Consumer Products Outlook 2023

According to the 150 industry executives that took part in our global Consumer Products Industry Survey, it seems that no matter which sector you’re in, the squeeze is now well and truly on, and from many different directions. Inflation, supply chain, infrastructure challenges and the shifting behaviours of consumers are cited as the industry’s top challenges, with global conflicts, climate change, private label competition and a potential recession also being named.

The global findings from this survey are also recognised by South African Consumer Products (CP) companies, but even so, when it comes to the South African context, we face some unique local challenges that will weigh on the country’s growth outlook in 2023. Which is why we are providing this South African viewpoint, with the aim of highlighting areas that we believe CP companies should take note of this year.

Inflation fears among South African consumers and CP companies
Due to inflation, 8 in 10 companies worldwide plan to raise their prices further, but only 48% think they can get away with it without materially affecting demand.

“South Africa’s headline inflation (6.9%) has been partly driven by global price increases in food and fuel. This has affected the cost of living drastically and is severely constraining consumers’ purchasing power, especially when it comes to discretionary spending,” says Rodger George, Consumer Industry Leader, Deloitte Africa. “The findings of Deloitte’s Global Consumer Tracker for South Africa at the end of 2022 show that financial stress is a key concern for South Africans. Which means that all three factors are areas of concern for South African CP companies for the year ahead.”

The negative impact of climate change on CP companies
Despite Africa’s relatively low contribution to global emissions, the continent faces exponential risk from the effects of climate change. Severe weather events such as 2022’s floods in KZN or the recent heatwaves are having a huge impact on CP production, property and livelihoods. “This is forcing manufacturers and retailers to change the way they strategize, which in turn affects supply chain. Companies that have large distribution centres [DCs] in areas that have been severely affected by floods or droughts are realising that spreading their DCs geographically to meet consumer demand patterns is the wise thing to do to enable them to service their market continually and decrease risk.” The limitation of resources such as water is an issue, with weakening infrastructure also contributing to the challenges CP manufacturers face.

Load-shedding
Another limitation is power. Since 2007, South Africa has experienced multiple periods of ‘load-shedding’ as the country’s demand for electricity exceeds available supply, and 2022 was one of the worst years on record for power cuts. “This is having a massive impact on the industry as the disruption to operations and supply chains is affecting the way companies manufacture and supply their products,” says George, “which, in turn, affects margins and price points. Manufacturers are realising they need to be more agile and rethink categories, and how and where they produce, aligned to levels of output.”

Political instability & social unrest
CP companies tend to behave cautiously with regards to investment and spending in times of uncertainty. “Recent civil protests, such as the KZN riots which resulted in the looting and burning of stores and warehouses, are another reason for considering geographic spread in a company’s business strategy,” says George. “CP manufacturers are starting to factor geopolitical instability as well as the effects of climate change more into their business strategies than in previous years.”

Ongoing supply chain challenges
The executives from our global Consumer Products Industry Survey cited several concerns when it comes to the supply chain, including cost inflation, their ability to do business with suppliers, supply reliability, and how supply chain data is meeting sustainability reporting or other regulatory or safety objectives. And the survey shows that 94% of companies are investing in supply chain improvement and operational excellence.

For South African CP companies, weather events, spiralling shipping costs, the availability and price of raw materials, and supply chain disruptions caused by recent global challenges are also issues of concern. Most companies are looking to their value chains to drive localisation and are accelerating the move to manufacture and source products locally. “Companies are also looking at how they can support and empower local communities and suppliers in their supply chain operations,” says George. “Community outreach and stimulating job creation to address our high unemployment rate (+35%) is particularly relevant to the South African context.”

Following in the footsteps of profitable manufacturers
So in an environment of financial squeeze and continual change, it’s safe to say that the best signal of success comes from those who can achieve profitable growth. But which of the trends mentioned in the report resonate the most for success among South African CP companies?

#1: Embracing the changing consumer
What consumers want has changed dramatically and frequently during the past few years, and profitable growth companies expect that trend to continue. Subsequently, 93% say that keeping up with shifting consumer demands is a priority, mainly through significant digital investments and product innovation. And it’s something that George agrees is an opportunity for success for South African CP companies. “Manufacturers who are investing to keep customers engaged with their products and brands while finding ways to do more with less are finding success in the market. These companies are investing in, and using insights from, data to inform strategic decisions. Aligning with the aspirations of consumers, being clear about purpose, and listening and responding to them is key. Connecting with the customers is crucial too, and a rapidly increasing behavioural shift we’ve seen in South African consumers is their increased willingness to use ecommerce channels, driven by convenience and accessibility.”

