Catalyx’s Founder & CEO, Guy White, shares his viewpoint of this month’s CPG landscape.
Consistently, more effective innovation is higher and higher up on the docket. Take, for example, the new Unilever CEO, Hein Schumacher, publishing in his new agenda a 10-point plan. Why? His volume sales have tumbled, particularly in developed markets – and he is not alone. Nestlé, Reckitt, The Kraft Heinz Company and P&G (to a lesser extent) have all had declining volume shares.
Along with many others, these companies have tried to paint a more positive picture in recent earning reports. Most show net sales growth thanks only to the full year effects flowing through the once-in-a-generation pricing boom taken by the whole sector at the height of the cost inflation surge at the end of 2022.
However, all of our discussions with leaders in these companies are now about category penetration and stealing share. They realise that the vast majority of net sales growth can only come from volume in the foreseeable future. Based on their current results and the volume trends we are already seeing – this is going to be hard. Just as I predicted in my previous blog, only the very best will win.
In that blog I talked previously about how we expected the mix of dramatic price increases by CPG companies, coupled with broad based inflation, interest rate rises and much more static wage growth to create a difficult situation for consumers the world over.
In the time since, it’s become clear that that is already coming to pass as consumers are continuing to become much more choiceful. This will only exacerbate in the coming quarters.
For a great instance to illustrate this, meat consumption is at an all-time low in the UK. But – plant-based brands are also suffering. It doesn’t make immediate sense on the surface, as this is not a switch to veganism or an increase in more health-conscious consumers. Those eating meat are switching to cheaper cuts, and people are mainly looking at their bank account and realising they can’t afford it as much as before.
“Value is not about low price. It’s about the right combination of perceived product benefits to functional and emotional needs, for a cost I’m willing to pay.”
At the same time, shoplifting has skyrocketed across Europe and North America. This isn’t a decline of the moral standards; quite simply, many people are truly struggling to make ends meet. Recent reports in the UK media are showing that maintenance loans for students no longer cover their rent. It’s madness.
In this environment, why would a consumer buy the expensive potato chip and premium skincare? Are they more likely to stick with the known brand, or does private label suddenly come into view? And once they trade down once, do they think the money in their pocket outweighs the difference in quality? Is there even a difference?
These are the things we are increasingly being asked for help with. There is always a way, but only if a brand can get the value equation consistently right.
Value is not about low price. It’s about the right combination of perceived product benefits to functional and emotional needs, for a cost I’m willing to pay; with brands creating the equity wrapper to support and maintain it all.
Getting this right consistently can only happen if the consumer is baked fully into the innovation development process. Not just at the concept, media or product proposition testing stage, but way before. It’s also not just with U&A studies, focus groups and quick quantitatives that can be misleading. It’s with methods and partners that can get to the true core of the jobs to be done, the unmet needs, the where to plays and hows that a brand can execute on most effectively to win. Surveys don’t bring that home.
“You can’t steal share and have two winners.”
It’s good to see Unilever move away from its blanket approach to purpose. Finally recognising that it is ok, or in fact critical, for the job of a brand to be solving the needs of consumers in the category in a value-adding way… and not always to try to save the planet. (God forbid a mayonnaise talks about tasting amazing with zero fat without telling me about how it’s better for humanity.)
It will be a zero-sum game. Except for the rare category companies can influence penetration and frequency (reduced-risk tobacco products spring to mind right now), you can’t steal share and have two winners. The long-term winners will continue to be those that innovate most effectively – both their product and commercialisation. Those are the ones that truly understand, at a deep level, what their different audiences are going through, and then create products that are perceived to offer the best value. They’ll take the prize.
Let the games begin…
