In recent years, especially in the wake of 2020, the Consumer Packaged Goods (CPG) industry has demonstrated remarkable resilience and adaptability. Amidst global challenges, it has not only survived but thrived, showcasing an unprecedented growth that surpassed the cumulative growth of the previous four years. This success can be attributed to the industry’s swift response to evolving market dynamics and significant shifts in consumer behavior, largely influenced by the global pandemic.
As we move forward, a clear trend is emerging: manufacturers are increasingly turning to contract manufacturing as a strategic approach to streamline operational costs and spur innovation. This shift is evidenced by various studies projecting a Compound Annual Growth Rate (CAGR) of 10% to over 15% within the contract manufacturing sector. This growth trajectory suggests that manufacturers are likely to continue relying on third-party entities for contract manufacturing in the foreseeable future.
Emphasis on Innovation
The first trend we observe is a strong emphasis on innovation within the CPG industry. Brands are actively adapting to cater to changing consumer demands, particularly for essential goods such as ready-to-eat foods and cleaning supplies. This trend has been accelerated by the pandemic, which has shifted consumer priorities towards convenience, health, and safety.
Moreover, CPG companies are not only focusing on their existing product lines but are also acquiring smaller brands to diversify and enrich their portfolios. This strategy allows for the development of more appealing and innovative products. There is a significant opportunity here to reinvent core brands by infusing additional functionality into existing product lines, engaging in co-branding initiatives, or enhancing the overall packaging experience.
Rationalizing SKUs
Another emerging trend is the rationalization of Stock-Keeping Units (SKUs). SKU consolidation is becoming increasingly prevalent in the packaging industry as a means to alleviate supply chain pressures. In contrast to the previous trend of prioritizing customization and product personalization, many CPG companies are now embracing a more streamlined approach. This shift is likely driven by the need for greater efficiency and cost-effectiveness in the supply chain management.
Adaptability and Agility
The uncertainties brought about by the pandemic have necessitated a level of adaptability and agility previously unseen in the industry. Manufacturers and co-packers alike have had to operate at unprecedented speeds to keep up with rapidly changing consumer demands and regulatory landscapes. This agility is evident in various aspects of the supply chain, from CPGs swiftly responding to market changes to co-packers reconfiguring their operations to meet new health and safety guidelines.
Elevated Focus on Sustainability
Sustainability is increasingly becoming a focal point in the CPG industry. The global sustainable packaging market is projected to expand significantly, reaching an estimated value of US $412.7 billion by 2027. This growth underscores a growing consumer demand for environmentally friendly products and packaging. Manufacturers are expected to increasingly rely on co-packers to help implement and validate new standards that align with social and environmental considerations. This trend represents a broader shift in the industry towards more responsible and sustainable business practices.
Co-investment in Human and Capital Resources
Investment in human and capital resources is becoming a critical area of focus for CPG companies. A positive company culture and attractive employee benefits are becoming as important, if not more so, than salaries alone. This trend reflects a growing recognition of the importance of human capital in driving business success. In terms of capital investments, partnering with a contract packager allows CPG companies to share the operational burden. Contract packagers often make significant investments in enhancing operational efficiencies and adopting new technologies such as big data analytics and robotics. This co-investment strategy enables both parties to benefit from enhanced capabilities and efficiencies.
Expansion of Qualified Suppliers
In an era marked by frequent supply chain disruptions, the ability to adapt and respond quickly is more important than ever. Corporations are seeking greater flexibility and transparency from their supply chains. Global CPG companies, in particular, are looking for suppliers who are capable of meeting evolving industry trends and consumer demands. This need for adaptive capabilities is seen as crucial for continued success in the market.
Rapid Growth in E-commerce
The rapid growth in e-commerce is a trend that cannot be ignored. CPG companies that lag in e-commerce development risk significant losses, as online sales channels are experiencing exponential growth worldwide. To capitalize on this trend, CPG manufacturers must invest in digital infrastructure, establish e-commerce-specific SKUs, monitor online performance, and develop dedicated planning processes. This digital shift is not just a temporary reaction to the pandemic but a long-term strategic move that will shape the future of the CPG industry.
Looking Ahead
The path forward for the CPG industry, while filled with opportunities, is not without its challenges. To thrive in this dynamic environment, companies must invest in systems and strategies that bolster resilience and agility. The trends we have outlined signal a shift toward greater cost optimization and enhanced production capacities. By understanding and adapting to these trends, CPG companies can position themselves for success in an increasingly competitive and uncertain market.
