In an interview with Brandweek published this past April, Jim Stengel, the former global marketing officer at Procter & Gamble, was asked what he viewed as the greatest challenges facing marketers in the consumer packaged goods (CPG) industry. Here is an excerpt of his response:

I don’t think things are going to go back to where they were three years ago. Understanding real consumer trends and being able to look ahead will be very important for consumer packaged goods companies. I think there are two big trends that are going to present the biggest challenges and opportunities: 1) Increased acceptance of retailer and private label brands; and 2) adding digital to the branding model. How companies work with retailers to have maximum impact on value creation will be an area of interest.

The continuing threat of private-label brands, along with retailers trimming back their SKU selections (see “A Front-End Approach to SKU Rationalization”), was underscored last week when CVS decided to stop selling Energizer alkaline batteries at its stores. According to a CVS spokeswoman quoted in a Reuters news release, “After testing various options in the battery category in a number of stores, we found that our customers responded best to an offering which included a single ‘national brand’ alkaline [Duracell], plus Energizer lithium and our own private label batteries.” The Reuters piece goes on to report that “private label alkaline battery sales rose 5.5 percent, in dollars, to a 18.9 percent share during the latest 52 week period, according to IRI [a market research firm]. Sales of Duracell and Energizer’s top alkaline batteries declined 4.6 percent and 1.9 percent, respectively, during the same period.”

The threat of private-label brands is not new. CPG manufacturers have been losing market share to retail brands, particularly in the U.S., for several years now. But the recession, coupled with a stronger push by retailers this past year on SKU rationalization, has certainly exacerbated the issue for CPG companies. It’s important to note, however, that the rise of private-label brands is most pronounced in developed markets, particularly the U.S. and Western Europe. In emerging retail markets, like India and Brazil, private-label products are virtually non-existent. But these markets present CPG manufacturers with different challenges, such as how to distribute and replenish product cost-effectively in countries dominated by thousands of “mom-and-pop” retailers, many of them no bigger than a newsstand, and where pencil and paper is their IT infrastructure.

How can CPG companies work with retailers to have maximum impact on value creation? We’ll explore this question in more detail in the weeks ahead, but it’s clear to me that the formula for success in the CPG industry, while still dependent on factors such as cost, quality, and service, is more complicated than in the past. Should CPG manufacturers sell direct to consumers? What impact will sustainability have on shelf space, pricing, and consumer buying patterns? What is the role of social media (Twitter, Facebook, YouTube) in retaining and growing brand loyalty? And of course, what is the role of supply chain and logistics, including technologies and 3PLs, in enabling a win-win-win scenario for CPG manufacturers, retailers, and consumers?

A lot of questions to ponder in the weeks ahead. Post a comment and share your viewpoint on this topic.

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