Consumer packaged goods companies emerge stronger

Consumer packaged goods (CPG) companies are playing an essential role during the COVID-19 crisis, keeping consumers supplied with the products they need to survive as they change how they live and work — as well as what they buy. They are signaling that loyalties forged during this crisis may last well into the future. Companies that combine the leading consumer-facing experiences with agile supply chains are best positioned to respond to the heightened uncertainty that characterizes this environment.

Where are we today?

In the early days of the COVID-19 crisis, CPG manufacturers focused on clear priorities: safety, product availability and a strong balance sheet. As some retail customers began reopening, there was uncertainty about the resurgence of the virus and the ensuing impact on the economy.

Also uncertain is whether evolving consumer priorities forged during the crisis will last through the recovery and beyond. While they sheltered in place at home, consumers stocked up on food and other essentials. These items experienced an initial bump, followed by a sustained increase compared to pre-crisis levels. Online shopping — with both store pick-up and home delivery — also experienced a sharp uptick, creating opportunities for CPG manufacturers to work with retailers to win the trip.

These trends may persist for a while after the economy reopens. However, uncertainty continues to be the order of the day, requiring companies to gird for change.

Key sources of uncertainty will persist

Demand levels

  • To what extent can prior consumption trends resume or be impacted, and how can this differ based on how COVID spread geographically?
  • How can demand adjust across on-premise and at-home occasions as the economy reopens?
  • Will brand and store loyalty shift based on consumers’ experience during the crisis?

Price point

  • How can the mix of sales be impacted across price points?
  • How can shifts in demand impact perceived value and price-pack architecture decisions?
  • How long can any tradedown effects last, and when will consumers look for more “affordable luxuries?”
  • Will consumers’ willingness to pay for convenience and quality experiences remain higher?

Consumer behavior

  • To what extent can learned behaviors for ecommerce persist?
  • How can the mix of delivery vs. pick-up evolve for ecommerce?
  • Will the trend toward subscriptions accelerate?
  • Will consumers’ engagement in experiential events resume to prior levels, or will they seek out more virtual ways to enhance their category knowledge?

To deal with sustained uncertainty, companies will need to better manage how they anticipate and plan for fluctuations in demand. A robust demand-sensing capability will require enterprise-wide collaboration across the supply chain, finance, sales and marketing. By using a combination of consumer insights, COVID-19 scenarios and their own customer data, CPG firms can better predict and mobilize against changes to consumption, channel mix and product demand by ZIP code.

What are businesses learning as they reopen?

CPG companies will need to make reasoned, data-driven decisions about how best to focus their investments across the organization — while also helping confirm employee safety and conducting business in an environment of continuing uncertainty. They will need to invest strategically in the following areas:

Return to the tried and true: Make brand portfolio choices

Consumers are making choices about what’s essential and what they can do without while in the throes of a pandemic. They want sustainable products that promote health and safety in the face of economic uncertainty. While product design and packaging will likely become more value driven, shifts in demand have already forced retailers to make shelf space adjustments, leading to SKU rationalization. Established brands are likely to benefit at the expense of the startups that were gaining share before the crisis. Among brewers, for instance, sales have soared even as the variety of beers on shelves has declined, a situation affecting smaller craft-brewing companies in particular.

Win at home: Engage customers with experiences

As consumers buy more products associated with homebound activities such as crafting, cooking, gardening and home improvement, CPG manufacturers have an opportunity to reinforce customer relationships. It’s time to expand innovation beyond product and packaging to connect directly with customers online. PwC analysis illustrates that consumers are willing to pay in excess of 15% more for a better customer experience. CPG companies can use their demand-sensing capabilities to target markets with the highest concentration of shoppers. These efforts to build long-lasting, direct customer relationships will effectively amplify the return across promotions, paid media and other direct marketing budgets.

Deploy digital channels: Pinpoint specific local audiences

Digital marketing and programmatic advertising offer opportunities to target consumer segments demonstrating the highest growth potential. While campaigns will continue to include traditional media, digital and locally targeted spending will expand, as demand-sensing capabilities more accurately pinpoint optimal channels. CPG companies will also be better positioned to collaborate with retailers on localized advertising. This approach more holistically amplifies ROI across commercial spending, effectively integrating promotions, paid media and direct marketing budgets.

Leverage data and analytics: Strive for pricing, promotion and assortment balance

Economic recessions have traditionally resulted in greater frugality and price sensitivity. The current crisis, however — with its surge in demand resulting in shelf shortages — has seen manufacturers scale back the depth and frequency of retail promotions. Despite having trained consumers in recent years to expect such discounts, manufacturers now have the opportunity to rethink this approach by creating experiences for customers that reinforce brand equity. Striking the right mix of pricing, assortment and promotion will require integrated analytical capabilities to develop in-store and online insights for more direct consumer engagement.

