Consumer Goods

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Traditionally, Consumer Goods companies have grown by building bigger brands, tapping into emerging markets, and driving operational efficiencies. This operating model, however, has been delivering below expected results to the investors over the last few years. The whole ecosystem in which a CPG company operates has been changing and that requires CPG companies to transform themselves to return to profitable growth. A successful transformation requires new capabilities to be developed, which not only make operations cheaper but better; create centers of excellence that deliver value-added services; enable cross-functional and agile teams to reduce touchpoints in the customer’s journey, and improves decision making.

These new capabilities position CPG companies to gather granular insights into consumer behavior and market dynamics, that lead to building Digital Brands, engaging with consumers digitally, and exploiting digital routes to market, like e-marketplace, Direct to Consumer, or e-commerce.

Digital Branding, Digital Consumer Engagement, and Digital Channels open up a plethora of possibilities for CPG companies to rebalance their portfolio to tap into growing markets, channels, and categories; and optimize their cost drivers - marketing, trade and promotion, and supply chain costs.

CPG companies going to market via digital channels should keep the following in mind to grow profitably:

• Margins in e-commerce sales improve with scale;
• Advertising on retailer’s e-commerce platform to gain visibility on “digital shelf” erodes the margins from online sales;
• Shipping and warehousing costs are higher with online sales due to mixed pallets and less than truckload deliveries. This can be improved by redesigning packaging to reduce costs by categories and channels, segmenting the warehouses by channels for the fulfillment, and combining with third party order platforms to route some of their deliveries;
• Managing to retailer’s pricing strategy – congruency in pricing across online and offline channels, pricing by category, fulfillment driven pricing – click and collect, ship to home, and having unique SKUs across channels can help with price erosion but they add complexity and costs to supply chain;
• Direct-to-consumer (D2C) businesses are commercially viable for only select CPG propositions—namely, those with an average basket and purchase frequency high enough to justify customer acquisition costs.