The traditional model that has sustained CPG companies and their business partners — mass production to mass distribution to mass marketing — is under assault, the report argues, with disruptive innovators chipping away at the business of established suppliers. Advances in technology, distribution and marketing have empowered entrepreneurs to mount credible challenges to prevailing brands in categories where the price of entry formerly precluded new competitors. The KPMG study cites research that indicates the cost of an online start-up has dropped from $5 million at the turn of the century to less than $5,000 today. As a result, potential competitors for CPG suppliers have multiplied exponentially, putting a premium on the ability to recognize consumer trends as they are emerging and to respond rapidly.
Digital platforms such as Amazon, Facebook and Google deal in real time, giving new entities that leverage their capabilities instant access to billions of potential customers. Dollar Shave Club, to cite just one prominent example, came out of nowhere to shake up the men’s shaving market, putting unexpected pressure on perennial category leader Gillette and making it much more difficult for retailers to generate sales gains.
The democratization of the supply chain means that established CPG companies will have to develop new capabilities quickly in order to maintain a compelling proposition. KPMG asserts that suppliers will have to master the art of personalization when dealing with customers and be able to distribute their products across multiple channels, including directly to consumers.
“As with other big shifts, some will make the transition to compete in the new world — but many will begin a long, slow decline into irrelevance,” the report states. “Consequently, regardless of which options CPGs choose, the status quo cannot be one of them.”
If the road ahead for manufacturers is daunting — which indeed it is — how much more so for the drug, discount and supermarket operators whose stores have traditionally been the place where most Americans obtain the essentials they need for daily living. Suppliers must learn to respond to customers’ demand for value — a combination of quality, innovation, price and experience — as it relates to a given brand or, in the case of major CPG companies, multiple brands in a variety of categories. Mass market retailers have to deal with the same problem across the entire store, where tens of thousands of items are available.
To remain relevant in an environment where consumers have an unprecedented number of buying options, traditional chains will, at a minimum, have to become competent in omnichannel retailing. To maintain their current standing, mass marketers must find new ways to differentiate themselves from online merchants as well as their brick-and-mortar rivals. Part of the answer involves store brands and exclusive merchandise. More important are the service and experience that greet people when they shop a given store. For traditional retailers to succeed in this brave new world, they will have to earn a reputation for their ability to curate the plethora of products on the market, help individuals find the items that best meet their specific needs, and offer advice on how to get the most out of those products.