The consumer products industry experienced remarkable expansion over the past year, witnessing a nearly 10 percent year-on-year increase in global retail sales value (RSV) in 2023.
However, this surge, almost twice the 10-year average growth rate, is primarily attributed to price hikes rather than increased sales volume. In fact, three-quarters of the growth was the result of price hikes, a new report said on Monday.
According to Bain & Company’s first annual Consumer Products Report, in the US and Europe, price escalations contributed to 95 percent of the RSV growth, highlighting an unsustainable imbalance.
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Therefore, going forward, sustained profitable growth in the sector will have to be achieved by tapping into emerging markets, the report added.
“As inflation slows, a paradox is emerging for consumer companies,” said Richard Webster, head of Bain & Company’s global Consumer Products practice. “While on one hand, prices have risen too much to maintain consumer spending. On the other, they haven’t risen enough to keep up with increasing costs and mounting pressures from retailers. Future growth will require a fundamental reshaping of value propositions, portfolios, and business models.”
The report included a survey of more than 120 senior consumer products executives around the world and underlined just how much rising input costs have contributed to the widespread decoupling of price and volume growth. Some 82 percent of respondents said inflation had a major impact on their business in the previous year.
Reversal of outperformance
While the sector overall grew about 10 percent in 2023, across a subset of top consumer packaged good (CPGs) average growth was closer to 4 percent, in a reversal of several years of outperformance.
Consumers, asked to pay more without getting any extra benefits in return, switched to more affordable private-label brands. In some cases, they opted for more premium insurgent brands that offer greater consumer value. They also waited for promotions or just bought less. Slightly more than half of executives said they had been significantly affected by consumers reining in spending in 2023.
Easing pressure
To ease the pressure, half of top CPGs reduced headcount significantly last year or froze hiring, following ongoing cost-reduction measures.
But a return to volume growth remains critical in the long run.
For many CPGs, part of the answer will involve tapping into emerging markets or expanding their already present network there.
Emerging markets accounted for the vast majority of global volume gains in 2023. India was a standout example of balanced growth, with RSV advancing by nearly 15 percent since 2022. This was because of consumers switching from local or unbranded products to bigger, international brands.
A widening digital gap
Digitalization of business processes has become more urgent, as performance gaps widen between CPGs that made early investments and those that did not. Digital leaders will have an advantage in key areas over the coming years, the report said.
They will be best placed to capitalize on vast pools of data and maturing generative AI technologies. This will helo develop both consumer-facing use cases that add revenue and internal applications that generate cost efficiencies.
