The Consumer Packaged Goods Industry in a Pandemic
7 Ways brands can adapt, overcome, and win.
The greatest danger in times of turbulence is not the turbulence; it is to act in yesterday’s logic ~Peter Drucker
Disruption is a term that businesses in the private sector have become all too familiar with in modern times. No doubt, the emergence of the COVID-19 Pandemic has re-conditioned businesses in immeasurable ways.
The Consumer-Packaged Goods (CPG) industry in Nigeria has been particularly hard hit with major disruption in its supply chain, with the increased cost of imported raw materials further occasioned by FX volatility. While some companies have shut down operations completely, others are operating at a relatively lower capacity. The alcoholic beverage industry, for example, has lost a major component of its Route to Market (RTM) Model which includes, events, restaurants, bars, clubs, and hotels.
Some of these market routes are either completely shut down or operating below capacity. The beauty, cosmetics, and fashion industry are also not left out, their businesses have suffered through the lockdown experienced globally, as a result of reductions in high footfall events; parties, social activities.
It is not all doom and gloom as major news sources would have you believe though. While others are counting their losses, some categories are effortlessly cleaning out and dealing with Out Of Stock (OOS) issues. Take the hygiene, health, and food subsector where demands have gone through the roof as a result of the panic buying, causing depletion rates beyond anything projected for the entire year. The unpredictability of COVID-19 and the sudden desire to stay healthy and alive led to a massive stockpile of food, immune-boosting drugs, and hygiene products.
The impact of COVID-19 on the CPG industry especially in the retail end is expected to continue producing winners and losers across the industry for some time to come. 90% of experts expect this disruption to last up to 5years before any semblance of normality returns. Thus there is a need for a broad and dramatic transformation across businesses playing in this CPG market. Some of this transformation would have to be regional because the disruption is exhibiting different patterns and characteristics across different markets.
The real dilemma then is in knowing what kind of transformation to drive, which part of the business to transform, when, and how to initiate this transformation. Stakeholders struggle with deciding whether this disruption is just a glitch in the market that would go away in a matter of months or if the marketplace has indeed changed for good.
According to KPMG companies that embraced transformation during the economic downturn, 2008 experienced up to 30% better performance than those who didn’t. Understanding that transformation is not an ideas problem, but a resource allocation problem is key to being successful at it. Consumer goods businesses have in recent years come to appreciate the need to leverage technology and digital channels to unlock growth. The percentage growth coming from digital channels and online shopping has been on the rise in the last few years. But the emergence of COVID-19 is prioritizing it hence driving a higher sense of urgency.
Typically, most businesses would leverage historical data in trying to predict future patterns, combining this with domain experience in formulating a new strategy. Unfortunately, the pandemic has only been here for a few months and very little data is available to anyone. Too little to be used for any form of prediction.
However, in this writeup, I have tried to identify some of the key areas where CPG businesses can safely start the transformation journey. This ensures that scarce resource is efficiently allocated where it will drive the best impact. Whether your sector is thriving or suffering, focusing on these key areas would ultimately determine if you sustain the growth for those in luck or avoid imminent disaster for those badly hit by the pandemic.
1. Invest in knowing your customer (KYC)
Typically, on my birthday I receive text messages, emails, and sometimes a call from my bankers, insurance providers, and the airlines that I have patronized in the past. I also get reminder emails weeks before my insurance runs out, and likewise when my internet subscription is about to expire. What do you think would happen to my loyalty if on my birthday I get a message from Gillet, OralB, Sure, or Johnny Walker? What if customers receive a personalised message during festivities, and greetings on a child’s birthday or wedding anniversaries?
The modern consumer is connected, loaded with marketing content throughout the day, and struggles with choice overload. Everywhere he turns, someone is trying to sell him/her something, they have a volatile choice architecture and would decide on impulse at any opportunity. Knowing who they are, what they do, their spending habits and patterns increases the likelihood of earning and retaining their loyalty and upselling them on other products of yours and more. A robust KYC dataset can be mined for insight, repeatedly used to inform design, developing promotions, improve brand communications, and all kinds of forecasts.
