Investors are exerting increasing pressure on consumer packaged goods (CPG) companies to reduce costs and recalibrate pricing strategies, a trend identified in the recent EY State of Consumer Products report. This research, which surveyed CEOs from 190 global CPG companies and conducted in-depth interviews with 24 industry executives, reveals that a substantial 65% of respondents acknowledge that investor expectations are significantly shaping their business strategies. Amidst rising cost-of-living pressures, many firms are opting for cost-cutting measures, potentially compromising their innovation pipelines and long-term sustainability.
The shifting landscape indicates that while short-term financial gains may seem attractive, these tactics may alienate both consumers and retail partners. Industry experts highlight the urgent need for CPG companies to accelerate product innovation as a way to navigate the evolving market dynamics. According to the report, artificial intelligence (AI) has emerged as a crucial tool for many manufacturers. A notable 76% are utilising AI to tackle complex innovation challenges, while 52% of retailers and 45% of brands view AI, data, and analytics as top priorities over the next three years. This reliance on technology underscores a broader industry trend where rapid innovation is essential to remain competitive.
Moreover, the landscape of brand influence is shifting. Traditional CPG leaders are facing intense competition from challengers that excel in swift product development and market entry. Retailers are increasingly taking control of the shelf space, bolstered by the growth of private label products. An alarming 78% of the surveyed retailers foresee a future where their offerings consist predominantly of a single mass-market brand alongside a variety of private label premium and niche products. Yet, 75% of retailers emphasise the importance of better collaboration with manufacturers as vital to achieving their strategic objectives.
Rob Holston, EY’s global leader in the consumer products sector, stressed the value of collaboration in today’s landscape. He noted, “To strengthen the retail relationship and secure relevance with consumers, CP brands must collaborate to compete.” This notion of “Disruptive Optimism” encourages brands to engage genuinely with real-time consumer insights to enhance shared value within the category.
As CPGs navigate these complexities, the focus on operational excellence becomes paramount. Companies must thoughtfully balance the immediate need for cost-cutting with essential long-term investments that bolster brand relevance and consumer trust. Strategies that prioritise not only cheaper operations but also sustainable growth are crucial. This aligns with trends noted in other reports, which highlight the necessity for technological upgrades and a modernised operating model to meet performance expectations amidst inflationary pressures and economic uncertainty.
In a climate where nearly all executives are experimenting with generative AI, as found in surveys revealing that 99.6% of leaders are exploring AI applications, the need for adaptability is clearer than ever. Moreover, as consumer preferences evolve rapidly—fueled by a significant shift toward e-commerce and omnichannel sales—CPG companies must strive to maintain customer loyalty and competitive edge.
Analysts continue to emphasise the critical need for CPG companies to develop robust, innovative approaches in their business models. By aligning operational strategies with market demands, companies can better position themselves for sustained growth and success in a challenging economic landscape.
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Source: Noah Wire Services
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