What are the key CPG trends and challenges to watch out for in 2024?
The consumer goods industry is facing one of its most challenging times as we enter a new year marked by economic uncertainty and changing consumer preferences. Companies will navigate a complex landscape of CPG trends & challenges, such as macroeconomic pressures, marketplace dynamics, and societal trends, that are creating a perfect storm of disruption and innovation.
Navigating these volatile conditions will require enhanced strategic agility from revenue and pricing professionals. Those who have access to AI-powered revenue management analytics will be better positioned to make swift, optimized decisions that help secure margins and market share.
Without further ado, let’s dive deeper into the top CPG trends and challenges of 2024.
✔ The ongoing cost of living crisis.
✔ Purchasing power and customer trust are in decline.
✔ Direct-to-consumer channels are booming.
✔ Personalization is key.
✔ AI adoption – a priority and a concern.
CPG Trend: The Ongoing Cost of Living Crisis
A combination of factors, including inflation, energy price spikes, and geopolitical tensions, continue to fuel the cost-of-living crisis. Various regions, including the United States, China, and the European Union, are expected to be affected. Consider the UK, where the cost-of-living crisis is forecast to continue dampening discretionary spending well into 2024. Also, retail sales volumes declined by 5% in 2023, which suggests a slow recovery until 2025.
Consumers around the world are feeling the squeeze on their wallets. Nowhere is this being felt more acutely than in the CPG sector, where price increases have drawn the ire of cash-strapped shoppers. This was one of the most pressing CPG challenges of 2023. And the waters might get murkier in 2024.
In both the US and China, economic forecasts show a slowdown. For example, the US economy is expected to grow by only 1.5% next year. Europe is also suffering due to geopolitical conflicts and higher interest rates. Forecasts predict a meager growth of 0.9% in 2024 for the eurozone.
Of course, these forecasts are not set in stone. They could change for the better or worse. But one thing is certain – consumer packaged goods companies need to adapt their revenue management strategies to these volatile conditions. And AI predictive analytics can provide the edge CPG companies need during these times.
Look at these statistics from BCG ⬇️
These attitudes will inevitably shape shopping behaviors – customers will practice more restraint while shopping or opt for lower-priced, store-brand items to stretch their dollars.
If you are a company looking for a practical solution for inflationary pricing, AI can help you tackle inflationary pressures head-on. How?
AI can continuously monitor economic indicators and other relevant data sources, providing real-time alerts and insights for agile inflationary pricing adjustments. Check out the link below to learn more.
CPG Trend: Purchasing Power & Consumers’ Trust in CPG Companies are Declining
Price increases, inflation, and high unemployment have led to a decline in purchasing power and a search for cheaper alternatives. Beyond that, shopping evokes uncertainty and anxiety rather than excitement. Overall, consumers talk less about shopping and when they do – concerns about price increases are the norm.
One thing is clear – the recent wave of price increases has eroded consumer trust in CPG companies. In the food industry, for instance, trust in big brands has steeply declined due to price increases.
This is making it more difficult for companies to win back consumers and drive sales.
Looking ahead to 2024, CPG companies must thoughtfully adapt their revenue growth management strategies to stay afloat. Most consumer packaged goods companies have relied on higher prices and lower pack prices to optimize pricing and revenue. These tactics, while effective in the short term, have sown the seeds of customer discontent and are no longer sustainable in the long run.
To satisfy customers and increase profit margins, RGM professionals should focus on the long term. And without AI predictive pricing analytics that can unify data and provide dynamic scenario modeling, RGM becomes overwhelming and, frankly, impossible to do efficiently.
Volatile economic conditions, inflation, and the ongoing cost-of-living crisis all affect customer behavior, and this can ripple down into negative mix effects.
Our mix management solution lifts this burden with an AI-driven approach that allows you to take the right corrective actions before the impact hits your bottom line. What’s best? Our AI copilot makes it super easy to get insights on the go without the need for a laptop. Learn more how AI can help you tackle the CPG challenges of 2024 with more ease and speed, via the link below.
Streamlined Mix Management
CPG Trend: The CPG Industry Starts Rushing into Direct-to-Consumer Channels
Another CPG trend worth mentioning – DTC channels are booming as brands seek more control over customer data and margins.
