Consumer packaged goods (CPG) is an industry term for merchandise that consumers use up and replace on a frequent basis. Examples of consumer packaged goods include food, beverages, cosmetics, self-care items, clothing, shoes and cleaning products. The market surrounding CPG's is incredibly competitive with very high market saturation and very low switching cost to the consumer, should they decide to move on to another brand or product.
According to a report from Information Resources Inc., online sales of consumer packaged goods (CPGs) rose over thrity-five percent in 2018. With the overnight success of small, customer-centric digital and social brands, the margins seem to be spreading out in this two trillion dollar industry.
Unilever Buys Dollar Shave Club for One Billion Dollars
Direct-to-Consumer CPG brands took advantage of the low barriers to entry, and this is where we've seen a lot of disruption in an otherwise "slow to adopt" marketplace. Dollar Shave Club doubled Gillette's online sales in three years, and then cut the deal of a lifetime with Unilever, turning traditional models on their heads. The Exponent Women Annual Exchange Conference is a wonderful place to soak up these CPG changes, and what we might see in the future trends of consumerism disruption, especially in markets that are currently considered outliers.
Companies are chasing Direct-to-Consumer sales recklessly. While there are trendy buzzwords and new categories in health and wellness, statistically, the market proof just isn't there yet to justify the massive amounts of capital being poured into some of these very early concepts. The top five ecommerce CPG categories from 2018 were pet supplies, vitamins, skin care, pet food, and coffee. As Sara Buckley, Managing Director at KeyBanc Capital Markets and panelist so aptly pointed out, wellness and social good upstart buzzwords have changed the way younger companies are coming in and chasing consumer wants but buzzwords don't equal market proof and profitability. It's hard to understand what return they're underwriting to and a lot of those companies are going to have a hard path to profitability. This is somewhat of a backwards trend I think we will see reverse over the next five years, where this early traction and devastating fall off will discourage such reckless funding, and encourage more market proof first.
Can Bespoke Go Big?
Another big market trend we are seeing is the uptick in recommerce, upcycle, and bespoke brands. The interest of consumers is definitely there, and so that means there is potential but no one is really making money yet. Blythe Jack, Managing Director of TSG Consumer Partners and another very insightful panelist, pointed out the gaps with viability in these areas. As business models work to adopt and feed into mass consumer behaviors, we have to make sure there is viability. We are seeing a lot of new businesses show up in the marketplace based on consumer demand and customization, but we are still waiting to see if there is enough of a viable business model to support these consumer wants and demands. We're also seeing a lot of very aggressively valued businesses that haven't proven profitability, as mentioned above, and this is problematic. In another write-up on this conference we talked briefly about cannabis and this is another example of an early market that consumers are asking for but that hasn't been proven sustainable long-term.
The Big Change In Access
Access to information with our devices is really supporting a platform for a lot of change to happen rapidly. Technology itself has been a huge disruptive force in consumerism and retail. This access allows consumers to better understand the products and services that exist and then to find fault with what exists, and to discover new products and services. This process enables competition to come into those categories seamlessly and pick up those margins. The pace of change driven by technology has been so fast, that this is now the number one way consumers interact with brands.
Traditional Pain Points
Neda Daneshzadeh, Co-founder & Partner at Prelude Growth Partners, spent some of her panel time talking about the struggles of traditional brands. As she pointed out, even if the big brands are doing the right stuff and trying to reinvent themselves to appeal to mass market changes and new consumers, the consumers aren't buying it. And because The consumer has more power than ever before, this is a serious pain point. When it comes to Millennial consumers in the marketplace, we see that they tend to have a shorter attention span moving from one new thing to the next new thing often- adopting almost indiscriminately, but not long term. But there might be hope yet for the big box traditional brands. The younger generations, coming up behind the Millenials, might resonate more with these bigger more traditional brands because they are more into research and looking for long term solutions, products, etc.
Sustainability At The Center
As for right now, the playing field has truly leveled out, and this change alone is forcing us into a process that is focused on the very important elements required to find sustainable success. When Coke and Pepsi had a one hundred million dollar budget in marketing, that was a massive advantage. But now, with digital and social access, this is not the case anymore.
Protection In Profitability
The reality is that nothing is protected right now. The barriers to entry are low and the playing field is as level as it's ever been. To prepare for this disruption, we have to make sure the businesses we are investing in have it all: great people, a great profitability model, a strong long-term plan, and innovative direction. All of this combined with flawless execution is the golden egg of this rapid market we see right now.