NEW DELHI : Isabelle Allen, Global Head of Consumer & Retail and Partner, KPMG International, said a volatile trading environment is affecting consumer goods companies around the world. High input costs and supply chain uncertainty have companies looking for new ways to cut costs. In an interview, she talked about the trends that will emerge in the consumer packaged goods market over the next 12 months.
How do consumer goods companies handle inflation and volatility globally?
The feedback I get most often is that there are traditional ways of managing inflation in the industry. You have something called “shrink-flation”, which is if you’re not able to pass on your input costs to retailers or the end consumer, you hold the price down, but reduce the size of the package. This will have certain limitations. are products with which you cannot easily do this. So we’re going back to some traditional cost base management levers: synergies, efficiencies, accelerating your digital transformation, reviewing your processes and end-to-end value chain so you can really cut costs Consumer education in terms of their ability to understand that if you want to keep the same quality and if you want to keep the same brand and the same product promise, then the prices will have What’s different for me in this environment is that it There is a growing trend for companies to understand the consumer holistically and not just within their own category.
In Europe, the words that are coming to the fore in the newspapers at the moment are the “cost of living crisis”, because in Western Europe and the United States, companies are talking about inflation rates that they haven’t seen since 2008. So the big question for me is where is overall consumer spending going to be headed? What is the change between expense categories? Within a category, where is the consumer trade-off between functional versus discretionary spending, indulgent versus immediate spending? expenses?
The companies we speak with are not looking to manage their category alone. They consider how they should manage their category within the overall budget a consumer has available to spend. For example, during the height of covid concern, we saw certain consumer demographics shift their available spend to categories such as insurance or medical coverage. All customers need to make sure they are really using all the data they have to truly understand who your customer is.
How does this affect small businesses? Will the CPG space see consolidation?
I don’t think we know exactly how this story is going to play out, because it’s not just the story of inflation happening by itself in a vacuum. You have the story of inflation, which comes at the end of a covid period where category spend and the omnichannel distribution of that spend is disrupted. This comes at a time when companies need to invest in their digital transformation, but it is being challenged (for the big players) quite significantly by digital native companies. It’s a very complex picture. I could argue that large companies are finding it very difficult right now because what works to their advantage in terms of scale also makes it harder (for them) to be agile, responsive and innovative and to change the way that they are exploiting and capturing new parts of the markets that they have not traditionally occupied. I think we’ll see a lot of shuffling of the cards. I’m not sure I would use the word consolidation. You are going to see a lot of hybrid models. It will simply be a richer landscape of hybrid alliances, joint ventures, equity and new forms of capital available.
Will this year be more difficult in terms of consumer spending?
Overall, one of the metrics we watch very closely is consumer confidence. This is a leading indicator of a recessionary environment. It is true that consumer confidence has just fallen almost everywhere. What will be essential for this is how governments decide to react to this with the levers at their disposal, be it their stimulus packages or their interest rate policies. The pinch is felt in different ways in different segments of the population. We come back to the point I was making earlier, that there will be winners and losers in this environment. The winners will be the companies that are really very explicit and clear about what they stand for, what their value proposition is and what they deliver through their product or their brand or their customer experience. Second, they execute on that promise well, but more importantly, they really know who they want to talk to in the market. I don’t think you can win in this market with input prices and margin squeeze if you try to have a completely undifferentiated communication strategy or advertising strategy.