The consumer packaged goods (CPG) industry has experienced significant growth in recent years, but they have also seen a dramatic rise in input costs—from raw materials to labor—that have not yet returned to pre-pandemic levels.
Meanwhile, inflation has left customers less able to pay more for products, which is a challenge for CPG firms who must balance covering growing operational costs with a consumer need to keep prices down. Some still project that the industry is set to grow by 3.5% annually until the end of the decade, but it’s still likely to be tough for companies within the sector.
For firms working to scale during these challenging times, we’ve gathered some of the CPG market trends influencing the industry in 2024.
What Does 2024 Hold for the CPG Industry?
While in recent years the industry has steadily raised prices in response to the increasing cost of doing business, this is likely to be untenable in the immediate future. In a survey of the largest 100 consumer product companies, and a global survey of 250 consumer product companies, Deloitte found that just 2% are focusing on price for 2024. In fact, 50% no longer see increasing price as a key driver when it comes to scaling their business.
The same study also suggested that the CPG companies who are failing to compete are those who have not been responding to the need for innovative products and technology.
Business challenges also of course play a large part, for example the consumer goods market has seen high labor costs and lower staff retention rates for the past few years, along with ongoing supply chain disruptions.
All these factors have increased uncertainty in the industry, but there are also more ways companies can be resilient and recalibrate for growth in the coming months—starting with understanding the key CPG trends shaping the market and consumer behavior.
The Top 5 CPG Industry Trends For 2024
1. Careful Consumers
As is the case for many other industries, consumer spending is expected to take decline in 2024. Despite U.S. consumer spending increasing in the last quarter of 2023, this resilience is unlikely to last. Research from McKinsey also shows that, although consumer confidence held steady last year, consumers remain cautious in light of ongoing inflation.
Many business owners may therefore have lingering doubts about how the economy will perform this year, which in turn makes it harder to forecast demand. For now, since food and gas prices remain high, consumers are likely to limit their spending to essentials only—although the same McKinsey study also found that younger consumers in particular will be more spendthrift in Q1.
2. Sustainability
According to Deloitte, 73% of global consumers are willing to change their purchase habits to limit their impact on the environment, and 75% of CPG executives now claim a circular business model is a goal for their company. This is where materials and products keep their value through being recycled, reclaimed, or reused. Meanwhile, the same study unveiled more CPG firms are focusing on sustainable product innovation.
But what does this mean in real terms for the industry? To start, we can likely expect a shift towards sustainable packaging for consumer goods. Companies trying to scale can include sustainability as a key part of their strategy by investing in biodegradable and recyclable packaging options, which not only reduce carbon footprints but are also in line with the values of U.S. consumers.
Larger multinationals in the sector, like Nestlé, have started to make circularity a KPI in recent years. A growing number of firms are also changing their attitude from seeing waste as an unfortunate but necessary by-product of doing business, and are acknowledging instead that it is a flaw in design.
3. Automation
When it comes to cutting costs, one of the most effective strategies used across numerous industries is automation. AI-driven technology in particular is increasingly used to save time, reduce expenditure, and gather real-time data for companies to make accurate and efficient decisions.
For the CPG industry, the turn to automation comes from a unique pain point. There have been ongoing reports on the sector’s labor and skills shortages. Hiring workers suited to make, pack, and ship products has been hard in recent years, with pre-pandemic data showing more job openings in the sector than workers willing to fill these positions.
However, tech advances mean that more companies are turning to robotics and automation to plug the labor shortage. On top of this, automation can improve demand forecasting and inventory management, making operations more efficient by analyzing huge data sets to anticipate how much supply they need on hand at any given time.
4. Direct-to-Consumer (DTC)
The last few years have seen more companies shipping their products ‘direct-to-consumer’ a.k.a. DTC or D2C. This involves taking supply chain middlemen like wholesalers, distributors, and retailers out of the supply chain equation. DTC has become a key way for CPG brands to market and sell products straight to customers, driving brand awareness and loyalty with a closer customer relationship.
Research shows that product information from knowledgeable support staff is of increasing importance for consumers who buy directly from a specific brand. Cautious consumers prioritizing the best price is also bad news for CPG customers’ already limited loyalty (nearly 35% walk away after one purchase).
DTC perks like subscriptions and loyalty programs can help CPG brands overcome this by presenting real value for customers, as well as playing a key part in building a seamless online presence.
5. Omnichannel Shopping
The shopping experiences’ digital transformation has driven demand for brands to create ‘omnichannel’ experiences for their customers. In simple terms this means letting consumers engage with your brand via a range of sales and media channels or ‘touchpoints’: kiosks, websites, and mobile device-enabled platforms, for example.
From here, not only do customers get better access to brands, but companies can draw rich and quantitative data from each channel to gain a better understanding of their customers’ needs and behaviors. Beyond this, Deloitte has argued that a CPG firm’s omnichannel strategy helps to create a consistent and unified customer experience.
How CPG Companies Can Stay Competitive in 2024
CPG companies can benefit from monitoring these latest trends closely for the coming year, but that’s not all. Businesses looking to cut costs and maintain growth can also enhance their supply chain logistics to beat the competition, prioritizing faster and more efficient transportation and distribution of their products.
Accurate forecasting is also important in this sector, especially since many consumer goods are seasonal. Cash flow forecasting is a valuable part of making these predictions in line with varying demand levels using sophisticated data.
At Setscale, we support CPG companies’ management of their working capital through our flexible PO financing solution. Learn more about what we can offer your business.