2. Explore Online distribution Channels (E-commerce)
With disruptions in the traditional trade channels and the strong desire to stay safe, most customers especially in the urban cities have resorted to exploring online e-commerce channels to fulfill their shopping needs. Aside from shopping online, customers increasingly rely on online channels for product research prior to making a buying decision. Hence it is important that your brand is fairly represented and ranked among others. Investment in search optimisation, online content marketing increases the chances of your product ending up in the online shopping cart. The online channel guarantees an infinite share of shelve, and with great ratings, it holds an uncaped potential for growth.
According to Jess Smith the Strategy Director at Grey London, repeat purchase is 22% more likely with consecutive digital shops.
Jumia the largest local e-commerce provider recently announced partnerships with brands like Reckitt Benckiser, Procter & Gamble, Coca-
Cola to close the last-mile gap occasioned by the closure of traditional channels. Alcoholic beverages and Spirit businesses strengthened their relationship with www.Drinks.ng; Nigeria’s first primarily alcoholics drinks specialist internet retailer. While some brands are collaborating with established e-commerce channels, others are embracing Direct To Consumer (DTC) models. Some good examples are MYCOKE and HEINZ to HOME.
3. Leverage data locked in Customer Loyalty programs.
A distribution channel is a chain of business and intermediaries through which goods and services pass and does not end until it reaches the consumer or is consumed. Over the years, CPG businesses have invested hugely in distribution infrastructures covering distributors -wholesaler-retailers. When the consumers in the emerging markets started getting sophisticated, retail outlets started deploying POS and inventory systems. most started running customer loyalty programs.
However, very little insight is gleaned from this data besides allotting customer points most of which are never redeemed or utilised. Data from loyalty programs run at retail partner outlets can be leveraged to identify which customer segments to prioritize and how best to do so. Given that a business’s top 10% of customers spend almost 3 times more per transaction than the lower 90% of customers, there’s no point in giving all customers the same offers when not all of them will deliver the same return.
There is no gainsaying that leveraging data from loyalty programs at retail outlets would help brands optimise customer behavior, consumption patterns and optimise customer persona especially in these times when disposable income, health concerns, and mobility have greatly impacted consumer behavior.
4. Embrace Technology and Data Analytics
The role technology has played in the growth of the CPG industry, cannot be overstated. It is so far one of the most dependable means of achieving lasting transformation. Embracing technology has helped numerous businesses cut waste, reduce Operational Expenses (OPEX ), improve visibility, accountability, and provide the insight needed for informed management decisions and forecasting needs. Investment in technology within the CPG industry has grown exponentially in the last 5–10 years.
Some of these investments went into deploying enterprise resource planning (ERP), Enterprise mobility (Salesforce Automations, and Distribution Management Systems (DMS) solutions, data analytics, and all kinds of consumer and market trends solutions.
Some others have in recent times invested in Marketing and a self-service product like sampling kiosk technologies that ensured that they are able to drive experiential marketing even in the pandemic like a solution provided by Ideas House an experienced marking communication agency who started offering brands an innovative opportunity to reach and engage consumers where they are in the real world with minimal human contact. Taking experiential marketing to a whole new level. The CPG industry in recent times is growing heavily reliant on technology tools for market intelligence, trend analytics, predictive and descriptive analytics. this has become a major determinant of success in a highly competitive sector.
5. Move towards Just In Time (JIT) manufacturing model
One of the greatest benefits of successfully investing in technology is the access it grants you to obtain a very rich dataset across your entire operation. When properly harnessed, CPG businesses can begin to draw insights that can help the business optimise its supply chain model.
