CPG Companies need to innovate to grow


CPG companies, especially those in the food sector, have been long-term investors in Innovation. The consumer is constantly looking for the next flavor, the next tasty biscuit, or the next interesting soft-drink. A new report by PriceWaterhouseCoopers and the Grocery Manufacturers Association has just been released, and highlights that, under a scenario of long-term lower net sales growth, CPG companies will need to rethink the largely defensive actions they took in 2008 and 2009 to preserve shareholder value: divesting non-core brands, conserving cash, cutting costs. To grow revenues, companies either have to raise prices or drive volume—and that’s where innovation comes in.

Innovation goes beyond technical advances. Many CPG companies are looking to innovate by reaching customers in more places—for example, by expanding their product presence in the workplace or targeting demographic groups like Generation Y through smart social media campaigns. Others are looking to tailor their products for local customer tastes in emerging markets.
Understanding customer priorities is central to innovation. Consumers in the United States are buying more carefully, buying different pack sizes, taking advantage of volume discounts, and trading down to brands with a different value proposition. Diamond Foods CFO Steve Neil explains that one key to innovation is a willingness to approach an old problem with a new perspective: “We have been successful at bringing product innovation to categories that historically have not been very innovative, and that has differentiated us,” he says. For example, “We work with our retailers to help them position their private label. We want them to be able to offer the bulk big-value proposition, since we are not going to price at parity with them.” Helping retailers help themselves is just one way that CPG companies can bring a different mindset to their business.

Suppliers are also racing to gain a foothold in emerging markets like China, Russia, Brazil, India and Southeast Asia, according to the report.

It was compiled from interviews with senior leadership of GMA members, publicly reported company financial data, government statistics, analyst reports and other published material on 152 companies in the food, beverage and consumer products sector.

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