by streamlining portfolios and launching focused initiatives, and establishing a leading edge through dynamic AI engagement. A forward-looking approach that emphasizes agility and adaptability will be integral for CPGs aiming to navigate the complexities of the modern consumer environment and to finally emerge from a prolonged period of stagnation.
The time is ripe for bold moves and decisive leadership to secure the future of consumer products in a landscape transformed by digital innovation. To stay ahead, CPGs must not only react but proactively adapt and optimize their strategies to foster growth and leverage technological advancements. If executed proficiently, these changes will not only address immediate concerns but will position these companies favorably for long-term success.
This deceleration poses significant challenges for major Consumer Packaged Goods (CPGs) companies, as consumer behavior is shifting amid ongoing inflation concerns and an unyielding cost-of-living crisis. Richard Webster, head of Bain's global Consumer Products practice, warns that the old models of growth, primarily reliant on price increases, are no longer viable in this new market landscape. Thus, the need for these companies to pivot towards an AI-driven, technologically advanced approach has never been more urgent.
Emerging markets, in stark contrast, are displaying stronger resilience. With a reported 11% increase in retail sales value year-over-year, developing economies are proving to be the lifeblood of growth in a significantly softened global marketplace. Surprisingly, these markets recorded a 3% volume growth that outpaces the developed markets, where CPG sales dropped from 7.7% to just 4.5%. This shift highlights the stark divide between growing and struggling markets, emphasizing the strategic importance of re-evaluating global focus areas.
As the industry grapples with these challenges, consumer preferences are also evolving. Major CPGs are witnessing a shift away from traditional mass-market products towards more niche, insurgent brands that are attaining impressive growth rates. These insurgent brands now account for up to 40% of total consumer market growth in the U.S., indicating a fundamental change in purchasing behavior. Bain's findings illustrate a 1.2% revenue growth among the top 50 consumer brands during the first half of 2024, underscoring the pressing need for established brands to enhance their market positioning.
The growing consumer consciousness regarding health and sustainability is demanding CPGs to evolve as well. With consumers increasingly wary of ultra-processed foods and seeking healthier options fortified by innovations like GLP-1s, it is essential for these companies to align their offerings with the latest consumer health trends.
Another critical area highlighted by Bain's report is the underutilization of AI technologies within the sector. Despite a recognition of AI's significance by 90% of CPG executives, only 37% prioritize its integration, and a mere 6% have devised actionable plans to leverage AI for enhancing business value. This oversight is particularly alarming given the major technological advancements in resource planning and AI capabilities that present innovative opportunities for operational improvements. Successful companies within the retail sector are already employing AI strategies to streamline supply chains, develop automated content, and deliver targeted marketing strategies. However, many CPGs remain laggards in this regard, ultimately jeopardizing their competitive advantage.
To reclaim their footing and win back investor confidence, CPGs need a comprehensive strategy. They must focus on rediscovering volume growth to counteract the encroachment of smaller players that have adapted more adeptly to shifting consumer demands. Investing in productivity improvements will be crucial to enhance margins, allowing for more capital to be allocated for strategic priorities in technology and advertising.
The reinvention can unfold in three essential pillars: defining sustainable growth by optimizing existing profit sources while exploring new markets, continuously enhancing operational productivity by streamlining portfolios and launching focused initiatives, and establishing a leading edge through dynamic AI engagement. A forward-looking approach that emphasizes agility and adaptability will be integral for CPGs aiming to navigate the complexities of the modern consumer environment and to finally emerge from a prolonged period of stagnation.
The time is ripe for bold moves and decisive leadership to secure the future of consumer products in a landscape transformed by digital innovation. To stay ahead, CPGs must not only react but proactively adapt and optimize their strategies to foster growth and leverage technological advancements. If executed proficiently, these changes will not only address immediate concerns but will position these companies favorably for long-term success.
Topics Consumer Products & Retail）
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