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How is the Consumer Packaged Goods Industry Is Evolving

Consumer packaged goods (CPG) are those products that are used every day and many are considered essential to modern life. This category includes, but is not limited to, toilet paper, paper towels, food, beverages, and over-the-counter medications. The CPG industry has had a very interesting last couple of years, even in relation to many other sectors of the economy.

What are Consumer Packaged Goods?

Consumer packaged goods are a huge industry, with a total value of around $2 trillion in North America alone. Some of the largest and best-known companies in the entire world operate in this industry, including such household names as Coca-Cola, Proctor & Gamble, and Johnson & Johnson. The industry as a whole has huge and continuous customer demand, as the products are mostly single use and need to be replenished often. They are found in almost every grocery store, pharmacy, and big box retail outlet.

Amid the massive demand for CPGs, the industry is an extremely competitive one. Huge corporations like Coca-Cola and PepsiCo vie for name recognition and supremacy along with hundreds of upstarts. While the profit margins are very high in CPGs, a considerable amount of money must be spent annually on advertising. Television commercials and Internet ads proliferate for CPGs, and the fight for prime shelf space in the most popular retailers is fierce.

CPGs differ from more durable goods in that they are mostly bought without a tremendous amount of thought or deliberation by consumers. This is because they tend to be much cheaper and are used up fairly quickly as opposed to a more durable and expensive items like a couch or washing machine. This makes CPGs a high-volume industry and very dependent upon a smooth functioning supply chain.

The large-scale disruptions in the worldwide supply chain system caused by the COVID-19 pandemic hit the CPG industry hard. The early days of the pandemic triggered a panic buying frenzy for products such as toilet paper and cleaning supplies. Many of the retailers that were able to remain open ran out of such products and were unable to get replacements on the shelves with any degree of consistency. As the anxiety began to subside, and more retailers opened their doors, the CPG industry still had excellent sales numbers, exceeding pre-pandemic levels.

Changes in the CPG Industry Going Forward

The pandemic taught a number of lessons related to the CPG industry. The major one was the need to identify changing circumstances and adjust quickly to them. The supply chain disruptions caused CPG producers to rethink their entire approach, and one of the insights coming out of that analysis was the need for digitization all along the supply chain. In order to react quickly, information needs to be gathered and analyzed quickly, and the way to do that is to digitize.

The collected data must then be subject to analysis. This use of analytics is vital to increasing speed and productivity. Consumers were upset by the difficulties and delays in getting their products and, while some leeway was given to CPG producers due to the pandemic, there was still dissatisfaction with the results. In the future, the CPG industry needs to be more flexible, and the companies that are best able to navigate severe disruptions will profit the most. Digitization is the key to flexibility.

The supply chain issues brought to light the dangers of relying on only one channel to get products to the consumers. For better speed and efficiency, a fragmented production network offers the best way forward. By locating production in many smaller sites, as opposed to a few large ones, a company is better poised to quickly deliver products to consumers. The numerous sites make the distribution of products easier, as the product doesn’t have to travel as far to get to its final retail or warehouse destination. In order for a fragmented production network to operate effectively, however, requires digitizing operations. This way purchasing trends can be identified and reacted upon. Production and distribution sites can be located at optimal points to serve customer demand.

The CPG industry is extremely competitive and any small edge can bring huge dividends. The problems caused by the COVID-19 pandemic were also an opportunity for the CPG industry to re-examine its entire structure and identify where improvements needed to be made. Digitization of operations is the best way for CPG producers to identify trends and react quickly to take advantage of them. The future of the CPG industry lies in data collection and analysis. The companies that are able to digitize fastest will have the edge in the market.

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