A Changing Landscape for CPG Retailers

The Nielsen Company’s Retail 2015 Forecast, revealed at its Consumer 360 Conference this week, showed the pace of change is accelerating as technology, marketing trends and retail formats converge to redefine how consumer packaged goods (CPG) retailers and manufacturers interact with consumers.

By 2015, Nielsen predicts mass supercenters and e-commerce to be the big winners by dollar share gains, growing by a combined five share points between 2009 and 2015. Warehouse club, dollar store and pet stores will also grow share positions. Nielsen forecasts that supermarkets will continue to lose share, but at a declining rate. While both high-end and low-end niche grocers will grow share, overall share positions will remain fairly low given lower per-store sales compared to larger formats. Other key CPG channels, including drug stores, mass merchandisers and convenience stores, will grow dollar sales but will suffer share losses.

“While e-commerce sales felt the recessionary pain in 2008 and 2009, Q4 2009 sales were solid and interest from both CPG manufacturers and retailers to provide online buying options has never been stronger,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company. “With tech-savvy Generation X and Millennials growing in importance in both numbers and spending power, the time is ripe for the next step in the evolution of online searching and buying.”

Hale also suggests that while supercenter expansion may be slowing down from recent years, past performance would suggest there is still room for growth.

Nielsen expects to see further CPG retail consolidation as retailers look for scale and opportunities to expand their footprint into existing and new areas. Retail consolidation will be most active within the supermarket and convenience channels in the race for scale.

“Today’s big players will only grow bigger,” said Hale. “Industry change will grow faster and more intense in the next five years, requiring advanced, future-focused change management skills among CPG professionals.”

Smart Phone are another trend shaping the future. According to Nielsen, smart phone penetration stands at 23% of all mobile subscribers and is expected to overtake feature phones in the U.S. by the end of 2011. Nielsen predicts that by 2015, smart phones will be the primary enabler of consumer shopping engagements and new technology innovations will generate additional opportunities for retailers and manufacturers.

“Without question, the smart phone has revolutionized how consumers leverage technology to simplify their lives and make better, informed shopping decisions,” said Hale. “At the same time, CPG manufacturers and retailers have developed online and social marketing and brand/banner-specific apps to increase consumer loyalty, build sales and create a competitive advantage. This trend will undoubtedly continue and bring about game-changing innovations to our retail world.”

Retailers are already using smart phones as a replacement for frequent shopper cards, sending store coupons and deals directly to a shopper’s phone. Nielsen expects CPG companies to further leverage the smart phone’s location tracking abilities to target communications and promotions to shoppers both in and out of stores, and up sell consumers on other items based on prior purchases. In addition, consumers will have the ability to locate the best available price for a given item, access real-time product reviews and promotions and manage everything from household budgets and pantry inventory to tax preparation and filing.

“When technology enables consumers to quickly locate the best price in their area, retailers will be forced to compete and differentiate themselves through factors other than price,” said Hale. “We’re at the beginning of a whole new world when it comes to consumer online and social marketing, and companies need to be developing and updating their digital and social media strategies now to remain competitive.”

Get Ready

Nielsen suggests that CPG retailers and manufacturers focus on a number of initiatives now to prepare for future success:

-Develop or buy online/digital/social marketing expertise. If you don’t have this expertise today, get it.

-Plan for diminishing returns from traditional media. Newspaper feature ads and free standing insert (paper-based) coupons dominate today, but for how long?

-Nurture retailer/supplier relationships. Have contingency plans dealing with consolidation impact.

-Format planning. Consumers today are flexible – completely mobile – which requires more flexibility in how and where products are sold. Study emerging economies to understand flexible markets. Think about future format planning for your next one to three generations of formats.

-Demand forecasting by category and consumer segment. Understand how changes in demand at the category and consumer level will provide risks or opportunities.





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