The CPG (consumer-packaged goods) industry is on an exciting and transitionary path. Virtually everything about the category has changed over the last 15 years, from the way brands develop and bring products to market to how consumers learn about and purchase them.
Obstacles that once protected legacy brands’ share of the market and prevented new entrants from gaining traction have all but disappeared. The combination of greater availability of venture capital, more affordable digital advertising options and direct-to-consumer sales channels has removed previous barriers of launching new brands.
In addition, the significant size and power of the millennial and Gen Z consumer sets has caused a permanent shift in how brands go to market. Now more than ever, it’s critical for founders, operations and marketing teams to understand how CPG is evolving so they can compete effectively as the landscape continues to shift.
New Customers. New Values. New Habits.
Emerging DTC brands like Dollar Shave Club, Warby Parker and Casper are just a few of the brands that have dramatically changed the CPG landscape. With the adoption of ecommerce, it is now second nature for consumers to purchase everyday products through Amazon or DTC retailers, offering platforms designed to make search, discovery and automatic reordering simple and easy. Even brick-and-mortar retailers have seen an uptick in customers ordering groceries and other products online for pickup or delivery. And when consumers do physically visit stores they are often comparing prices in real time on their phones, making multichannel selling for CPGs an absolute must.
The way consumers connect with brands and products has changed too. Millennial and Gen Z shoppers are looking for products that meet their needs at a fair price, but are also seeking brands that share their values. Their purchasing decisions include understanding a brand’s sustainability practices and corporate commitment to their employees and communities. They want to feel good about their purchases and know where their dollars are going. Per a recent Rolling Stone article, “Gen Z consumers make purchasing decisions based on trust. Increasingly, they want to know what a brand stands for. The company has to be about more than making a profit.”
As higher prices exert tremendous pressure on budgets and new choices proliferate, brand loyalty is weakening. This is especially the case for legacy brands. Consumers are more willing to give lesser-known products a try, especially if they are marketed in a way that appeals to or even mirrors their own values (versus advertising that depicts what they should aspire to).
Newer brands that succinctly convey product benefits while communicating a strong mission can attract today’s more socially conscious consumers. Girlfriend Collective, an online-only brand founded in 2016 that makes quality clothing for all shapes and sizes from recycled materials, does a great job of appealing to what its target customers truly value.
Shifting Business Strategies
According to a recent McKinsey report, “Over the past two decades fewer than 0.5% of DNBs (digitally native brands) have reached $100 million in revenues. Investors face the challenge of sifting through concepts to determine which are worthy of the capital required to scale a business or buy into an existing company at high multiples.”
Recognizing the significant costs to scale and to increase production and distribution capabilities, more emerging and DTC brands are looking to be acquired sooner than later. “Over the last decade, acquisitions by a corporate or strategic buyer have been the most popular option among direct-to-consumer brand exits, hitting above 100 every year from 2016 to 2020,” according to Retail Dive. “So far in 2021, 66 brands have been acquired, 38 experienced a buyout and 19 filed for an IPO.”
Concurrently, other avenues such as SPACs (special purpose acquisition companies) have also become an option for emerging brands. But with all these new business opportunities do come challenges. In 2020, Edgewell (maker of Schick razors) was set to acquire DTC shaving brand Harry’s for $1.37 billion. But that deal never came to fruition, as a lawsuit by the Federal Trade Commission stated that bringing Schick and Harry’s together could hurt competition.
Acquisitions do not just help emerging brands. They are also helping legacy brands remain relevant in an ever-changing marketplace. Many large, established CPGs have moved away from developing new products or platforms in-house to instead purchasing their emerging brand competitors and then keeping the acquired brand intact, versus folding it into the parent brand. This approach leverages and retains the emerging brands’ loyal customer base while expanding appeal to more desired consumer demographic groups.
Cutting Through the Clutter
A product’s ability to solve a problem and offer value is what ultimately drives CPG success or failure. But the way marketers communicate that value has absolutely changed. Millennials, Gen Z, and even the up-and-coming Generation Alpha all have a new set of expectations for the brands they engage with and buy from. Newer platforms like TikTok and the metaverse enable brands to grow awareness and connect with consumers like never before. And today’s advertising campaigns are intentionally less polished, with more of a focus on realism and authenticity.
CPG marketing strategies have also evolved. Direct-to-consumer brands have certainly demonstrated that influencers and social media can drive rapid sales and an engaged consumer fanbase (even legacy brands have finally taken note and heavily invested in this type of marketing). But these specific digital efforts should not be mistaken for a long-term marketing and growth strategy.
An omnichannel approach is what’s required to drive ongoing success — one that is evaluated often, tested and optimized. This applies to both media channels as well as creative and messaging. To really break through in the crowded CPG landscape, it takes continuous analysis to identify consumer segments the brand hasn’t yet connected with or should, while maintaining a unique “voice.”
Grove Collaborative has done an exceptional job with content and messaging that successfully delivers a product’s uniqueness and value to customers in relatable terms, while continually testing and expanding new media channels and platforms.
The CPG industry is currently valued at approximately $2 trillion. In an ongoing effort to increase brand recognition and stimulate sales, CPG brands must stay dynamic. If they do, the opportunities are limitless.
Cyndi McMaster is the Director of Client Development for Hawthorne Advertising. Prior to joining Hawthorne, McMaster spent the last 10+ years creating strategic marketing partnerships and new revenue channels within the food and beverage, consumer packaged goods, health and wellness, ecommerce and technology sectors. McMaster has worked for and with startups to Fortune 500 companies.