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“That's kind of the theme of planning this year. It is definitely [economic] uncertainty, but it's getting smarter about developing those right relationships and deploying resources with the retailers that you're going to win with your shoppers and their brands.”— John Carroll, President of Digital Commerce and Analytic Services, Acosta Group
Over the last several years, the consumer packaged goods (CPG) industry has thrived amid turbulent times, but ongoing economic uncertainty makes effective strategic planning and execution even more critical to control costs and drive incremental growth in the future.
That’s the perspective of John Carroll, president of digital commerce and analytic services at Acosta Group and former executive at Coca-Cola and P&G. Carroll has spent decades observing CPG trends, interpreting data, and helping leading brands innovate.
Carroll joined a recent episode of the “Unpacking the Digital Shelf” podcast, “2024 Challenges and Opportunities: Insights from CPG Boardrooms,” to draw from that deep well of experience and share how brands can continue to drive CPG growth and digital shelf success in 2024.
Recession fears continue to influence how CPG brands go to market. This ongoing economic uncertainty, along with geopolitical factors, have made many CPG brands more cautious in their planning.
“It is the longest predicted recession that has not happened yet. So that's the question — when is it actually going to happen?” Carroll says. “When will the economy actually contract? … There's still a lot of discussion about a soft landing, but it’s still very uncertain overall.”
But even as CPG brands have had to navigate more uncertainty, they’ve also benefited from a shifting economic landscape, namely inflation.
Inflation has led to increases in everyday spending that have driven CPG growth from a pricing perspective. However, Carroll says the market is seeing a decline in units because neither brands nor consumers can sustain never-ending price increases.
“You're going to have unit decline and probably depressed dollars overall. So there's a lot of discussion on how CPG will really handle that, and a lot of that discussion is around promotions and focusing on giving consumers the right prices, better prices, to drive units,” he says.
Consumers are increasingly price-conscious and are shifting their brand loyalties to save money. Carroll says Walmart has effectively reacted to this shift by offering more discounts.
“If you look at Walmart's business, Walmart is the only retailer we're seeing that actually has both units and dollars growing,” he says.
CPG brands have gotten more bullish about promotions in the wake of the COVID-19 pandemic. During the pandemic, promoted units accounted for 27% of available units, but that number eventually went down to 8% over the course of the public health crisis, Carroll says.
This indicates that many brands and retailers didn’t need to offer discounts to move products on either the physical or digital shelf.
Now, they’re offering promotions again, with promoted units back up to 31%. Carroll says the traditional buy one, get free (BOGO) and 10 for $10 promotions brands have employed will no longer be enough to drive CPG growth.
“72% of trade spend for a manufacturer is unprofitable,” Carroll says. “So, I think it's a real opportunity for the industry — both from a retailer standpoint and a CPG manufacturer standpoint — to take a step back and say, ‘Let's really rethink this.’ — John Carroll, President of Digital Commerce and Analytic Services, Acosta Group
“Do we want the traffic-driving promotions, or do we want promotions that reward our most loyal consumers and shoppers?” Carroll says.
Doubling down on retail media is one way brands can drive CPG growth and more profitability through promotions.
Retail media allows brands to deliver personalized experiences and develop a one-to-one relationship with shoppers that rewards them for their loyalty.
Carroll says consumers are no longer clipping physical coupons, so brands need to invest more in digital channels to engage them. However, CPG brands are still a bit hesitant to go all in on retail media.
“There's been a bit of apprehension on the CPG side to invest there, so now there's a lot of discussion about how do we develop a joint planning process with the retailer to really understand how do I best use these monies together — be it trade spend or marketing funding to really develop the right strategy against the right shopper and the right consumer,” Caroll says. “We're beginning to see a shift, but it needs to be moved along a little bit more quickly.
Caroll adds that brands can drive more value from retail media by working collaboratively with their retail partners to formulate their go-to-market strategy and combine digital and in-store into one joint planning process. Sales leaders on the brand side also need to go beyond the traditional measures of availability, promotion, or space to define what success looks like.
“They need to think about things from a marketing KPI {key performance indicator} perspective — like targeting from a reach and frequency perspective the right eyeballs, and long-term value from acquiring the right shopper from a branding perspective,” he says.
Successful retailers such as Target and Walmart have made their merchants responsible for their retail media buys and include retail media in their merchants’ profit and loss (P&L) statements.
“That's kind of the best-in-class example,” Carroll says. “The sales teams need to work closer with the marketing teams and really develop the right KPIs, and the retailers need to put the responsibility in the merchants’ hands. That's a key to success here.”
Leveraging retail media for more effective customer activation and better collaboration between retailers and brands will be crucial to drive CPG growth in 2024 and the coming years. Carroll says he also sees the nature of innovation changing within the industry.
“Innovation should be defined just beyond product and innovation. We're just seeing so much more innovation around: ‘How do I get more creative from a trade spend perspective? How do I develop better processes through automation and AI {artificial intelligence}? How do I really understand the elasticity of my brands?’” he says. “There's a lot of really great tools out there to help us do that.”
Carroll adds that CPG growth rates will stabilize as brands deal with a tighter labor market that could increase their operating costs and consumer trends like remote and hybrid work that will contribute to people eating at home more, and thereby buying more.
But amid these shifting market dynamics, brands need to be laser-focused on delivering a better shopping experience and more value to consumers.
“That's kind of the theme of planning this year,” Carroll says. “It is definitely uncertainty, but it's getting smarter about developing those right relationships and deploying resources with the retailers that you're going to win with your shoppers and their brands.”
Listen to the full episode to hear more of Carroll’s insights on the CPG industry.
