Consumer packaged goods (CPG) companies need to plan for a “1-5-10” market in the U.S. during the next five years, in which digital’s current 1 percent penetration will likely expand to 5 percent and could accelerate to as much as 10 percent in short order, according to a new report, “The Digital Future: A Game Plan for Consumer Packaged Goods,” prepared for the Grocery Manufacturers Association (GMA) by The Boston Consulting Group (BCG), Google and Information Resources Inc. (IRI). The report highlights how CPG companies can best position themselves for growth and unlock digital and e-commerce opportunities.
Digital penetration of 5 percent represents nearly one-half of total CPG growth during the next five years, meaning that companies without an effective digital capability risk stagnation, loss of share and even shrinking sales. Early movers, on the other hand, have the opportunity to establish leading positions that will be difficult for others to infiltrate. Digital penetration rates will vary in different locations and categories. Some categories could see digital penetration of 30 percent or more by 2018.
“Like most other industries, the CPG industry is experiencing the signs of digital disruption,” said Elise Fennig, VP of industry affairs for GMA. “That’s why it was vitally important for GMA to examine how CPG companies can holistically adapt their digital and e-commerce agendas to plan for the future effectively. We intend for the work completed by the BCG, IRI and Google team to be a go-to resource for GMA members—regardless of where they fall on the digital maturity continuum today.”
Added Patrick Hadlock, a partner at The Boston Consulting Group and a co-author of the report, “The CPG industry is fast approaching a tipping point, driven by a confluence of trends. Consumers are embracing technologies, devices and services that make everyday tasks such as shopping, cooking and even commuting quicker, easier, more fun and more efficient. This is fragmenting the purchasing pathway as consumers regularly switch back and forth between digital and physical channels, and they interact digitally both in and outside of stores.”
“The Digital Future” shows that the impact of digital is felt most acutely at the early stages of the purchasing pathway. Nearly 40 percent of offline shoppers and more than 30 percent of online shoppers reported that technology’s impact is greatest during the discovery phase. More than a quarter of both offline and online shoppers said that its biggest impact is in the search phase. In addition, nearly a quarter of in-store shoppers reported online activity as one of the three most influential factors on their purchasing pathway.
Digital channels currently have the greatest influence on purchases of home care and general food products but are likely to expand in importance during the next five years as the market moves to a 1-5-10 world.
Traditional retailers face a massive wave of new competitors and competitive models. Large technology companies with deep pockets are building disruptive digital grocery businesses to serve this category and support broader strategic goals. Start-ups are using value-added services to take share and build defensible niche positions, often by combining new product offerings with digital channels.
CPG manufacturers will need to participate in multiple retail models; the winning models have yet to be established, and it is likely that numerous models will prevail.
“The cost of inaction for incumbent manufacturers is ceding control of their brands, share position and margins in the fast-growing digital channel,” said Jamil Satchu, a partner at IRI Global Analytics and Consulting and a co-author of the report. “Companies that do not play in the digital game are likely looking at flat or shrinking sales. Brand equity is at risk as the purchasing pathway shifts online and consumers more often search for and discover brands digitally. But the experience of other sectors demonstrates that early movers often establish tough-to-trump positions and advantages.”
The report argues that while many companies have established a digital presence—a website, some digital advertising, a presence in social media—most have yet to fully integrate digital into their operating model, build a big-data analytical capability, pursue a multichannel (or omnichannel) strategy or tailor their product offerings to the digital or e-commerce marketplace.
All companies can make a series of low-risk, “no regret” moves that will better prepare them for a 1-5-10 world.
These steps include developing an integrated strategy for how far the company needs to go and how to get there, shifting investments to establish a digital brand presence, building the necessary capabilities and organization for a fast-moving digital world, and shaping the evolution to digital with channel partners. Manufacturers also need to recast their existing capabilities, including product placement, marketing content development and supply chain management, for the digital world.
GMA announces initiative on ingredients added to food
In other GMA news, the group has unveiled a five-part initiative that will advance the procedures used to assess the safety of ingredients used in food products.
“Our industry is committed to providing consumers with safe, quality, affordable and innovative products,” said Dr. Leon Bruner, chief science officer for GMA. “In the spirit of that ongoing commitment…we are launching a modernization initiative that will improve the process and increase transparency for making Generally Recognized As Safe (GRAS) determinations of ingredients added to food.”
This initiative to help modernize the process for making GRAS determinations of food ingredients will include the following actions:
• GMA will take the lead in defining a standard that will provide clear guidance on how to conduct transparent state-of-the-art ingredient safety assessments. These advanced procedures will be documented in a Publicly Available Standard (PAS) for GRAS determinations. The PAS will be a science-based framework that specifies a rigorous and transparent ingredient safety assessment process. The procedures included in the PAS also will ensure GRAS assessments meet the regulatory requirements of the Food, Drug and Cosmetic Act. The PAS will be developed by an independent body of technical experts in an open public process that includes interested stakeholders. The PAS will be suitable for accreditation using an independent official accreditation body.
• GMA is establishing a program to ensure the FDA has increased visibility to the ingredients that are assessed as GRAS by members of the food industry. The increased visibility will be made possible through the establishment of a GMA-sponsored database that will list information on all GRAS assessments conducted by the food industry. Information in this database will be made available to FDA and other stakeholders to provide increased visibility of ingredients used in the food supply that have been assessed for safety using the procedures defined in the PAS on GRAS assessment procedures.
• GMA will expand its curriculum of GRAS education and training programs in order to further increase the capability of scientists who assess the GRAS status of ingredients used by the consumer packaged goods industry.
• GMA’s broad-based educational programs provide GMA members and other interested stakeholders a clear understanding of the scientific procedures that need to be followed in order to complete a robust and transparent safety assessment. They also provide training on requirements defined in GRAS regulations so new ingredients are fully compliant with U.S. food additive law and regulations.
• GMA has taken the lead in establishing the Center for Research and Ingredient Safety (CRIS) at Michigan State University launched in the spring. CRIS will serve as an independent academic center of expertise on the safety of ingredients used in foods and consumer products. Its expertise on ingredient safety and independent analysis will be available to all interested stakeholders.
• GMA members have committed to drive improvement in the GRAS assessment process by adopting a Code of Practice at the GMA board of directors meeting held Aug. 22. The code outlines the commitments GMA members have made to conduct assessments according to the procedures defined in the PAS, to maintain the database with up-to-date information and to ensure that their employees are fully trained on GRAS procedures.
• GMA will execute a communications outreach program to inform stakeholders and consumers of the steps being taken by industry to increase the integrity of procedures used to assess ingredient safety.
“GRAS determinations of ingredients added to food are but one of many important procedures the industry uses to provide consumers with the safe, quality and innovative product choices they demand,” said Bruner. “We are confident that this initiative along with the industry’s efforts to implement the Food Safety Modernization Act will strengthen the food safety programs used by the entire food industry and thereby provide consumers more assurance that food products produced by U.S. manufacturers are and will remain the safest available in the world.”
*Editor’s note: GMA held its Leadership Forum in Colorado last weekend. Find photos from the event here.