2015 Consumer Goods Trends


As consumers, media, and markets splinter, packaged-goods companies must figure out how to profit from fragmentation.

Fragmentation & Simplification

Manufacturers of consumer packaged goods (CPG) face two key challenges in 2015. The first is continued slow or negative growth in people’s disposable incomes. The second is changing consumer attitudes toward products and brands, as the the great fragmentation of consumer markets takes another turn. In response, companies must dramatically shift the route they take to reach consumers in terms of both product distribution and communications.

In many markets, consumer wages have been static for five years. Even where economies are starting to perform better, the squeeze on after-tax wages, especially for the middle class, younger people, and families, is depressing consumer spending. Although growth in developing countries is still better than in the United States and Europe, a slowdown in emerging countries such as China — where many companies had hoped for higher sales — has translated quickly into lower-than-expected consumer spending growth. We expect continued weakness in consumer disposable income regardless of which way macro GNP uncertainties break.

Meanwhile, what we call the great fragmentation is manifested in consumer behavior and market response. In both developed and emerging markets, there is a wider variety among consumers now than at any time in the recent past. Growth is evident both at the top of the market (where more consumers are spending for higher-quality food and other packaged goods) and at the lower end (where an increasing number of consumers are concentrating on value). But the traditional middle of the market is shrinking.

The peripatetic consumer

Further, individual consumer behavior is more pluralistic. We’re used to seeing, for example, spirits buyers purchasing a premium brand in a bar, a less-costly label at home for personal consumption, and yet another when entertaining guests. But this type of variegated shopping has now spread to the grocery basket. Fewer consumers are making one big stocking-up trip each week. Instead, shoppers are visiting a premium store and a discounter as well as a supermarket, in multiple weekly stops — in addition to making frequent purchases online. In the recession, more shoppers became inclined to spend time hunting for bargains, and as some traditional retailers either went out of business or shuttered stores, retail space was freed up and was often filled by convenience stores, specialty shops, and discounters.

The “great fragmentation” is manifested in consumer behavior and market response.

A decade ago, CPG companies had only a handful of  sales channels to consider: supermarkets, convenience stores, hypermarkets in advanced economies, and traditional small and large retailers in emerging and developed countries. Since then, various discounters have made significant inroads, including no frills, low variety outlets, such as Europe’s Aldi and Lidl, which sell a limited range of private-label grocery items in smaller stores, and massive warehouse clubs, such as Costco and Sam’s Club, which initially operated solely in the U.S. but are now expanding internationally, as well as Makro in Europe. In addition, dollar stores, specialized retailers, and online merchants are having an impact on the CPG landscape. Economizing consumers have been pleasantly surprised by the savings generated by spreading their business among multiple channels, as well as by the variety and product quality they find. We will see more and more such behavior, and continued experimentation and innovation by retailers as they try to respond.

The result has been greater demand for more products and brands, with different sizes, packaging, and sales methods. At most CPG companies, SKUs are proliferating, despite there being little increase in overall consumption. A better outcome can be seen at smaller food and beverage suppliers, which are benefiting from consumer demand for variety and authenticity. A recent Strategy& report found that in the U.S., small manufacturers (with revenues of less than US$1 billion) grew at twice the compound annual rate of large manufacturers (with revenues of more than $3 billion) between 2009 and 2012.

More mixed media

Consumers’ media usage has also fragmented with the rise of digital content and the proliferation of online devices. Each channel — from the Web, mobile, and social sites to radio, TV, and print — has its own requirements, audience appeal, and economics, needing specialized attention. But at the same time, media campaigns need to be closely coordinated for effective consumer messaging.

Collectively, these shifts challenge the way CPG companies manage their brand and business portfolios, and call for a rethinking of their go-to-market approach, with an emphasis on analytics. Our work with INSEAD shows that among business leaders, applying analytics — especially for tracking consumer behavior and product and promotional performance — is considered one of the most effective ways to improve results and outpace the competition. But it’s not just about insight; it’s also about using the insight wisely to determine how to manage costs. The more knowledgeable about customer needs and preferences a company is, the smarter and more focused it must be in managing its own economics to cost-effectively deliver both variety and value to the squeezed consumer.

This attention to cost does not mean simply a pruning of the portfolio of lagging products, but realignment around a more intelligently chosen set of brands that cover the spectrum of consumer needs efficiently, with minimal overlap. Indeed, the ability to handle product line complexity cost-effectively can in itself become a competitive advantage. In many cases, companies will need to expand the overall brand and product footprint in order to reach imperfectly served consumer needs and proliferating retail channels. They may have to serve premium channels, but also serve discounters — or outcompete discounters with their own value brands. As Unilever’s chief financial officer Jean-Marc Huët described the challenge in a recent earnings release, “We’ve learned from the previous economic crises the importance of having such value brands in the portfolio that can capture some of the downtrading that inevitably happens when disposable income levels fall.” We think this will be a persistent requirement. In some instances this will mean breathing more life into neglected products to balance the brand portfolio.

In the same way, as companies move to cover more retail channels, they need to simplify trade terms and promotional spending. Managing the wide variety of outlets and marketing opportunities is not a simple, cut-and-dried activity. Over time and especially during the recent recession, marketing and promotion campaigns have proliferated and overlapped as CPG companies have desperately chased limited sales volume. Rationalization and simplification are overdue. Current practices add cost for both CPG companies and retailers, far beyond their contribution to industry growth. Analytics can help with this job too. They tell you which marketing efforts work and which are failing, and why, as well as which single campaign can do the job of several initiatives.

Large CPG companies may also need to minimize and concentrate their business portfolios to succeed in a more fragmented marketplace, rethinking entire categories of brands. Kraft Foods’ decision to split itself into two in 2012, spinning off its instant-consumption-oriented snack and confectionary brands into Mondelez International, was an early and prominent example.


Adapting to the fragmentation of marketing channels has stimulated many companies to innovate in managing more digital merchandising and communications paths. What they need now is to move on in the innovation cycle, and identify and double down on what really works, as opposed to what is merely possible or interesting or promising. For many, it is time to consolidate the lessons from using digital channels. They can apply a new generation of analytics capabilities to assess, monitor, and focus investment in communications that are successful. In the process, they can add valuable insight for retailers, which often see their shoppers in aggregate, but are somewhat blind to the preferences of the individual consumer. As yet, there are few companies with proven, replicable, large-scale marketing analytics capabilities, but 2015 will see the emergence of some new leaders, we believe.

It is time for consumer goods companies to consolidate the lessons from using digital channels.

The good news is that the data and analytics capabilities that underlie effective multichannel delivery and marketing are also scale-sensitive and fungible across businesses and markets. They will play an important role in managing costs in today’s wage-restricted consumer environment.

The capabilities scorecard

To thrive in the leaner and more fragmented marketplace of the future, CPG companies should focus on seven key capabilities:

  • Building a comprehensive data set of sources on consumer, brand, product, and competitive behavior
  • Developing analytical skills, tools, and routines that use the data in the ways that are critical for the specific business
  • Translating those insights into actions at the product, brand, and retail level
  • Planning the portfolio of brands and products to efficiently cover full market variety and using this as a lens for M&A plans
  • Managing the expanding portfolio of retail channels to provide the right incentives, reflecting differences by channel in how consumers and retailers interact
  • Managing the interactions between the retail channels
  • Managing complexity rather than merely trying to minimize it

By concentrating on these key capabilities and combining them in a coherent fashion, CPG companies can increase their returns on investment and position themselves to outperform their peers in the leaner and more fragmented marketplace of the future.

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