Picture the cereal aisle of your favorite grocery store. When you start thinking about all the choices available, it will come as no surprise that consumer packaged goods (CPG) companies operate in an extremely competitive environment.
Cambashi, a UK-based market research and consulting company, recently looked at the important role packaging plays in setting CPG products apart from the competition. The “perfect package” needs to catch the eye and also convey the experience of using the product.
Many of the challenges facing CPG companies in the store also translate to the online realm. These companies are searching for smart ways to communicate their brand values digitally across platforms and global markets. To gain more insight into the challenges and opportunities faced by CPG companies, I reached out to Cambashi’s Research Director Mike Evans.
“CPG Companies Need to Stay Focused on Technology”
Content Ping: What is the biggest challenge facing the CPG industry today?
Mike Evans: We’re in a world where the number of products is increasing dramatically. Over the past 30 years, the number of SKUs [stock keeping units] for the average retailer doubled. At the same time, the dollar amount per SKU per store has gone down dramatically. This increased competition has forced CPG product producers to find efficient and innovative ways to merchandise their products.
Content Ping: What merchandising innovations do you see happening in this sector?
Mike Evans: We’re seeing a lot of interest in technologies that link retailers more tightly to product producers. I’ll give you some examples.
One of our clients, Dassault Systèmes, creates 3D models of stores. Shoppers can use virtual reality to browse store shelves. This innovation allows product producers to simulate the shopping experience before developing packaging. It also helps retailers lay out their stores to maximize turnover per visit. The interaction between producer and retailer sets better expectations and not only saves time and money but also reduces friction.
Another example we’ve seen is with interactive packaging. For example, Nestle might have children’s cereal with a code on the back of the packet that allows you to download software to a tablet and play a game in virtual reality. That type of packaging aims to engage the customer (or rather the customers’ child) after the purchase has been made.
I don’t know exactly what changes big retailers like Walmart will make, but I’m sure they’ll innovate to provide a shopping experience that can’t be found elsewhere. And customers will stick with them for that reason.
One other thing that hasn’t happened yet but that I expect to see happen is that eventually every item will be printed with an RFID [radio frequency identification] tag. This RFID tag will offer real-time information to let us know what’s happening in a store. RFID tags will speed up the checkout process and give product producers better information about what’s selling and what isn’t selling.
Content Ping: How do you envision CPG companies moving forward with e-commerce?
Mike Evans: I think this is a very complicated area. The big dream of the big CPG companies is to go direct and not have to bother with the retailer.
Content Ping: What do you mean by going direct?
Mike Evans: At first sight large CPG producers with established brand identities would love to sell their products online directly to the consumer. Doing so would increase producers’ control over price, placement, and promotion. They would avoid situations that currently exist, where retailers are squeezing CPG companies by charging for shelf space. Selling directly would also improve cash flow dramatically, as retailers often get until, say, 30 days after delivery before paying for products, whereas online purchasers pay up front.
Content Ping: Do you think CPG companies will make the switch to selling exclusively from their own e-commerce sites within the next 5 to 10 years?
Keeping a clear roadmap and watching how enabling technology develops should still play an important role in CPG companies’ business strategies.
Mike Evans: No, I don’t actually think that will happen. I think big retailers such as Walmart will change to make sure it doesn’t happen. I don’t know exactly what changes big retailers like Walmart will make, but I’m sure they’ll innovate to provide a shopping experience that can’t be found elsewhere. And customers will stick with them for that reason.
I do think part of this will be the creation of the virtual reality store experiences we talked about earlier. Right now, when you’re shopping online, everything looks like an eBay listing. In the future, virtual reality will mimic the in-store shelf experience.
We can imagine some future experience where shoppers sit in front of their Internet-enabled TV, put on fancy glasses, and walk in virtual reality around a real store putting items in their basket. While this is still a ways away, keeping a clear roadmap and watching how enabling technology develops should still play an important role in CPG companies’ business strategies.