Be vigilant: Streamline costs while remaining agile

In response to shifts in demand stemming from the crisis, manufacturers are reducing complexity while enabling flexibility and resilience — for example, by focusing on fewer SKUs and increasing plant utilization. Cost restructuring, a priority, will require a thoughtful approach that doesn’t impede a company’s ability to respond quickly to changing demand signals. A streamlined product portfolio can simplify sales and marketing programs. Operations — including a global supply chain tailored to preempt raw material disruptions — can reduce the cost to serve. Balance trade-offs across operating models and rethink real estate use. Leverage the shift to virtual work with a more efficient, agile workforce.

How can CPG manufacturers respond?

CPG companies should take bold action to emerge stronger from the current crisis. While stabilizing near-term operations, they also should focus on strategic investments to reshape capabilities and cost structures, proactively reshape the structure of the industry itself and modernize workforces. A balanced mix of initiatives are expected to  deliver value over the near term as well as into the future.

Reshape capabilities and cost structure

Greater enterprise agility is key to acting more quickly on demand signals, while also providing a faster path to value across capability investments. Enterprise agility helps to realize value over a series of shorter sprints rather than over multi-year horizons, as is typically the case for larger technology investments.

On the supply side, greater agility helps sustain ongoing cost reduction without impairing your organization’s supply chain responsiveness and resiliency. On the demand side, it helps reimagine value from your innovation portfolio, while also investing in experiences that deliver improved value to consumers.

Start with a more integrated, locally targeted approach to advertising, promotions and ecommerce to help enable improvements to customer experience. Social media also provides both an additional data signal from consumers and an opportunity to engage brand loyalists in new ways to bond and learn with your brand’s target audience.

As CPG companies deploy enterprise agility to improve customer experiences, they will be better positioned to measure return on experience (ROX). Using simulation and predictive analytics, they can optimize decision-making, while maintaining cost reduction and supply chain resiliency. Integrated ROX metrics combine experience data with operational KPIs to holistically assess ROI across all commercial investments for promotions, paid media and other direct marketing expenses.

Act boldly to reshape industry structure

Make bold moves to help reshape the industry by building on brand strength to deliver innovative experiences rather than just reacting to external events. New approaches to “as a service” business models, fusing data analytics with digital commerce and experience design, can reframe the landscape. These approaches can introduce more integrated, dynamic ways to collaborate with retailers around analytics, pricing, advertising and promotions — across stores as well as ecommerce, thus providing a catalyst for both organic investment and deal activity.

Invest in your workforce

Not only are satisfied employees more productive and less likely to quit, they are also brand stewards. Strategic investments in employee experience are essential to brand equity — protecting the reputation of your brand and fostering brand trust in local communities. Invest in scalable approaches to digital upskilling and intelligent automation, as well as the adoption of critical behaviors that channel employee energy and commitment to areas of strategic value, such as safety, innovation, sustainability and related priorities. Incorporate data signals that assess employee experience and adoption of cultural behaviors into the overall ROX system of metrics.

To emerge stronger on a sustained path to growth and profitability, focus on these three priorities:

  • Ask: What would our fiercest competitor do?
    Think of a startup or brand you admire, then use that lens to take an unconstrained view of the opportunities available. Ask what you can do differently to preempt your fiercest competitor. As your strategic imperatives come into sharper focus, prioritize specific initiatives to move you closer to your vision, based on value and ease of execution.
  • Hack your future
    Behave more like a lean startup to foster greater enterprise agility. Deconstruct the roadmap for your strategic initiatives into increments — 3 months or 6 months, for example — for which you can drive progress in agile 2- or 3-week sprints. ROX can speed the feedback loop to act on experiential and operational data. ROX also can break down siloed behavior while providing leaders with the data and insights they need for strategic decision-making.
  • Energize your culture
    A decade of PwC analysis consistently illustrates that organizations with a distinctive culture have a competitive advantage: They are twice as likely to outperform their peers on revenue and profitability. Understand your culture’s unique traits, then prioritize specific behaviors to amplify so you can drive value. Reinforce desired behaviors to continually improve employee experience, which will lead to improved customer experience that drives sustained business value.

The path forward

In the wake of COVID-19 and the resulting economic downturn, CPG companies are moving quickly to respond to changes in consumer behavior. They have already begun revamping their innovation portfolios, operations and marketing. As with past economic downturns, consumer behavior will fluctuate for a while before settling into a new equilibrium.

A few signs are already emerging, however, about the staying power of ecommerce and consumer preferences that are likely to last beyond the current crisis. Bold leaders will act on signals, reimagining their capabilities and engaging employees to unlock growth over the long term.

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Tyson Cornell

Consumer Markets Industry Leader, PwC US

Matt Egol

Principal, PwC US

Tom Puthiyamadam

­Global Digital and Consumer Markets Advisory Leader, PwC US

Paul Leinwand

Principal, PwC US

Samrat Sharma

Principal, PwC US

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