• by Wayne Spencer , Columnist, December 15, 2017

With continued disruption in the consumer goods industry, changes in the coming year are inevitable to combat the increase of unconventional and low-cost stores like Lidl, Aldi and Amazon, gaps in retailer-manufacturer communication, and evolving consumer shopping habits. As a result, 2018 will be a year where manufacturers are asked to reevaluate and reposition their trade investment strategy for data-driven decisions and mutually optimized returns.

What’s ahead for CPG manufacturers?

1. Retailers will reduce the assortment of center store SKUs

In 2018, Amazon and Lidl will push conventional bricks and mortar retailers to begin looking at the significant cash investment benefit of their current high center store SKU assortment. This, coupled with the low return on investment of trade spending, means that it could be a tough year to break even in the mature margin-compressed consumer goods sector. 

Manufacturers must fortify their base of current selling opportunities or else head for a reduced landscape of retailers able to sell their products at a fair profit. It will be critical for manufacturers to share insights and optimize results to minimize market share erosion and encourage a CPG sector where multiple retailers are available for manufacturers to market and promote their products. The good news is that the retailer will share this fear of their stores becoming a drone logistics center for Amazon. 

2. Companies will merge sales and marketing 

The days of a CPG president pitting sales and marketing against each other to maximize share and profit are gone. With the shift of marketing dollars to price promotion in-store over the past 15 years, it is imperative that both operating groups work in concert to collaborate with the retailer trading partners to optimize the allocated funds. 

The move to price has been cancerous on both the CPG manufacturers’ and the retailers’ branding. The alignment of sales and marketing becomes increasingly important with powerful digital media capabilities (e.g., accurate store loyalty consumer databases). With this, both the retailer and manufacturer’s combined sales and marketing teams have to optimize the price promotion trade spend and mutually shift dollars to brand building targeted digital messaging.

A very important tool for collaboration is the ability to provide measurable insights on how to optimize their respective categories for mutual profit, volume and revenue. If this move does not happen, it plays right into the hands of the Lidls, Aldis and Amazons who live on low price every day. 

3. Retailers and manufacturers will embrace e-commerce as a distribution model

E-commerce retailers will continue to evolve in the next few years and the ability for conventional retailers to effectively compete in this channel will evolve with it. There will be a learning curve as to how to effectively promote and market products in this growing channel requiring the right post-analysis solutions to evaluate the effectiveness and efficiency of this spend, as well as the cannibalization impact on the existing conventional retail sales channels. In addition, the savvy manufacturer and retailer should be equipped with the modeling capability of optimizing their total future trade and marketing investment.

Any manufacturer that does not have predictive analytics on their radar screen as a 2018 initiative is not prepared for CPG’s reality. As the center store shrinks in distribution and the promotional monies taper off, those parties without the ability to optimize the existing promotional funds and predict future trends are not going to survive in this fast-moving and technologically evolving CPG sector.