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How CPG players can thrive now and beyond

Photographic portrait of Olivier Gergele
Olivier Gergele

Asia-Pacific EY-Parthenon Consumer Leader; EY Asean Consumer Products & Retail Leader

05 minute read 10 Nov 2020
Related topics
Consumer Products
Transforming retail
Strategy by EY-Parthenon
Megatrends
Future consumer index

How can consumer packaged goods companies position themselves for resilient, profitable growth despite disruptions from COVID-19?

In brief

  • The crisis has led to more uncertainty for the consumer goods industry, accelerating shifts in consumer preferences and supply chain disruptions.
  • Discretionary spending will likely dip, with consumers becoming more value-conscious and focusing more on essential, competitively priced goods.
  • To thrive, CPG companies need to win online, drive revenue growth management, build supply chain resilience, empower local teams and seize M&A opportunities.

Even before the COVID-19 pandemic, consumer behavior was already evolving rapidly. The current crisis has led to greater uncertainty and complexities for the consumer goods industry on many fronts, including accelerated shifts in consumer preferences and supply chain disruptions.

For one, consumers who had been slow to adopt online shopping prior to the pandemic have tried it and found that they liked it. Other trends are also emerging. Short- and medium-term demand across product categories is expected to shift toward most consumer staples, including F&B products with an extended shelf life. Demand for home care and consumer health and hygiene products is also expected to continue to increase. However, discretionary spending will likely dip, with consumers becoming more value-conscious and focusing more on essential, competitively priced goods. With the pandemic’s longer-term impact still unclear, what can consumer packaged goods (CPG) players do to respond to these shifts in consumer behavior and emerge from the crisis in a leading position?

"Discretionary spending will likely dip, with consumers becoming more value-conscious and focusing more on essential, competitively priced goods."

Olivier Gergele

Asia-Pacific EY-Parthenon Consumer Leader; EY Asean Consumer Products & Retail Leader

CPG players should focus on five key areas to achieve a sustainable competitive advantage: win online, drive revenue growth management, build supply chain resilience, empower local teams for faster decision-making, and seize opportunities for M&As.

Win online

The surge in online consumption, catalyzed by the pandemic, is expected to continue as consumers adapt to the new normal. Yet, CPG players need to go beyond solely capitalizing on a direct-to-consumer online strategy and develop robust omnichannel partnership and retail strategies. This requires a structured and holistic approach that is clear on “where to play”, such as their website or being part of an ecosystem platform.

It is also imperative to proactively invest in back-end operations to be consistently ahead of increasing demand and keep track of consumer demand shifts. This entire process must be reiterated constantly to ensure that the strategy is agile and responsive to changing market demands.

Drive revenue growth management

CPG players will need to rethink and rebuild the product portfolio to best address changing consumer preferences, particularly in catering to increasing demand for products that offer good value for money, meet hygiene needs or support home-based activities. In some cases, they may need to simplify their portfolio to be in line with new consumer trends.

Another initiative is to review pricing to provide better value. This may involve assessing the historical promotion return on investment efficiency to optimize the pricing, profitability and cross-elasticity of pack sizes at the channel, account and store levels. CPG players can also collaborate with top-performing key channel partners to jointly implement pricing strategies and promotions to drive sales margins for growing consumer segments.

How EY can Help

  • Supply chain reinvention

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Build supply chain resilience

 

The pandemic has demonstrated the importance of supply chain resilience and agility. CPG players should consider a diverse mix of international and local suppliers across the supply chain, with increased emphasis on health and safety when sourcing for raw materials.

 

It is also useful to collaborate with retailers to gain insights on consumer demand shifts to guide demand and inventory planning. Leading companies implement control towers to monitor the end-to-end supply chain to balance service quality, revenue and cost. They also use data-driven insights to determine the supply chain’s weakest links in terms of resiliency and address these in order of priority.

 

Implementing agile inventory management by creating regional, instead of global, inventory hubs and focusing more on shipments to high-priority markets are also key areas to look into. CPG players should leverage artificial intelligence to monitor supply chain processes and modify automatic replenishment algorithms to accommodate new trends. Such flexibility is particularly crucial in the face of uncertain demand.

 

Empower local teams for faster decision-making

 

One of the impediments to responding to disruptions is a legacy structure and culture that encumbers innovation and decision-making. CPG players should consider establishing a senior cross-functional team that can make quick decisions on pressing issues, such as supply disruptions and competitors’ responses.

 

CPG players, especially those with multinational setups, should seek to simplify organization matrices and empower local teams to make decisions within a clearly defined ambit of responsibility. With cross-department and cross-country learning, as well as by encouraging employees to adopt an agile mindset and prioritize speed over perfection, the organization can benefit from a culture that fosters disruptive thinking and innovation.

How EY can Help

Seize opportunities for M&As

 

As CPG players prepare for a post-pandemic world, their technology agendas will also take on renewed significance as they revisit their strategies. They will need to make the right investments in both technology and transformation to keep up with change. Those that are well-capitalized can consider fast-tracking their transformation journey by acquiring digital capabilities through inorganic approaches. It is timely to consider doing so now, with the COVID-19 pandemic presenting the opportunity for CPG players to take advantage of lower valuations to make strategic acquisitions.

 

Focus on what is fit for the future

 

Consumer behaviors were already shifting before the pandemic — and the current crisis has accelerated these changes. The fifth edition of the EY Future Consumer Index released in October found that globally, consumers are moving away from the initial shock of living with a pandemic and toward an acceptance that “this is how things are for now”.

 

What this means is that CPG players must continually assess the impact of the pandemic and emerging consumer trends on their business. Importantly, they must shift their focus from protecting what they have been doing well to creating what is needed to thrive in a very different future.

Summary

The current COVID-19 crisis has led to greater uncertainty and complexities for the consumer goods industry on many fronts, including accelerated shifts in consumer preferences and supply chain disruptions.

To achieve a sustainable competitive advantage, CPG players should win online, drive revenue growth management, build supply chain resilience, empower local teams for faster decision-making, and seize opportunities for M&As.

About this article

Photographic portrait of Olivier Gergele
Olivier Gergele
Asia-Pacific EY-Parthenon Consumer Leader; EY Asean Consumer Products & Retail Leader
20+ years of consulting, consumer and retail industry experience. Deep knowledge of developed and developing markets. Lived and worked in Asia, Europe and South America. Warwick MBA. Husband. Father.
Related topics
Consumer Products
Transforming retail
Strategy by EY-Parthenon
Megatrends
Future consumer index

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