2021 consumer products industry outlook
No-regret moves in the face of uncertainty
The consumer products industry enters 2021 with ambition and confidence. The No. 1 goal is revenue growth, and four in five consumer products industry executives are confident in their organisation’s ability to execute its business strategy in the coming year.
Trends defining the direction of the consumer products industry
How exactly 2021 will unfold is predicated on a variety of factors, including COVID-19 vaccine deployment, safety restrictions, fiscal support, state and local government coffers, the persistence of virtual schooling and work, and even consumer psychology and the stickiness of new habits. We account for these factors in our consumer goods industry scenario analysis and provide our full outlook in a downloadable PDF.
Five “no-regret” strategic moves
After analyzing multiple scenarios and connecting with a panel of industry executives, we’ve identified five “no-regret” strategic moves that we think will represent the direction of the consumer products industry in 2021.
Consumers changed their behavior and preferences, so companies are changing their go-to-market strategies and capabilities in response. Industry players are recalibrating how they segment consumers, prioritize channels, establish product portfolios, position their brands, and deploy service models. This work continues in the new year.
How necessary are these adjustments? Four in five companies indicate that resetting their go-to-market strategy is critical to meeting their 2021 objectives; however, only half rated the current maturity of their related capabilities as high. As a result, the vast majority indicated go-to-market strategy as a top investment area.
Perhaps not surprisingly, CPG’s first priority lies in adapting to the sudden shifts in channel preference spurred on by the pandemic. More than half of CPG companies see increased reliance on online and omnichannel as a means of reaching and engaging consumers. This is true even in areas like food and beverage, where historically, the penetration of e-commerce has been low. One notable example of this shift is Unilever’s “Ice Cream Now” campaign, which saw success on multiple digital platforms, including integrated sales through Uber Eats and other popular app-based restaurant delivery services.
This may also be direct-to-consumer’s (DTC) liminal moment. Like retailers encroaching onto name-brand turf with private labels, the CP industry is making moves to directly sell to consumers. One in three executives say their companies are shifting focus to DTC channels.
We’re likely to see the words “digital acceleration” in almost everything we read this year. Of course, that doesn’t make them any less true. Out of every capability or strategy assessed by our executive panel, digital showed the largest maturity gap. Three in four executives said it’s important to meeting their objectives, but only one in four believed that their digital capabilities are advanced relative to industry peers. Of those making investments, 80% are allocating resources to improving their e-commerce and shopping platforms, including a full 60% investing in their digital DTC channels.
Of course, the digital shift includes other areas as well, such as transforming internal capabilities and creating efficiencies with technology. Three in five execs say they will invest further in their work-from-home platforms. More than one in three are upgrading their enterprise technology, as well as investing in robotic process automation (RPA) and artificial intelligence (AI) technology. Half of executives indicate their companies will increase their 2021 investments materially in data privacy and cybersecurity.
For decades, globalization, low-cost supply, and minimal inventory were the key tenets of efficient supply chain management. The industry is not abandoning those goals, but the emphasis in 2021 is on building resilience. Resilience is how companies keep their supply chains from breaking and restore them quickly when they do. It is also how they can gain the nimbleness and scalability to power new go-to-market approaches and innovative business models.
There is no stronger signal from our executive panel than the importance of supply chain resilience in achieving their strategic objectives (with more than 95% indicating it is important or very important). They also recognize there is more work to do. Slightly more than half of the companies assess themselves as having advanced capabilities. Not surprisingly, nine in 10 companies say they are making significant further investment to improve their supply chain resilience.
Building supply chain resilience means creating a supply chain companies can rely on so they can manufacture the finished goods they want, as well as predict how much they need and where it will be needed in response to demand, and building in the flexibility required to shift supply around to different locations and channels as needs inevitably change.
One thing is for sure: CPG companies aren’t letting the COVID-19 crisis go to waste. Instead, they are using this period of great change to make improvements across all aspects of their businesses structure and operations likely to be needed for future success. One such agenda item is cost structure realignment.
At the onset of the pandemic, many consumer goods companies quickly engaged in tactical cost-cutting measures—reducing working capital, closing facilities, and selling assets. For some companies, those measures were critically necessary to conserve cash and keep their business afloat. However, a more strategic, structural cost transformation approach will likely be pursued in 2021 to defend and advance competitive positions, as well as to fund future growth opportunities.
A subset of companies will consider mergers and acquisitions as a means of reshaping their corporate portfolio with the goal of a stronger foundation. M&A will likely be especially important for those companies not as well-positioned to capitalize on changes instigated by the pandemic.
We would be remiss if we did not discuss a basic building block that should be at the foundation of every consumer products business: health and safety. These capabilities ranked a close second in terms of their importance as companies outlined their objectives for the year ahead. Companies in our panel consider this area to be of high maturity; however, they strongly agree there is more to be done on health and that consumers will continue to care about it deeply.
Nearly nine in 10 consumers say the pandemic is “an opportunity for large companies to hit ‘reset’ and focus on doing right by their workers, consumers, communities, and the environment.” Our industry panel agrees. Three in four said that a “strategy to place purpose alongside profit, express corporate values, and address heightened consumer attention to sustainability, social justice, equality, and environmental consciousness” is an initiative that rank high in achieving desired strategic outcomes in 2021. Purpose is not a concession to profit. Instead, it is an accelerant.
Holding true to purpose is even becoming important to accessing capital. Consider that environmental, social, and governance (ESG)-mandated funds are forecast to grow at 3x the rate of nonmandated assets and could account for half of all professionally managed investments within five years. Or consider that M&A due diligence is starting to incorporate sustainability evaluations as a precursor to transactions. Access to these investors is predicated on meeting CSR demands.
To be successful in this endeavor, CPG companies should think in terms of building trust (which, in addition to competence, often requires companies show humanity and provide transparency). Recognize that purpose shouldn’t be managed on the side as part of a CSR organization, but instead integrated into the management system for all aspects of business decision-making. Three-quarters of the companies in our executive panel believe consumers will support companies that take authentic moral stands—the key word here being “authentic.” An inconsistency or disconnection in the actions of a company from its stated purpose might be punished by consumers.