U.S. consumer packaged goods (CPG) companies experienced growth in 2017, according to a study produced by Information Resources, Inc. (IRI), Chicago, and The Boston Consulting Group (BCG), Boston.
Growth in measured channels, defined as multi-outlet and convenience (MULOC) retailers—food, drug, mass, Walmart, club (excluding Costco), dollar, military, and convenience outlets—continued to decline, dropping from 1.5% to 1.2% over the past year. Moreover, sales volumes in measured channels declined for the first time since IRI and BCG first started conducting this annual study in 2012. And, most mid-size and large companies saw their sales decline as well, as small companies continued to increase their share of the market.
The decline in the rate of U.S. CPG growth that began in 2016 continued, says the sixth annual Growth Leaders study, with growth in measured channels dropping from 1.5% to 1.2% in 2017. But the decline in 2017 differed from that in previous years in one crucial respect. In years before 2017, both volume and price/mix grew, whereas in 2017, pricing grew by 1.4% and volume declined by 0.2%.
At the same time, unmeasured channels—which include discounters, natural foods, e-commerce, meal kits, fresh foods and local markets—saw substantial growth. In the natural channel, for example, growth was considerable, at 8.9%. Emerging channels are expanding at the expense of measured channels, reflecting a change in consumer purchasing preferences, as retailer dynamics continue to evolve.
The only measured channels to see above-average dollar growth in 2017 were mass and convenience. This reflects growing consumer preferences for lower-priced products and more-convenient purchasing venues.
In 2017, small CPG companies continued to take market share from their midsize and large rivals. While the revenues of large CPG companies remained roughly flat, with only 0.2% year-over-year growth, small companies grew by approximately 2.3%. In dollar terms, between 2012-2017, small players grabbed approximately $15 billion in sales from their larger counterparts.
Although smaller companies, on average, outperformed their larger counterparts, top-performing mid-size and large companies also experienced growth in 2017. Even so, the top small companies grew at a faster rate than their mid-size and large counterparts did. And, mid-size and large companies outside the top performers, on aggregate, experienced declining sales. Here’s how some companies differentiate themselves from others:
They differentiate their offerings. Top-performing companies work to identify and understand their core consumers. Using a data-driven approach, they segment demand rather than consumers to identify not only what consumers want, but also where, when, why and how they want it. The companies then use that knowledge to create a portfolio of differentiated offerings with an authentic feel.
They target consumers with greater precision. Leading companies also use the consumer knowledge they have amassed to develop and market products to address those consumers’ specific preferences.
They complement organic growth with inorganic growth. Investing in small, fast-growing brands can help companies fill holes in their product portfolio and acquire the capabilities needed to expand into new markets. Venture units, mergers and acquisitions and incubators are all viable inorganic growth strategies.
Strategies for boosting growth
These findings have important implications for CPG companies that wish to bolster their growth prospects:
- Follow consumers 24/7 to understand their evolving behaviors. Use demand science to expand understanding of consumer demand—what consumers want to buy and when, where and why they want to buy it—to capture adjacent white spaces.
- Understand what drives growth vs. that of its peers. Leading companies focus on building core strengths—whether in manufacturing, new product development, sales and marketing or other areas—and outsource the rest, taking advantage of the ongoing deconstruction of the CPG value chain.
- Use pricing strategically to enhance volume growth. Avoid using pricing as a tactic to drive dollar growth. Instead of passing inflation hikes along to consumers, top companies charge a premium price that is commensurate with the value of the innovations made to its products. Companies that innovate will strategically drive up their product prices.
- Build a strategy to capture small-brand growth opportunities. Top companies continuously evaluate the viability of venture units, incubators and M&A.