Due to a number of factors; labour costs, export costs, the falling value of the pound, etc; there is increasing pressure on CPG supplier margins.
This is exacerbated by an unwillingness to pass on price increases to consumers, who are becoming more and more educated and dislike compromise on quantity (shrinkflation) and quality (ingredient sourcing and responsibility) This leaves suppliers with a conundrum: how do we continue to perform and improve within the market?
Interestingly, there seems to have been significant growth within start-up companies which may point the way to a solution. If we take beer as an example, we recently wrote a blog on this, where craft is taking the market by storm, consumers are willing to cut back on volume to drink more quality products with a strong heritage and brand identity. Other examples include meats and snacking, where health and environmental responsibility are increasingly front-of-mind for purchase, e.g. the rise of ‘flexitarianism’, the success of meat alternatives, and the wave of high-protein products. Consumers are willing to experiment trialling expensive, new, and often higher quality, goods. The answer for many: new products!
Expanding into new lines or sectors can allow companies to reinvent themselves as more premium to ensure greater margins or develop within new segments. This was demonstrated brilliantly by the success of Fever Tree in the adult mixer sector and the subsequent reaction by companies already in the space. You can fill portfolio gaps, and expand ranges as dictated by market trends – another recent example is the addition of protein to confectionery or recent “healthy snack” popularity: popcorn over potato crisps.
When new product development (NPD) works it’s fantastic, however these tend to be the exceptions. When launching NPD there are innate risks. Year 1 returns are typically low, and there is a limit to the number of new products that can be released without “setting up to fail” due to finite manufacturing, research, and marketing budgets. There is also the risk that you end up cannibalising your own brands without winning new customers. Entry pricing and promotion can even erode the margin your new premium product was introduced to safeguard.
Ultimately, to look after your bottom line it is paramount that you have quality data and a clear strategy for your brands, price positioning, and promotional plan. This is true regardless of whether you’re a household name, or dipping your toe into a new segment. What are you doing to guarantee success?
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