The direct-to-consumer (DTC) channel has been a game-changer for CPG companies, providing them with more control over their customer data, brand storytelling, and pricing strategies. This has led to a surge in investment in DTC by major CPG brands, as they seek to build stronger relationships with consumers and capture a greater share of the value chain.
One shining example of DTC’s success is Glossier, a beauty company that has ascended from humble blogging beginnings to a $1.8 billion valuation. Glossier entered the market as a DTC brand focused on consumer-centric storytelling. By taking this approach, they fostered brand loyalty and achieved unicorn success, which allowed them to shift sales to Sephora as well.
This transition to direct-to-consumer channels could not be timelier. Google’s phase-out of third-party cookies threatens the digital advertising landscape, as it will limit brands’ ability to track consumer data across the web.
This will pose a challenge for many CPG brands that rely on third-party cookies to measure the effectiveness of their campaigns and optimize their ROI. However, it also creates opportunities for DTC brands that have direct access to their customer data and can use it to create personalized and relevant customer experiences. DTC brands can use their first-party data, such as purchase history, browsing behavior, and preferences, to segment their customers and tailor their messages and offers to their needs and interests.
However, DTC is not without its challenges. These channels typically have steeper acquisition costs than traditional retail channels, as brands must invest in marketing and advertising to reach new customers. Additionally, the competitive intensity in DTC is high, as numerous challenger brands are vying for consumer attention.
CPG Trend: Personalization Is a Priority for Consumers
A whopping 86% of consumers consider personalization a factor in their purchasing decisions. Optimizing marketing strategies to cater to unique preferences is key. However, consumers also demand personalized products and packages.
They want products aligned with their unique preferences, lifestyles, and values.
If you manage to get personalization right, you are looking at increased brand loyalty. A.k.a. an increased customer lifetime value.
While real-time personalization is essential, it also creates complexity for CPG companies managing extensive product portfolios across multiple markets and consumer segments. Personalization at scale requires sophisticated data analytics to understand customer needs at an individual level.
Those who can leverage data and technology to offer customized products will be better equipped to build loyalty and drive repeat purchases in 2024. This level of customization adds complexity that pricing structures need to logically address—the right balance of standardization and tailoring will be key.
CPG Trend: AI Technology - A Strategic Priority but Also a Concern
Price changes due to climate change, geopolitical tensions, or inflationary pressures, as well as competitors’ movements, are pushing CPG companies to adopt AI technology within their RGM workflow.
Automation in this area will not only save time and cut operational costs, but also unlock real-time access to data and KPIs, as well as access to hidden patterns or insights within the data.
Real-time access to data, dynamic scenario modeling, and reports coming from AI-powered chatbots will speed up Revenue Growth Management and make the decision-making process more efficient and accurate. Cognitive AI will enable CPG companies to quickly identify opportunities, optimize their strategies, and maximize their profits.
However, Protiviti’s 12th annual Top Risks Survey suggests that C-level executives have some serious concerns about implementing next-generation and AI systems.
On the one hand, they report concerns about implementing AI in their legacy systems. CPG decision-makers also express concerns regarding the skills needed to adopt digital technologies, such as Artificial Intelligence. Meanwhile, they are also concerned about other native digital brands with a competitive advantage.
One thing’s for sure – the earlier you adopt AI, the more you stand to win. Why? Because next-generation RGM and pricing tools allow you to adopt a holistic approach regarding revenue and cost management.
How to Adapt RGM to Current CPG Trends and Challenges?
The consumer goods industry is facing a perfect storm of challenges in 2024. The ongoing cost-of-living crisis, consumer skepticism, and competitor brands all create significant headwinds. To weather this storm, CPG companies must adapt their strategies. BCG’s research clearly shows that traditional revenue management techniques no longer work.
What works is investing in pricing tools and revenue management resources. The returns on investment for CPGs leveraging cutting-edge revenue management analytics and AI pricing tools vastly outperform those relying solely on legacy approaches—we’re talking 3x better ROI for next-generation analytics-driven organizations.
Considering these 2024 CPG trends and challenges, and according to BCG, revenue growth management professionals will need an integrated approach to CPG revenue management to adapt nimbly in response to unpredictable macroeconomic headwinds. That’s why AI-powered pricing analytics are so crucial: they allow professionals to access real-time granular data, understand market movements, and act early on.
Curious to see how Revenue.AI can help address your unique challenges as we head into 2024? We’d love to chat.
