It’s a tough time for large consumer goods companies

It’s harder than ever to profitably grow. Traditional consumer goods companies are under intense attack at three core levels.

The high end attack. ECommerce has enabled many new super premium start-ups to flourish. These companies offer highly targeted and often personalised brands. Sure many of them only get a few fractions of a percent share, but when there’s hundreds of them this adds up to taking a lot of very high spending consumers out of the traditional market. Large consumer goods companies can struggle to justify putting the same resources into websites & personalised communications as these smaller, more nimble start-ups.

The bottom end attack. The continual growth of hard-discount stores like Aldi and club stores like CostCo are eating into the high volume products consumer goods companies typically rely on to cover overheads. The added pressure here is to cut prices to maintain turnover, thus falling further into a price discount spiral. Margin erodes further, reducing funds for advertising and development, and the spiral continues downwards.

The targeted middle attack. Many consumer goods companies have a very profitable portfolio of large brands that have been around for a long time. Everyone knows them and they require minimal advertising / support. A recipe for profit. Until an aggressive smaller company enters. The new entrant typically single mindedly  focuses on the one thing consumers care most about in the category and deliver this benefit noticeably better than the incumbent brand. And often at a 90 price index. The big company has got a devil’s choice; it can increase it’s costs to match the performance, drop it’s price to match, and increase it’s advertising. All things that significantly eat into profitability.

So what’s the answer? Look at what made their brands great in the first place. These brands solved a problem, a need, people had better than anything else out there. To regain growth, these brands need to refocus on delighting the changing needs of modern, more demanding consumers. This means more compelling innovation and communication to share the news of how they’re going about making people’s lives better.

It’s time to act : Innovation drives growth.