While the consumer products sector is poised to achieve strong financial performance this year, ongoing supply chain, labor and inflationary challenges continue to threaten growth.
This is according to Deloitte’s “2022 Consumer Products Industry Outlook,” released this week.
The report is based on a survey conducted in November 2021 of 100 senior food and beverage, household goods, personal care, and apparel executives at companies with $1 billion in revenue. With 9 in 10 executives surveyed saying the industry must work harder to retain trust, the study outlines just how leading companies are working to do so this year.
Key takeaways of the report include:
Increasing transparency. Deloitte found 6 in 10 companies are making at least a moderate if not significant investment in increasing transparency in 2022. This includes adding information on product labels, collecting more detailed data from supply chains, improving safe data sharing capabilities, increasing ESG reporting and overall transparency when communicating with consumers and other stakeholders.
Expanding digital engagement. Half of the companies surveyed believe that consumers lose trust in brands that fail to engage with them in a personalized manner. As a result, brands are shifting their go-to-market strategies to strengthen personalized digital engagement — including improvements to direct-to-consumer sales channels, technology, data privacy practices and infrastructure.
Investing in the future of work. As 72 percent of executives expect labor shortages to last throughout 2022 and beyond, companies must reckon with the impact they will have on a workforce already adapting to shifts in technology and new sources of talent. To do so, they are prioritizing investments in DE&I, recruitment, employee retention and workforce composition.
Data highlights specifics for the industry:
The report also included details on how executives were dealing with some of the challenges.
The study asked:
How companies are investing in transparency:
- Collecting more detailed data from our supply chain: 45 said they were making a significant investment
- Increasing our environmental, social, and governance (ESG) reporting: 45 percent said significant investment
- Increasing the level of transparency provided to consumers and other stakeholders: 32 percent said significant investment
- Adding more information to our product labels (including through QR link to additional data): 29 percent said significant investment
- Improving our capabilities to safely share data with partners: 23 percent said significant investment
Most difficult supply chain challenge:
- Securing key inputs for our products in a timely manner: 35 percent
- Difficulties with international transportation: 28 percent
- Not enough labor for our facilities to keep up with demand: 15 percent
- Not enough equipment capacity in our facilities to keep up with demand: 8 percent
- Difficulties with transportation within a country/market: 8 percent
- Other/I don't know: 6 percent
Most important area for consumer product innovation in 2022:
- Sustainability: 54 percent
- Entirely new products: 10 percent
- Services surrounding key products: 9 percent
- More product varieties of existing products: 9 percent
- Packaging: 8 percent
- Efficiency gains to produce products more quickly/cheaply: 5 percent
- The industry to unlikely to experience significant innovation in any of the above areas: 5 percent
Five in 10: A look to the coming decade
The report also included “Five big ideas with the potential to change the industry in ten years.”
“While the 2022 Consumer Products Outlook focuses on the next year, Deloitte is also keeping an eye out for potential game changers looming on the horizon. Some are already playing a small role today. Others may never fully manifest. But forward looking companies assess, invest, and prepare now. By the time change is obvious, it may be too late,” report said.
1. Digital goods:
Some argue the metaverse isn’t so much a place but a point in time when consumers start to value large components of their digital lives more than their physical ones. What happens to traditional CP sales when consumers are willing to pay as much or more to dress, equip, consume, and experience digital offerings as they have for analog ones? Technologies, such as blockchain and nonfungible tokens (NFTs), are opening new paths to digital scarcity and ownership, and some see a trillion-dollar market. Currently the companies capitalizing on this opportunity are experienced in software economics and run platforms. Should digital goods become a major source of competition, it remains unclear if CP companies can adapt. At least people will still have to eat. Right?
2. Automated buying:
Many people don’t like expending the effort to comparison shop or even keep close track of frequent purchases that need replacing. They are also not all that good at it. Artificial intelligence (AI) shopping agents and auto-replenishment systems are imperfect now but may get dramatically better. Seventyseven percent of executives surveyed think consumers will auto replenish fast-moving consumer goods in 10 years. The question that arises then is, “who benefits?” Will CP companies disintermediate retail with DTC channels interacting directly with consumer AI agents? Or will retailers benefit as they use their superior end-consumer data to provide their own offerings in ways that appeal to AI agents making more “optimal” decisions?
3. Ambient computing:
Instead of technology needing to be on or immediately in front of you, it is becoming so ubiquitous it can be around you, everywhere and always. Cheap sensors, cameras, high-speed connections, screens, projectors, speakers, and more are all making it possible. A major benefit is that interaction with intelligent systems can be passive as well as active. Imagine common household goods enabled by a digital services wrapper, which could come to life in the environment automatically when consumers use them. The power to reach consumers and collect their data could turn marketing on its head—if companies can find a way to be trusted by them. Already six in ten executives (61%) think marketing will be almost entirely digital in the next 10 years.
4. Edge manufacturing:
Renewed interest in shorter supply chains, as well as additive manufacturing technologies like 3D printers, could move production closer to consumers. This opens the possibility for custom products and for co-creation with consumers. For decades, CP companies have pursued the benefits of scale. What happens when mass production is no longer the model, when the power of the customization interface is more important than the brand, when computer-aided design (CAD) and manufacturing bill of materials (MBOM) files are open sourced, or when decentralized autonomous organizations (DAOs) with blockchain-based governance structures move beyond purely digital pursuits to collectively own additive manufacturing machines and compete with traditional companies?
5. Post consumption:
Buying less by buying better. Some consumers will make more purchasing decisions based on sustainability. They’ll want fewer, more sustainable new items and will reuse them when possible. Others will be compelled to buy less as rising costs force more of their wallet to be dedicated to non-discretionary spending. Governments could intervene with new sustainability regulation or even in the economy (or the economic system itself). By choice, circumstance, or mandate, all could lead to less consumption. Examining just one facet, what happens to the consumer packaged goods industry if disposable packaging is shunned and essentially prohibited?
The authors of the report include:
- Barb Renner, vice chair and U.S. leader, consumer products, Deloitte LLP.
- Michael Bondar, principal, future of trust leader, risk and financial advisory, Deloitte, LLP.
- Justin Cook, consumer products research leader, Deloitte Services LP.
- Céline Fenech, consumer business research manager, Deloitte LLP.
The full CP industry outlook is available here.