The consumer packaged goods (CPG) industry has a long history of success and the sector has enjoyed a period of reliable growth in recent years. However, despite heavy investment, the model that has fuelled many years of success is under pressure as shifting customer behaviour and digital technology has forced the channel landscape to change.
To explore the effect of digital technologies on the CPG industry, Circus Street have published a report on the sector that explores the influencing forces and trends making waves across the industry. We explore five key areas - Big Data, Direct-to-Consumer (D2C) disruptors, Search, eCommerce and Social Commerce - and give some examples of how legacy brands are looking to capitalise on these trends. Download the report here.
The CPG sector is no stranger to disruption - from the rise of discounters to own brand labels and the growth of eCommerce. But digital technology is changing the landscape beyond recognition, with the increasing momentum of online platforms like Amazon and Alibaba, the emergence of D2C disruptors and a keen consumer appetite for subscription services. To identify some of the opportunities that established legacy brands can use to defend their market position, in this blog we explore how D2C brands are filling ever increasing gaps in the market and why these gaps are occurring.
As the modern consumer becomes used to buying and replenishing products in new ways, heads are being turned by new entrants offering speed and convenience. Technology is the driving force behind this change: the World Economic Forum found that the impact of Digital Transformation on consumer industries is expected to yield $2.95 trillion in potential value over the next 10 years. To meet these new customer demands and to cope with this shift in customer behaviour, CPG companies need to open up direct channels of communication with the consumer, cutting out the middleman and deal directly with customers themselves.
This is where D2C brands are already excelling and cracks begin to appear in the tried and tested model of legacy CPG companies. Where before companies were perfecting mass market branding and built relationships with the consumer through third party retailers, disruptors are turning to eCommerce platforms to sell and forge relationships directly with the end consumer. In doing this, they have direct visibility of their customer’s online transactions, and are finally able to harness the power of first party data and gain real time insight into their online customers.
The D2C supply chain is built on innovation. Not drastic innovation, but slight changes to the supply of familiar products and services. The rule here is: don’t fix what isn’t broken, make it better. Decrease the effort that consumers need to exert to interact with you and you should be onto a winner.
Some companies may hold off on embracing this new D2C model over a belief that this change in customer behaviour is simply a fad, or a fear that it poses a risk to the retailer relationships that currently account for a large percentage of their sales. While the latter may be true, changes in consumer behaviour are most certainly not a fad. Customers of today are demanding convenience and a superior shopping experience - demands that D2C companies are already meeting, delighting their customers and providing them with exceptional service.
Indeed, many legacy CPG giants are starting to make a conscious effort to adapt to this new supply chain. Unilever acquired D2C success Dollar Shave Club for $1 billion in 2016, shortly after rival P&G launched its own subscription razor service, Gillette Shave Club, in 2015. Nestle is another CPG giant which has made clear its ambition to establish “direct channels of communications” with consumers in order to offer improved service and the ability to buy direct. eCommerce accounts for 5% of its sales – up from 2.9% in 2012 – including online sales through platforms such as Amazon, plus D2C sales of Nespresso capsules and other items. It also recently launched D2C skincare brands, Nestle Skin and Proactiv.
D2C is just one of the key trends that will continue to make waves in the CPG industry, and it continues to gather pace. Nearly half (48%) of retailers now compete with CPG brands selling direct to consumers, and view the challenge as a growing threat. To learn more about this and the other trends making waves in the industry, download our CPG trends snapshot.