3 Risks Facing Consumer Packaged Goods Companies in 2019

The U.S. economy has moved into the second quarter with measured relief that any threat of a recession has been averted… for now. However, three risks that loom over the consumer packaged goods (CPG) industry are worth keeping an eye on.

Threat #1: The Speed of Changing Consumer Habits

Rapidly-changing consumer habits show no signs of slowing down, and the reasons are both economic and demographic. For example, in a good economy, people’s taste buds crave more premium products, turning consumers into brand connoisseurs. In addition, they expect to receive these premium products in more convenient ways, like having them delivered directly to their front door in less time.

Personal care is another good example. The premium segment (25% of the overall category) is growing at 8%, while the total category growth is only 2%.1 Other habits, such as low-carbohydrate diets and the search for healthy sugar substitutes, have segments like meal kits paying attention.

Demand for meal kits, offered in-store or online, is up 26% since 2017.2 The meal kit category is keeping up with consumer trends by embracing popular diets (such as the ketogenic or “keto” diet) and making quick adjustments to product offerings. With the keto diet, organic, grass-fed, non-GMO and hormone-free ingredients are essential (including butter). This diet shift could be good news for dairy producers like Land O’Lakes, which experienced a decline in recent years as consumers deemed this fat unhealthy.3

As for demographics, millennials and Gen Z have changed the game for CPG as well. Willing to try new concepts, these groups are also known to buy products tied to a story and a purpose. This trend has CPG on the lookout for other products that they can acquire in order to help them gain momentum via a unique digital offering or by entering a new, niche market. Dollar Shave Club is a classic example; its online subscription model delivers monthly razors by mail and was acquired by Unilever for $1 billion in cash a mere five years after its founding.

CPG companies must be prepared to evolve or risk losing market share.

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Threat #2: Transportation Woes Continue

CPG accounts for one-fifth of all freight on the roads today, and transportation continues to be a primary source of concern. As noted by multiple associations, including the Grocery Manufacturers Association (GMA), some of the key transportation issues in 2019 include truck transport and regulations.

“An ongoing transportation crisis is reducing accessibility, availability, and affordability of the food, beverage, and household goods that American families need,” said the GMA. “There is a critical shortage of truck drivers, demand for existing trucks is dramatically greater than the available supply, and inflexible regulations and needed infrastructure repairs exacerbate the problem.”4

With a shortage of 50,000 truck drivers, innovations underway to solve these challenges vary from self-driving trucks to micro-warehousing.

Threat #3: Future Impacts from Climate Swings

When the bomb cyclone weather phenomena hit the Midwest this spring, it left farmers and ranchers with significant losses. Already enduring the effects of tariffs, groups in Nebraska reported estimated ranching losses of $500 million, and $400 million for grain farmers. The Nebraska Farm Bureau told the Washington Post that it could be months or even years before farmers fully rebound.

Climate change impacts for CPG will continue to unfold.

Nebraska is one of the top three beef producing states in the U.S., and its grain crop shipments — which supply businesses like Hormel Foods Corp. and Tyson Foods Inc. — have been impeded.5 The Wall Street Journal reports that these backlogged loads will lead to reduced production and profits.

Ongoing climate change patterns will cause CPG companies to take a closer look at implementing mitigating risk strategies in current and future sales and operations planning.

Prescriptive Analytics Accounts for CPG Risks

CPG is increasingly relying on prescriptive analytics to prescribe the best course of action to prepare for and manage these dynamic and complex market challenges. From meeting demand to solving transportation problems while maintaining profitability, the use of prescriptive analytics is growing for good reason. As the complexities of the supply chain process and the effects of the changing environment grow, CPG will need a reliable solution to address risks.

For those companies unfamiliar with prescriptive analytics, here are some recent CPG case studies — some of which have tackled the exact challenges that face the consumer goods market today:

  • Fortune 1000 snack-food manufacturer improves ROI by 1,000%.
  • Snack food giant overcomes constrained capacity and saves hundreds of thousands per week.
  • Upfield (formerly a division of Unilever) achieves over €21 million in profit improvement over a two-year horizon and drastically reduces planning time from months to 1-2 days.
Real World Industry Examples of Applying Prescriptive Analytics
  1. How The CPG Industry Can Capitalize On Consumer Trends, Nov. 29, 2018, Forbes.
  2. Nielsen Examines the State of Meal Kits at the 2019 Annual Meat Conference, March 20, 2019, Nielsen.
  3. Land O’Lakes Looks Beyond Plain Butter, Feb. 21, 2019, Wall Street Journal.
  4. Transportation, food safety seen in 2019 regulatory landscape, Jan. 22, 2019, Food Business News.
  5. Transportation, food safety seen in 2019 regulatory landscape, Jan. 22, 2019, Food Business News.
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