Inflation is on everyone’s minds. The UK government has spent the last few months desperately trying to get a handle on one of the biggest rises the UK has ever witnessed. Subsequently, it’s of little surprise that inflation is the number one concern not just for consumer packaged goods (CPG) companies, but also for the UK’s consumers. They are seeing their spending power continue to shrink.
Consumer confidence is nearing all time-lows and there is a general air of pessimism when it comes to the health of the economy. As a result, consumers are rightfully being more cautious about how they spend their money. Spending habits have become more economical, as there’s mass switch overs to value/supermarket-owned branded products to make budgets stretch further.
Faced with a potent mix of declining consumer confidence, ongoing supply chain issues and a weakening trading position puts CPG organisations’ profitability at risk. With inflation likely to be an issue for a few years, companies need to be more agile tocome out the other side stronger.
So how can they respond to the ongoing economic pressures and successfully navigate through this perfect storm in the next few months and beyond? There are four key steps every CPG organisation can take.
Targeted pricing
Consumers are currently forced to prioritise spending on essentials such as energy and food compared to more discretionary expenditures such as eating out. In fact, 4 in 10 are deliberately reducing their spending on leisure activities to control their budgets. Consumers are not only cutting down on larger expenses, but are opting for cheaper brands and promotions.
One of the most direct ways for CPG brands to support consumers in need is to evaluate the pricing, assortment, and promotions that they offer. With consumers increasingly concerned about costs, continuing to pass on price increases will reach a point where they simply cannot make the purchase.
Product optimisations
Adopting a value-focused product change is a key strategy for CPGs to consider. For example, as the demand for basic products such as pasta, oil and tea increases, businesses need to consider whether they can increase the number of products in their portfolio that are high in demand, and if they can redirect ingredients, resources, and personnel to different offerings. This helps in scaling the business by offering more products and services to the consumer at a similar price level. Thus, increasing the overall revenue of the company.
In retrospect, companies may need to rationalise the products that are not currently in demand, because such products only consume resources and increase inventory holding stocks. For example, the European Union recently implemented a Single Market Emergency Instrument which aims to ensure that essential goods can circulate within the EU during an emergency. This includes a requirement that companies stockpile critical goods as well as asking them to prioritise some orders.
Supply chain optimisation
The urgency to balance the demands of consumers and stakeholders presents a unique opportunity for CPG organisations to take a step back and design the supply chain of the future. They can deliver quick wins with transport optimisation just by re-looking at the routes delivery trucks take, and the time needed to reach their final destination.
CPGs can also prepare for extended inflation periods with investment in intelligent automation. Using automation and data analytics technologies, organisations can improve planning, forecasting, delivery and responsiveness. These are all essential components of a well-functioning supply chain.
Investment in technology
Just because we’re going through an economic downturn that doesn’t mean that CPG brands should stop investing in innovation. Harvard Business Review found that technology is on the minds of many executives when it comes to planning for their future readiness. So it’s clear that investing in the right technology today will allow them to navigate ongoing turbulence both short and long term. For example – using artificial intelligence to generate demand forecasts for seasonal products like allergy and flu tablets, and analysing data on purchasing habits from the previous year. These predictive and forward-thinking strategiescould help retailers plan stock for the upcoming season.
However, decision-makers shouldn’t expect that off-the-shelf technology solutions would just work. They need to be able to determine what tools they can build internally and what solutions will require partnering with vendors to adapt technology to the needs’ of the business.
While consumer behaviour and macroeconomic conditions are at a unique inflection point, there are a range of actions that CPG organisations can take. These will help to build organisational resilience while supporting customers in need. There is no single way to fully anticipate the changes that the future will bring. Therefore, businesses need to be able to swiftly adapt so that they can react quickly to future challenges. By adopting targeted pricing, product and supply chain optimisation strategies, and investing in the right technologies, CPG brands can ensure a successful pool of future loyal customers.