Over the past couple of decades, mass retailers (such as Walmart and Target) have consolidated a position of power in their relationship with consumer packaged goods (CPG) manufacturers. They've acquired this power by owning the shopper relationship and the store shelf. Driving efficiencies in distribution and assortment also helped.
But this long-standing balance of power stands to change. CPG manufacturers today are empowered by direct-to-consumer (DTC) channels like Amazon and their own company eCommerce sites. And with Amazon introducing programs like PrimePantry and AmazonFresh, my money is on this trend happening faster than many expect.
Steven Barr, PwC's US leader of retail and consumer industry, recognizes this growing trend, saying "CPG companies that engage with consumers directly through digital channels and build out their direct-to-consumer processes will have the best advantage for creating new growth."
The changing retailing landscape challenges major CPG manufacturers to maintain strong relationships with retailers (where the majority of their sales still come from) while simultaneously adopting a more people-centric approach by directly engaging shoppers. Another challenge will be the growth of smaller manufacturers - these companies are empowered by direct-to-consumer channels and are more nimble to meet consumption trends.
So, how can CPG manufacturers rise to these challenges?
First, manufacturers need to truly immerse themselves with DTC early adopters to understand how their changing behaviors affect traditional retail business. Companies who engage with these early adopters in the digital world generate insights that are both valuable to traditional retailers and critical to their own DTC ambitions. CPG manufacturers can facilitate these in partnership with traditional retail partners, to better understand evolving shopping habits and be better prepared for the channel changes caused by DTC channels.
Second, manufacturers need to understand the consumption needs of these DTC early adopters. Shoppers today are empowered with more choices and more information. To be as flexible as the smaller manufacturing companies, large CPG manufacturers need a deeper understanding of the people that consume their products. Having a well-rounded shopper intelligence program will help these companies come up with exciting new products and meaningful marketing support.
The benefits of getting it right are huge: higher profit margins, ability to build brand loyalty, engage/market directly to the people who consume their products, and perhaps most importantly, respond to the demands of today's online shoppers. I'm interested to see if traditional manufacturing companies that are accustomed to a wholesale business model can succeed without the veil of retailers? Which ones will succeed? How will they learn to engage with the people that consume their products?