part 4
RESCUING THE DECADE, A DUAL AGENDA FOR THE CONSUMER GOOD INDUSTRY
The explosion of small brands has effectively paused, but the underlying drivers of consumer preferences for “special, different, and authentic” remain in place, so the next era will be critical. Will large CPGs own the growth in their categories through innovation and relevant marketing? Or will their P&L pressures keep them focused on yesterday’s winning formula, allowing small companies to own this growth?
Looking ahead, it is also important to track the potential role of prescription GLP-1 weight-loss medications such as Mounjaro, Wegovy, Zepbound, and similar treatments. In the United States, they are relevant to the 40 percent of consumers who will classify as diabetic or obese by 2030. We estimate that 4–5 percent of the US population may take these drugs by then. Given that consumers reduce their calorie intake by 30–40 percent when on these drugs, the US food sector could contract by 1–2 percent. This is an important disruption to consider.
Mass-merchant squeeze
Supermarkets have always played a fundamental role in the CPG formula for success. But these critical trading partners have lost five percentage points of market share over the past decade. The share winners include e-commerce in the United States and the United Kingdom, discounters across Europe, and warehouse formats in Latin America.
Supermarkets have always played a fundamental role in the CPG formula for success. But these critical trading partners have lost five percentage points of market share over the past decade.
As a result, many grocers, particularly those in developed markets outside of the United States, are experiencing low growth and strong pressure on profitability. Many find their ROIC close to or below their cost of capital. Grocers, especially those in Europe, are responding in ways that make them more challenging trading partners. For example, they are cutting prices, becoming tougher negotiators, investing in private label, and demanding more supply chain excellence. They are also reducing their head offices, often shrinking the commercial teams that collaborate with CPG players.
These moves make the trade structure in the United States more attractive than in Europe. Today, average nonpromoted selling prices in the United States for matched items are about 40 percent higher than in Europe. And private label’s share is 25 percent of sales in European markets, compared with 14 percent in the United States. Grocers’ private label is a particular dynamic to watch: more than half of consumers in major Western markets (including the United States) say that they consider the quality of private-label products to be as good as branded products.
Escalating and volatile costs
CPG companies will continue to pay more for the materials they transform into products. Commodity prices are forecasted to remain elevated, at 20–40 percent above 2019 levels, at least until 2025.
Match Maker of the Industry! EVP at ECRM (RangeMe Parent Co.)
2moWell deserved ladies! Been such an honor to get to work with you all these years!