CPG sees growth in health, indulgences
Although the consumer packaged goods industry is still climbing the sales charts to record heights — the industry reached $797 billion in 2016 — the engines driving that growth are beginning to sputter, IRI and Boston Consulting Group reported last month as part of their latest growth leaders report, “CPG Growth Leaders - Strategic Analytics.” According to the report, dollar sales growth is at its lowest since 2011, coming in at just 1.4% versus the prior year.
A lot of it has to do with deflationary pressures, the report noted, as average price growth dropped to 0.8% in 2016 compared with the previous four years when the average was 2.3% per annum. Some of this pressure can be traced to shifts in prices for such commodities as milk and eggs, though the impact of a more robust online marketplace also contributed to slower CPG sales growth in conventional retail stores.
That’s not to say shoppers aren’t patronizing their favorite value-driven, brick-and-mortar destinations. While shopper trips climbed in proportion to population growth during 2016, the increase in the number of shopper trips — versus a decline the previous year — likely was a result of consumers seeking lower prices, the report noted.
Countering deflationary pressures are effective marketing and merchandising programs. According to the report, share of dollars sold with any type of merchandising activity increased to 27.6% in 2016, representing 80 basis points growth as compared with 2012.
Indulgences, health top category trends
Even in a sluggish market, growth opportunities abound for companies that understand evolving consumer preferences and build a strategy to capture the opportunities. Those marketers and manufacturers who can successfully tap into 1-of-2 overarching consumer trends — convenience-driven indulgences and a proclivity toward better health-and-wellness items — are in a position to enjoy the industry’s upward trajectory despite any economic pressures or the need to drive sales through promotional activity.
“Even in a sluggish market, the CPG growth leaders show that opportunities abound for companies that understand evolving consumer preferences and build a strategy to capture the opportunities,” said Peri Edelstein, a BCG partner and a co-author of the study. “The key to sustained success in this rapidly evolving market is to follow consumers around the clock, and compete in the marketplace with the mentality of a start-up,” Edelstein said.
Such companies as Blue Diamond, BodyArmor, Califia Farms, Bragg and The Wonderful Co., which market convenient foods and “functional” beverages that contain plant-based ingredients that promote nutrition or boost energy, were among the CPG growth leaders in 2016.
Also among the industry’s best performers were companies that derive much of their sales from indulgences, such as Mars, Hershey’s, PepsiCo, Hostess and Constellation Brands. PepsiCo, for example, maintains a strong core franchise of indulgent solutions. But the company’s portfolio has been transformed over the past few years, with healthier-for-you products containing grains, fruits, vegetables, low-calorie beverages and low-fat/low-sodium snacks now accounting for 45% of the company’s sales.
Other CPG industry best performers were large companies, such as Johnson & Johnson and Unilever, which acquired small makers of health-minded foods and beverages, and even personal care products containing natural ingredients. Indeed, the research found that health and beauty aids that convey “wellness” were one of the strong CPG growth categories in 2016.
“Our research shows that the growing popularity of convenient nutrition and wellness remains one of the most powerful trends in the U.S. consumer packaged goods industry,” said Jim Brennan, a BCG partner and co-author of the study. “But this does not mean that American consumers’ craving for indulgences has diminished.”
“Sales growth in these product categories is projected to remain strong,” said Krishnakumar Davey, president of IRI Strategic Analytics. “As long as the products are used for human consumption, we expect these bifurcated trends — demand for health-and-wellness products as well as for indulgence products — to continue, irrespective of whether they are bought in traditional stores or via an intelligent personal digital assistant, [such as] Alexa on Amazon.”
“Functional beverages” — nonalcoholic drinks promoted as having a purpose, such as improving health, boosting energy or managing weight — was one of the hottest categories of 2016. The best performer among small CPG companies, for example, was BodyArmor, a premium sports drink brand in which basketball legend Kobe Bryant is a major shareholder. Plant-based food and beverage brands also are well-represented on the lists of growth leaders. Califia Farms, for example, markets beverages with such ingredients as almond and macadamia milk, ginger, turmeric and Central American coffee sourced by direct trade.
The research found that the desire for wellness reached beyond healthcare products and into the personal care and household arenas in 2016. Aveeno Active Naturals skin and hair care products, for example, helped Johnson & Johnson become a growth leader in 2016. Huggies Nature Care diapers contributed to the strong performance of Kimberly-Clark. Personal care and household products with whole, natural ingredients are projected to continue growing at a compound annual rate of 7% to 9% through 2020 — roughly double the expected growth rate for personal care products overall, IRI noted.
Top growth companies
Reynolds American, which recently acquired Lorillard, tops the CPG growth-leader list of large companies for the second year in a row, followed by Johnson & Johnson, Tyson Foods, Grupo Bimbo and Mars. The leaders among midsize companies are Chobani, Hostess Brands, Energizer Holdings, Constellation Brands and Starbucks. Topping the growth-leader list of small companies are BodyArmor, Idahoan Foods, Bragg Live Foods, Bai Brands and Daisy Brand. The research also found that companies with sales of less than $1 billion boosted their share of the U.S. CPG market from 25% in 2015 to 25.6% in 2016. Over the past five years, large companies have ceded more than three percentage points in share — or around $20 billion in industry sales — to small ones.