“The ability to manufacture ‘just enough’ stock to cover orders and deliver ‘just enough’ product to every retailer is the optimal supply chain scenario in the Fast-Moving Consumer Goods (FMCG) industry.” — Andrew Dawson
Pioneered by Toyota in the auto manufacturing industry and sometimes called Toyota Production Model (TPM), this system has enabled companies to:
a. Reduce waste.
b. Improve cash flow.
c. Reduce overstocking and its related costs.
d. Improve supplier relationship and distribution performance.
e. Record better debt management.
However, it is generally understood that practicing JIT in emerging markets especially in sub-Saharan Africa where many elements of the supply chain systems are extremely unreliable is very difficult. Nonetheless, research shows that businesses that practice the pre-sale model have come closest to achieving JIT. To a large extent, other businesses that have developed robust predictive analytics models on multiple data points, can now also enjoy to a large extent the same optimal level of performance. This means that the business knows exactly what has been ordered/should be ordered and can produce and deliver to order optimising production planning, Bill of Materials/Quantity, staffing, and other resources.
6. Pivoting to high demand products
The saying that when the going gets tough, only the tough gets going is been put to work in the face of the pandemic as many CPG companies have already repurposed or extended their plant set up to produce in-demand products previously not on offer. Take the case of Krones Nigerian a German packaging and bottling machine and manufacturer that now pivoted to making sanitizers.
Other companies like 7up bottling companies have also tolled this same part by adding a sanitizer product to its product line. Others have focused on toiletries, personal protective gear, table water, and immune-boosting vitamins. Retailers on the other hand are upgrading their product assortments to meet consumer's emerging needs.
7. Recalibrate your Route to Market Strategy
Depending on where you are coming from, the Route to Market (RTM) strategy goes by many names including Trade Marketing & Distribution Strategy, Sales Execution Strategy, or Route to Consumer Strategy. A lot of the innovation in product distribution had focused more on the urban and sophisticated consumers whose lifecycles already follow a predictable and homogeneous pattern i.e. Superstores, Online, corner shops e.t.c.
Since the traditional indirect model of (distributors-wholesale-retail) has been strained on the account of COVID-19, brands should explore the opportunities to win at the Bottom of the Pyramid (BoP). Take the case of the Shakti initiative by Hindustan Unilever Limited (HUL) where local women were trained as a rural door to door sales agents in fragmented remote villages. The program engaged about 70,000 sales agents serving 165,000 Indian villages, all managed through a simple mobile App. This concept has been cascaded to other markets in Asia, South America, and Sub-Saharan Africa.
Struggling brands should start asking pertinent questions and try to understand their consumer clusters better especially the hitherto unexplored.
· What can brands do with cooperatives, religious groups, and other similar groups in rural communities?
· How can flanking (same product sold in different volumes and/or packaging) help deepen penetrations?
· Could multi-branding and brand extensions drive new consumption?
· Is there an opportunity to win the price war by re-organising the Route To Market model?
I guess the key focus here is finding ways to re-map your distribution channels, focusing critically on last-mile distribution while ensuring that equal attention is paid both to the urban and rural markets.
It is also important that it is a technology-led approach as this would help harmonise data collection and enhance overall visibility, delivering new insight in a timely fashion. as today, Asia and Africa host almost two-thirds of the world’s rural population, 2.2 billion inhabitants
Asia and Africa host almost two-thirds of the world’s rural population, 2.2 billion inhabitants
In Conclusion, I think the Consumer Packaged Good (CPG) industry as we know it is going through an unprecedented transformation both on the consumer side and on the supply chain side, a situation that was forced on us by the COVID-19 pandemic. Historically, a situation like this produces its winners and losers. However, we exist in interesting times where we now have access to an ever-increasing pool of resources especially technologies that are advantageous for getting through these times.
In his book ‘The Invisible Monster’, Chuck Palahniuk the veteran American novelist shares that “Our real discoveries come from chaos, from going to the place that looks wrong and stupid and foolish.”