Manufacturers Succeeding by Connecting with Consumers

Social media outlets are offering CPG companies a better handle on market demand.

In 2013, more than 40 percent of consumer packaged goods (CPG) manufacturers expect to sell products directly to consumers, up from 24 percent in 2012, according to a financial performance report by the Grocery Manufacturers Association(GMA) and PwC US. Titled Growth Strategies: Unlocking the Power of the Consumer, the report states thatdirect-to-consumer is a potent vehicle for testing new products and reaching out to new consumers faster and more effectively. The retail store aisle is no longer the last mile in the purchase journey, and flexibility will be essential if companies are to manage new risks and security concerns coming from these new channels.

“Consumers today share much more readily with each other and with the companies than in the past,” says Bert Alfonso, president, international, for The Hershey Company. “Their input tends to be about your product’s characteristics and about what they like and don’t like. We see it in North America, China, Brazil, and in other markets that have a high penetration of both mobile and Internet usage. And that’s a rich body of information for companies, which is much more spontaneous and actionable than what you would have had in the past.”

“Both the U.S. and global economies are marginally stronger than they were last year, and the continued slow recovery has led to correspondingly modest growth for the CPG industry,” added Lisa Feigen Dugal, PwC’s North American advisory leader, retail and consumer industry. “To drive profitability, providing consumers with the core product may not be enough. Today’s consumers want solutions, they want experiences and value. CPGs and retailers can address this emergence through social media, innovation and direct-to-consumer channels, which will help them understand the wants, needs and values of their consumers.”

Among the key findings of the GMA/PWC report:

·       Total retail sales reached $1.1 trillion in 2012: $568 billion at grocery stores and $530 billion at food service and drinking establishments.

·       While net sales had been slowly going up since the recession, both top- and bottom-performing CPG companies experienced a slowdown in net sales growth in 2012.

·       Bottom performers are starting to hold onto their cash, which means they could be ready to start making more investments in research and development (R&D) and marketing to launch new products.

·       Many companies are embracing the need for product innovation as well as understanding consumer and market needs as part of their R&D activities.

·       One of the key issues faced by food manufacturers during 2012 was the continued rise of commodity prices as there is a growing gap between prices companies pay for raw materials and the prices they can charge for finished goods.

·       The food sector benefited from higher sales per employee while remaining flat on inventory turnover and cash conversion cycle, while the beverage sector also posted a strong performance, with return on sales continuing a steady upward pace. The household products sector experienced better results in 2012, with also a greater increase on return on sales.

Despite the overall slowing of net sales growth rates in 2012, the report notes that food, beverage and household products companies experienced positive net sales growth of 7.0 percent, 5.5 percent and 3.2 percent, respectively. Social media are playing a role, this report concludes.

“CPG companies that engage with consumers directly through digital channels and build out their direct-to-consumer processes will have the best advantage for creating new growth,” said Steven Barr, PwC’s U.S. leader, retail and consumer industry. “Fifty-two percent of U.S. consumers are already buying directly online from brands they trust, proving that CPG companies now have far greater opportunities to walk alongside their shoppers in real time while driving sales of existing and new products.”

(The report will be presented via webcast by PwC and GMA on Thursday, June 20 at 1:00 p.m. EDT. )

 

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