Several trends are already clear today and show no signs of reversing: for example, purchases in more and more product categories are migrating from offline to online channels, activist investors are slashing costs and ushering in a new wave of consolidation, and governments are imposing stricter regulations on CPG manufacturers.
In light of these and other large-scale forces, CPG companies must reinvent themselves if they are to survive and thrive. one in four Western Europeans will have reached retirement age by the end of the next decade i.e. 2030. Across the continent, the average disposable income will fall, and with it the buying power of a considerable fraction of the population leading to the fall of the economies. Consumers, therefore, won’t be willing to pay higher prices. Manufacturers that generate most of their revenue from the mass market will no longer be able to pass on price increases to consumers without seeing a subsequent drop in sales volumes. For such companies, value creation will be achievable only through major cost reductions and that would mostly cause unemployment further plunging the nation’s purchasing power. As the mass market shrinks, a range of small yet lucrative consumer segments will blossom. For example, more and more consumers will gravitate toward healthy food, environmentally friendly products, personalization, and convenience. Already, nearly a third of European consumers say they’re willing to pay more for products with added health and wellness benefits. The disadvantage of niche markets and microsegments, of course, is that they often require some level of customization.
Companies that want to serve microsegments effectively will need to be innovative and agile, as the traditional production, marketing, and distribution processes of CPG companies are too slow and cost-intensive to allow profitable growth in niche markets.