#2: Driving data through supply chains
In addition to using data to get closer to and better understand the consumer, our report shows that profitable growth companies are more likely to invest in data capabilities and share data with consumers and partners. And in South Africa, becoming a data-centric organisation is also of great importance. “Without exception, all the large FMCG or consumer manufacturing companies I speak to aspire to becoming data-centric, using data to drive their decision-making and improve their operations,” says George. “Being data-centric and positioning data as a core part of the organisation’s DNA is essential to long-term sustainability.”

# 3: Creatively transforming
To better address changing consumer needs, the profitable growth companies in our survey are transforming their businesses through vertical integration, divestitures and portfolio optimisation. In South Africa, spiralling shipping costs and supply chain disruptions have accelerated a shift to lessen reliance on imports and a move to source products that are manufactured locally, something that is happening across the consumer value chain.

External partnerships and collaborations are also being established to help address, among others, technology gaps and drive speed to market. “We’re seeing examples of local manufacturers and food producers establishing internal Venture Capital funds to fund partnerships that can accelerate digital transformation and build the innovation pipeline,” says George.

#4: Going for market share
Profitable growth companies see the challenging business environment for the year ahead as an opportunity to grow share. “Emerging markets such as South Africa are undoubtably attractive for large global CPG companies as they look to expand their market share,” says George, “which means more choice for consumers, and more competition for the existing players. The race to win the hearts and minds of consumers is key and so we’re increasingly seeing consumer manufacturers focus more of their marketing spend on brand and digital connectivity.”

#5: Prioritising ESG
Our Consumer Products Industry Report shows that profitable growers worldwide are more committed to ESG objectives. Those surveyed indicated an outsized interest in participating in the circular economy, they are more committed to making a positive impact on society and invest in improving their ESG reporting.

George notes that sustainability is a priority in South Africa for CP manufacturers in terms of making a societal and community impact. “However, from a consumer viewpoint, South Africa’s markets are very diverse,” he explains. “At the top end, you have the consumers who are very focused on environmental issues, and they will accordingly vote with their rands in terms of products they buy. But if you look at the middle and bottom ends of the sector, consumers often prioritise availability and affordability above sustainability as their key decision drivers in terms of purchasing. Making sustainably produced products available to all consumers at an affordable price is key to future growth aspirations.”

It is notable that CP companies are increasingly directing their investment strategy toward sustainable and responsible growth. They are re-evaluating the sustainability footprint and credentials of their products and businesses in order to resonate with the wishes of an increasingly wide range of consumers. Some notable corporates have successfully adopted sustainable and circular economy business models into financially viable businesses, with publicised tangible commitments and goals. Sustainability goals require CP companies to be able to manage their supply chains across the entire value chain, taking accountability for the full lifecycle of the product, including post consumption. “A good example of this would be a leading Soft Drinks manufacturer in South Africa that has established a programme to remove one plastic bottle from the environment for every bottle it puts into the market,” says George.

Get the full picture
We hope that this provides some insights that will prove valuable to you as you reflect upon the impact of these trends on your own business. You can download the full report to learn more about what 2023 holds for the global Consumer Products Industry and what profitable growers are doing to achieve success. Please feel free to reach out and connect with us now for further insights.

About the report

Deloitte surveyed 150 consumer products executives from an industry-proportional mix of food and beverage, household goods, personal care, and apparel companies in November 2022. Most of the companies are multinationals, all with more than $500 million in revenue. We conducted additional surveys with executives in Japan and China (50 in each country) to expand our view into those unique consumer markets. Survey questions were developed through an analysis of trending topics found in company communications and disclosures using an AI-assisted analytics tool, as well as through internal surveys and interviews with Deloitte client leaders in each consumer market. Finally, we conducted a financial analysis of consumer products companies in the top 30th percentile of performance based on three-year average total shareholder return, return on assets, and economic margin productivity as well as three-year revenue and EBITDA growth to ensure they fit our profitable growth profile.

Authors: Nick Handrinos, Leon Pieters, Justin Cook, Céline Fenech, Jagadish Upadhyaya