https://progressivegrocer.com/whats-next-cpg-brands-unprecedented-times?utm_source=omeda&utm_medium=email&utm_campaign=NL_PG+Daily+5&utm_keyword=&oly_enc_id=5012I1567089B5Y

The CPG (Consumer Packaged Goods) industry has experienced an enormous change in the last 4 – 5 months due to COVID-19, but this is likely only the beginning. Leading CPG executives have talked about revamping supply chains, applying 80/20 simplification to ensure adequate supply of high demand items, and brands that were forgotten have seen a resurgence. We know the quarantine has changed near-term behavior, but the real question going forward is how will long-term behaviors be altered?

Five CPG Behavior Changes Post COVID-19

1. Health & Wellness Interest Surge
   • COVID-19 raised the awareness of chronic disease. In addition to advanced age, those who were at highest risk for contracting and experiencing severe complications were those with chronic diseases like heart disease, diabetes, pulmonary disease, liver or kidney disease, obesity and asthma.
   • BMI (Body Mass Index) >30 is considered obese, and those with high BMI were also at much higher risk of suffering severe symptoms.
   • Bicycle sales and other home outdoor sports supplies surged during the pandemic as people were forced to get out and exercise, if only to keep sanity from being quarantined. However, incorporating daily activity, even brisk walking, raised the awareness & importance of movement as a part of a healthy lifestyle.
   • Working virtually became the norm, and will likely become much more accepted broadly
   • Takeaway: Better food choices, better ingredients, more care and focus on quality meal preparation, and finding work/life balance through activity and stress management will take on a heightened focus among all generations.
2. CPG Product Line Simplification & Supply Chain Integration
   • In COVID-19’s uncertainty, we saw massive hoarding of products such as bathroom tissue, paper towels and antibacterial wipes/sprays.
   • Hand sanitizer went from being scarce to now being offered by a whole host of new suppliers. The WHO (World Health Organization) has a formulation list where suppliers can gain approval based on pre-approved chemical combinations in a short period of time (as short as 48 hours).
   • CPG brands are built on variety, with flavors, sizes, package counts & short term “in/out” news variations offered to stimulate trial.
   • CPG companies recognized, in times of uncertainty, consumers revert back to “feel good” solutions. Kraft Heinz, Conagra and Hormel all saw significant sales increases in brands that had seen years of decline. Why? These brands became an emotional comfort in an uncertain world.
   • Takeaway: With strained supply chains, demand shifts, and out-of-stocks becoming much more problematic, CPG companies will apply aggressive PLS (product-line simplification) to their portfolios; identify ways to offer healthier options that can be rolled into their current supply chains; conduct an aggressive review of insourcing vs. outsourcing and how to leverage to manage demand; be more focused on supporting large, well-known brands with updated, personalized marketing to tap into that emotional connection still retained by consumers.
3. Value Focus
   • Value is a simple equation: what do I get for what I pay? What’s important to remember is value is NOT simply price. Someone can spend $100,000 on new Porsche 911 and feel they received value. Same with a $7.00 latte from Starbucks vs. the $2.00 version at the local coffee shop.
   • As of early June 2020, unemployment sat at 13.3% with over 21M Americans out of work. But even as the economy begins to open back up, consumers are going to feel the financial strain as jobs that were furloughed are not brought back, RIF’s (Restructuring in Force) are announced at major employers, hours are reduced (which impacts pay & health benefits) and government aid & stimulus only goes so far to help.
   • Consumers are already looking at ways to reduce expenses.
     • Gym memberships are being cancelled at heightened rates, based on safety concerns and the costs, as people revert to home workout solutions.
     • Online shopping (no driving, no shipping fees, promotional incentives, social distancing) has exploded.
     • Private label solutions continue to accelerate, especially as companies like Kroger and Target offer healthy, high quality products under their own brands.
     • Channel shifting will occur. Dollar stores have successfully rolled out grocery selections with an intent to expand, and Costco continues to offer their club members great value through price, quality & quantity.
   • Takeaway: Consumers are going to look for more value, but are going to be less interested in sacrificing quality to achieve it. They are going to make spend choices, and non-essential (ie, discretionary) items are going to come under much more scrutiny. Differentiation and innovation in both product AND service, as always, will be key because in the world of commodity offerings, price rules.
4. Online & Direct-to-Consumer (DTC) Shift
   • Shopping online has not only become more mainstream, it will become the norm. In most CPG categories, online shopping historically represented 25% – 30% of total industry sales, with some industries such as electronics even higher. Food CPG items tended to be at the lower range, though, as people continued to shop at traditional grocery & mass merchandisers.
   • Business models such as Dollar Shave Club have helped even the largest CPG companies recognize the DTC model can be very effective vs. relying on all sales to go through a brick-and-mortar account, a distributor or amazon.com.
   • Larger CPG companies are taking notice and buying smaller health & wellness companies that were started in a DTC environment. Nestle’s recent investment in Vital Proteins is a great example of how large CPG companies are seeing a trend (healthy protein/collagen consumption) and seeking to incorporate into their larger model.
   • Takeaway: Channel management is going to be rife with conflict and confusion, as companies seek to build a direct consumer relationship, including direct order/purchasing vs. relying only on brick and mortar or more established e-commerce platforms. Service, supply chain, pricing and omni-channel marketing will have to be re-developed to accomplish with success and high levels of consumer satisfaction.
5. Rise in Demand for Easy/Portable Food Solutions
   1. Generation Z & Y are driving changes in consumption toward healthier options, including functional beverages, healthy snacks, plant-based options & organic selections.
   2. Fast food chains will have to adjust their menus, not only simplifying the number of ingredients but how the food is prepared. More nutritious selections will come into play as well, so expect to see interesting partnerships between fast food chains and CPG companies to offer “turn-key” solutions for consumers.
   3. COVID-19 forced people to stay home, and while it drove some family experiences that included cooking and baking, those are not likely to last.
   4. Leisure travel is going to be very different. Expect to see more driving trips, more camping, higher RV usage, & more staying in a place vs. bouncing from place to place. But cooking while on vacation is still not going to be the preferred method due to the work and clean-up involved.
   5. Takeaway: The intersection of healthier, quick prepare and portable solutions is upon CPG companies and retailers. The challenge will now be offering healthy solutions that can be delivered quickly, with quality, at a reasonably competitive price. Retailers will also be offering more quick pick-up options for those who want to get in, buy a meal, and get out without spending excess time in a store. Expect digital payment offerings to help accelerate this option for consumers.

2020 will have started a time of change…but also a time for growth and opportunity. As John C. Maxwell said: Change is Inevitable; Growth is Optional.