Beacon 2021: A Tale of Two Extremes in Consumer Packaged Goods

It goes without saying that 2020 was a year like no other. Perhaps no industry knows this better than Consumer Packaged Goods (CPG), which scrambled to adjust to changes in consumer behavior, a wildly shifting retail landscape, and supply chain disruptions that upended traditional formulas for success.

Having navigated the operational stressors of the past year, CPG leaders now feel a renewed sense of optimism about tackling what’s ahead: They are excited (46 percent), energized (46 percent), and inspired (43 percent) for 2021, according to North Highland’s annual Beacon survey of cross-functional leaders.

But despite strong consensus on the priorities that matter most—supply chain efficiency/flexibility (90 percent), customer experience (90 percent), and product/service innovation (88 percent)—the financial outlook for the CPG industry landscape is a tale of two extremes. Some companies are facing record growth, while others are recording unprecedented declines. Still others are seeing both extremes across product lines; consider, for example, a beverage company experiencing a surge in demand for bottled beverages but a stark drop in sales for fountain beverages.

Regardless of the extreme faced, each CPG company’s unique scenario presents a set of critical challenges and opportunities. In this blog, we uncover key insights into the outlook for the CPG industry. More importantly, we’ll arm you with practical guidance to help you capitalize on the trends.

Reimagining the Supply Chain: Are Your Retailers “Essential?”

The operational outlook for CPG companies is tethered to that of the retailers they’ve served throughout the COVID-19 crisis. It’s no surprise, then, that supply chain efficiency/flexibility tops the list of 2021 strategic priorities (90 percent), yet only a quarter of CPG leaders feel that it’s very attainable to address. Some of the doubts surrounding attainability likely stem from the often expensive, time-consuming, and risky nature of supply chain transformation.

Whether the focus is on efficiency or flexibility depends on each company’s financial and operational position throughout the pandemic. A simple distinction—ties to essential vs. non-essential retail—is guiding CPG companies’ supply chain focus.

Essential retailers (e.g., grocery and hardware stores) quickly became lifelines for consumers during the pandemic. This unforeseen demand cascaded into the CPG space, placing unprecedented stress on the supply chain. Looking ahead, continued supply chain flexibility can help CPG players support the sustained bump in demand. It can also help them respond to changing customer needs with new product launches.

In contrast, CPG companies supplying non-essential businesses, such as department stores, face a bleaker outlook. For those companies, stagnant growth prospects will continue to command a focus on operational efficiency and cost takeout. They’ll also need to take a hard look at their supply chain footprint and product portfolios, with an eye toward rationalizing their scope and scaling back elements that may be compromising efficiency.

Closing Gaps in the Customer Experience

CPG companies learned an important lesson during the pandemic: Customer experience (CX) is more than a nice-to-have; it’s a requirement for survival and long-term viability, particularly as it relates to the wholesaler-retailer relationship. As a result, 90 percent of CPG companies plan to address CX in 2021.

The unforeseen operational climate of 2020, which was marked by surges in order cancellations, new patterns of customer behavior, and supply chain pressures, revealed startling gaps in CX capabilities. Almost overnight, retailers needed seamless access to more granular, up-to-date detail on shipping status, receivables, and more. Looking forward, CPG leaders recognize that informed investments in a positive retailer experience—one that can flex for unforeseen spikes in demand or changes in customer behavior—will be table stakes for long-term success.

To address end-customer needs, CPG companies must be able to adapt products and services to consumers’ evolving lifestyles and preferences. It makes sense, then, that product/service innovation follows closely behind CX in importance; it’s a priority for 88 percent of the organizations we surveyed. Consider, for example, the need for a new paradigm in food and beverage packaging, where CPG companies have historically designed their product portfolio around a substantial volume of service to customers in stadiums and restaurant or entertainment venues. These venues have closed their doors or faced capacity limits during the pandemic. With shifting customer preferences (and regulatory protocols) surrounding health and wellness, CPG companies will need to continue to evolve their products and services to meet an increased need for individually packaged consumables.

Making Wiser Tradeoffs

In this blog, we’ve explored two prevalent opportunities for CPG: optimizing the supply chain, which is a top source of costs, and addressing CX with a reimagined product portfolio. With cost reduction (52 percent) and changing customer demands (57 percent) as top factors driving change in the CPG industry, efficiency and customer imperatives may at first feel at odds. After all, CPG companies that are constantly evolving their product line to address customer needs can sometimes lose out on opportunities for consistency, efficiency, and reduced cost in the supply chain.

But while these two priorities may seem to inherently conflict, they don’t have to. For starters, CPG leaders can focus first on identifying and addressing areas of cost reduction that do not impact customers. They can, for example, identify internal operating efficiencies and apply technologies that promote leaner internal operations as well as a simplified customer experience. This includes investments in new systems, data and analytics, tech solutions, and automation to move the needle on efficiency and customer imperatives.

Taking Action

  1. Zero in on the experiences you’re delivering to retailers. Conduct a rapid assessment of 2020, identifying what went well and where you fell short. What was your customer satisfaction level, and how did pandemic-related factors impact it? Outline opportunities to perform better in the future. Consider, for example, areas you might need to upskill (or reskill) employees or upgrade backend systems to drive a better experience for customers.
  2. Consider supply chain efficiency over short- and long-term horizons. In the short term, consider technology improvements that can unlock additional insights into data and inform quick-win efficiency improvements. Over the longer term, identify opportunities to fundamentally change the supply chain network (e.g., consolidating facilities, creating new facilities, and forging new alliances). We recommend planning for a sustained bump in e-commerce demand. If, for example, you would need to ship direct to the consumer on behalf of a retailer, identify the implications for your end-to-end network.
  3. Reassess your product portfolio with efficiency and experience in mind. Products in the CPG space tend to run on a longer lifecycle, but 2020 illuminated the importance of more regular product portfolio assessments. What are the products or services you’ll need to sunset sooner than planned? With the competing demands of efficiency and experience, your decisions should help you mitigate costs while upholding a positive customer experience.

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