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How CPG brands and retailers can remain competitive amid seismic change

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Credit: Numerator

Despite a growing economy, consumer packaged goods (CPG) brands are reeling from big shifts in consumer behavior. According to one source, 90 of the top 100 CPG brands lost market share in the past year.

The reasons are complex. From record low U.S. birth rates to an insatiable appetite for fresh foods, demographic and psychographic trends are working against the industry. More millennials are living at home with their parents, and their love of meal kits and smartphone-powered food delivery has led to an expanded competitive set.

Yet, stores that primarily sell CPG products are thriving. The grocery sector saw a net increase of 1,785 stores in 2017, led by Dollar General, Dollar Tree and Aldi. The German supermarket chain Lidl debuted in the U.S., building more than 50 stores. The retail chains with the greatest number of store closings don't primarily sell food—one could make the case that only two sell CPG products at all. So, what gives?

Seeing (blind) spots

While sales among "traditional" CPG retailers (retailers whose sales are tracked via conventional point of sale data) inched up 2.1 percent over the 12-month span ending June 30, "blind spot" channels—including Amazon, convenience stores and private-label-oriented retailers like Aldi, Lidl and Trader Joe's—saw sales increase by a robust 11.7 percent, according to Numerator's InfoScout OmniPanel, America's largest, most representative purchase panel.

E-commerce led the way, growing 18 percent and now accounting for 16 percent of all omnichannel consumer goods sales. Not surprisingly, Amazon benefited the most, capturing 80 percent of that e-commerce growth and setting the stage for future share gains by expanding discounts for Prime members at Whole Foods stores.

Media spending often moves in lockstep with expected sales changes, and blind spot retailers are spending on advertising like they're in it for the long haul. Numerator Advertising spending data reflects blind spot revenue growth, driven by increased media spending across 2017 for Aldi (+13.6 percent) and dollar store chains (collectively +51.2 percent), with mobile emerging as the fastest-growing medium. And while it's a little unfair to scrutinize the growth of Amazon's media spending given its size and the variety of services covered, it's worth noting that Whole Foods' media spending grew by 239 percent.

There's a seismic shift occurring within CPG, and a growing number of stores are shifting their focus to private label products and "last mile" fulfillment. Retailers and brands that want to remain competitive have to adapt to the changes in the consumer landscape.

Hungry for growth

For CPG retailers and brands, thriving in an evolving marketplace hinges on four key actions:

  1. Change the channel: Omnichannel insights unlock potential growth. While online and click-and-collect currently represent a smaller portion of CPG sales, they are growing rapidly. Amazon is investing ahead of the curve, and competitive brands are starting to get the message: Omnichannel merchandising and category management are a must.
  2. Understand private label: Private label products are finding their way into a shopper's evoked set. Many times, shoppers don't even realize they are purchasing a store brand—they just see a brand they either want or don't want. It's key for retailers to have a private label strategy offering competitive value that goes beyond low prices (think Costco). For manufacturers, embracing a strategy of differentiation can grow the distance between national brands and their private label competition.
  3. Consider share of stomach: When food is always within reach, and ordering in is a convenient substitute for cooking, share of stomach is a more valuable frame of reference than something like share of category. For manufacturers, that means rethinking the legacy distribution agreements that put restaurant brands on grocers' shelves. Meanwhile, retailers can benefit by offering more methods to get consumables to shoppers, something Kroger has embraced with its recent Ocado alliance and acquisition of meal kit company Home Chef.
  4. Measure better: Traditional point of sale data leaves blind spots that misrepresent in-market results while hiding both competitive threats and evolving shopper behaviors. It's vitally important to pull data out of traditional silos and gain an omnichannel view of in-market results.

Opportunities to increase revenue are everywhere, but with a lens limited to point of sale data and traditional advertising/promotional channels, they're hiding in plain sight. CPG brands and retailers can capitalize on the massive potential being generated by the changing market—if they know where to look.

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About

Numerator is a market intelligence firm that brings together omnichannel marketing, merchandising and sales data to make pursuing new possibilities simple for brand, retail and agency clients. Owned by Vista Equity Partners and created via the combination of industry leaders Market Track and InfoScout, Numerator is the only company in the marketplace to connect omnichannel purchase data (powered by the InfoScout OmniPanel) and comprehensive path data to deliver an unmatched view of the consumer shopping and purchase experience. Find out more at numerator.com.
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