Moving beyond price: A new roadmap for CPG growth

Increasing growth from innovation

Numerous CPGs aim to significantly increase growth through innovation, with many boosting investments by more than 50% and shortening time to market by about 30%. Raising budgets, however, may not be enough. Companies should look to reshape their pipeline to address affordability challenges, offering clear value propositions that compete with private labels — while continuing to differentiate premium brands for higher-income consumers.

Artificial intelligence (AI) is playing a key role in accelerating innovation, with CPGs using it for demand sensing, formulation creation, simulated testing and compliance automation. These AI-driven innovations, combined with traditional process enhancements (e.g., in commercialization and supply chain planning) are improving innovation productivity. Additionally, contract R&D and manufacturing are helping companies speed up testing and scaling.

Your next move

• Redistribute resources. Increase resources allocated to innovation and reshape the pipeline toward value and affordability, enabled by AI and process enhancements.

Aiming digital investments at productivity

For many CPGs, achieving a strong ROI on digital investments has been difficult. Still, the maturation of AI and advanced robotics is transforming the ROI equation for digital investments that directly target labor and materials productivity — both in the office and in the factory.

Some companies are pushing the envelope on office productivity with an AI automation program that targets $100 million+ in benefits. Agile teams with technical skills and deep functional expertise deliver tailored solutions every two months, focusing on:

• Marketing: Campaign planning, content creation and distribution
• Operations: Demand and supply planning, order management, customer logistics and procurement
• HR: Labor planning and recruiting
• Finance: Forecasting and reporting

Approved solutions are expected to deliver at least 30% productivity gains (many exceed 50%), with payback in under two years.

In the supply chain, investments in advanced manufacturing controls, digital simulation models (i.e., digital twins) and robotics are helping to drive major improvements. For instance, digitizing a food plant increased throughput by 40%, while improving controls on a personal care line helped cut downtime by 90% and utility consumption by 30%. Robotic automation, including co-bots and automated guided vehicles, is reducing labor costs by 30%-50%, making these investments even more critical as labor availability tightens.

Adapting marketing strategies for agility

Marketing strategies should also evolve in this tough environment by becoming more attuned to shifting consumer expectations. Data-driven insights are central here, as they allow CPG companies to engage consumers with more personalized, relevant messaging. As inflation squeezes wallets, tailored promotions and loyalty programs become central for preserving brand loyalty.

As consumers become more price-conscious, they’re also demanding greater value and tailored experiences. Companies that go beyond surface-level personalization and leverage advanced data insights to anticipate needs and deliver targeted, meaningful interactions will be better positioned to build engagement and consumer trust.

Your next move

• Automate productivity. Aim digital and automation investments at step changes in labor and materials productivity, both within the office and in the supply chain.
• Utilize data. Use data-driven insights to sharpen marketing, deliver personalized messaging and preserve loyalty in a price-sensitive market.

Rethink value streams

Many CPGs long ago addressed traditional product cost levers, like procurement and lean continuous improvement. The next chapter requires a cross-functional approach concentrating on transformational levers. Holistic value stream projects evaluate all product costs competitively for each brand-market value chain, aligning cost decisions with consumer value. This approach — which is supported by commercial, operations, R&D and finance teams — unearths strategic opportunities such as assortment optimization, product and packaging redesign, manufacturing technology upgrades, make versus buy and material innovation. These efforts target 300 to 500 basis points of margin enhancement.

Improve product availability

Despite the end of pandemic-era supply chain challenges, retail out-of-stock rates for fast-moving consumer goods remain in the 5%-10% range, causing lost sales and reduced brand loyalty. For some CPGs, overcoming this challenge is now seen as one of the critical drivers of future growth. Making progress starts with understanding the root causes of out of stock, which are often a combination of planning, reliability, inventory management, ordering and fulfillment practices. Addressing these challenges requires closer collaboration between CPG and retailers, including sharing of planning, sales and inventory data, and coordination of supply chain execution. Effective efforts can reduce out-of-stock rates below 1%, driving a 2%-4% sales lift.

Supply chain service levels must be balanced against cost and working capital requirements. Therefore, product availability initiatives are often paired with total customer profitability initiatives, enhancing visibility into customer and SKU-level profitability and aiding better investment choices.

Your next move

• Rethink value streams. Review core value streams from a customer-driven perspective to eliminate costs consumers don’t value.
• Strengthen retail relationships. Collaborate closely with retailers to improve product availability and total customer profitability.

Portfolio management and M&A

CPG companies are currently priced to deliver 4%-5% growth, significantly higher than the more recent guidance of 1%-2% for this fiscal year. This creates a meaningful value gap, with about 20% of the market cap at risk if growth isn’t accelerated or shifted toward higher-margin opportunities.

To close this gap, pursuing inorganic growth through M&A is crucial. Companies that engage in M&A during economic downturns often outperform their peers. Strategic acquisitions can help close operational gaps, unlock new growth levers, boost profitability and position companies to meet market expectations while reducing competitive pressures.

Acquiring innovative technologies like AI-powered demand forecasting or supply chain automation can immediately enhance productivity and profitability. Strategic acquisitions in high-growth categories, such as better-for-you foods or wellness products, meet consumer demand and expand market share. Additionally, acquiring companies with complementary operations enables cost synergies, such as shared logistics or enhanced manufacturing, exemplified by large food and beverage companies acquiring smaller, niche brands. CPGs shouldn’t rule out mega deals either. Though sometimes challenging to execute, they can redefine the competitive landscape to an acquirer’s advantage.

Your next move

• Refine your portfolio. Balance portfolio management through a combination of divestitures of non-core businesses and strategic M&A in on-trend, high-growth categories and brands.