For the largest of manufacturers — those generating more than $5.5 billion in annual revenue, including such companies as Reynolds American, Johnson & Johnson and Grupo Bimbo — sales were up more than 2% during 2016, benefitting from both distribution and velocity. The ranks of midsize growth leaders, with sales exceeding $1 billion, includes the likes of Chobani, Hostess and Constellation Brands. Again, top players posted growth rates of more than 7%, according to the report. Among midsize companies, positive performance is largely a result of distribution gains, the report noted.
For smaller manufacturers with sales of $100 million or more, growth rates eclipsed 45% versus the small-company average growth rate of 3.1%. Performance among some of the small growth leaders was enhanced by unit velocity, including Fairlife, Daisy Brand and Califia Farms. Other companies credited distribution growth for their gains, such as BodyArmor SuperDrink.
Some of these top-performing smaller companies are likely acquisition targets for the larger companies, which should further cement growth by providing increased access to new points of distribution. Indeed, acquiring innovative small brands that have hit the consumers’ sweet spot is one of the more viable pathways to keeping larger companies in the game, the report concluded.
“The key to sustained success in this rapidly evolving market is to follow consumers around the clock,” Davey wrote. “Identify which goods consumers want and when, where and why they buy them. Then, compete in t
A lot of it has to do with deflationary pressures, the report noted, as average price growth dropped to 0.8% in 2016 compared with the previous four years when the average was 2.3% per annum. Some of this pressure can be traced to shifts in prices for such commodities as milk and eggs, though the impact of a more robust online marketplace also contributed to slower CPG sales growth in conventional retail stores.
That’s not to say shoppers aren’t patronizing their favorite value-driven, brick-and-mortar destinations. While shopper trips climbed in proportion to population growth during 2016, the increase in the number of shopper trips — versus a decline the previous year — likely was a result of consumers seeking lower prices, the report noted.
Countering deflationary pressures are effective marketing and merchandising programs. According to the report, share of dollars sold with any type of merchandising activity increased to 27.6% in 2016, representing 80 basis points growth as compared with 2012.
Indulgences, health top category trends
Even in a sluggish market, growth opportunities abound for companies that understand evolving consumer preferences and build a strategy to capture the opportunities. Those marketers and manufacturers who can successfully tap into 1-of-2 overarching consumer trends — convenience-driven indulgences and a proclivity toward better health-and-wellness items — are in a position to enjoy the industry’s upward trajectory despite any economic pressures or the need to drive sales through promotional activity.
“Even in a sluggish market, the CPG growth leaders show that opportunities abound for companies that understand evolving consumer preferences and build a strategy to capture the opportunities,” said Peri Edelstein, a BCG partner and a co-author of the study. “The key to sustained success in this rapidly evolving market is to follow consumers around the clock, and compete in the marketplace with the mentality of a start-up,” Edelstein said.
Such companies as Blue Diamond, BodyArmor, Califia Farms, Bragg and The Wonderful Co., which market convenient foods and “functional” beverages that contain plant-based ingredients that promote nutrition or boost energy, were among the CPG growth leaders in 2016.
Also among the industry’s best performers were companies that derive much of their sales from indulgences, such as Mars, Hershey’s, PepsiCo, Hostess and Constellation Brands. PepsiCo, for example, maintains a strong core franchise of indulgent solutions. But the company’s portfolio has been transformed over the past few years, with healthier-for-you products containing grains, fruits, vegetables, low-calorie beverages and low-fat/low-sodium snacks now accounting for 45% of the company’s sales.
Other CPG industry best performers were large companies, such as Johnson & Johnson and Unilever, which acquired small makers of health-minded foods and beverages, and even personal care products containing natural ingredients. Indeed, the research found that health and beauty aids that convey “wellness” were one of the strong CPG growth categories in 2016.
“Our research shows that the growing popularity of convenient nutrition and wellness remains one of the most powerful trends in the U.S. consumer packaged goods industry,” said Jim Brennan, a BCG partner and co-author of the study. “But this does not mean that American consumers’ craving for indulgences has diminished.”
“Sales growth in these product categories is projected to remain strong,” said Krishnakumar Davey, president of IRI Strategic Analytics. “As long as the products are used for human consumption, we expect these bifurcated trends — demand for health-and-wellness products as well as for indulgence products — to continue, irrespective of whether they are bought in traditional stores or via an intelligent personal digital assistant, [such as] Alexa on Amazon.”
“Functional beverages” — nonalcoholic drinks promoted as having a purpose, such as improving health, boosting energy or managing weight — was one of the hottest categories of 2016. The best performer among small CPG companies, for example, was BodyArmor, a premium sports drink brand in which basketball legend Kobe Bryant is a major shareholder. Plant-based food and beverage brands also are well-represented on the lists of growth leaders. Califia Farms, for example, markets beverages with such ingredients as almond and macadamia milk, ginger, turmeric and Central American coffee sourced by direct trade.
The research found that the desire for wellness reached beyond healthcare products and into the personal care and household arenas in 2016. Aveeno Active Naturals skin and hair care products, for example, helped Johnson & Johnson become a growth leader in 2016. Huggies Nature Care diapers contributed to the strong performance of Kimberly-Clark. Personal care and household products with whole, natural ingredients are projected to continue growing at a compound annual rate of 7% to 9% through 2020 — roughly double the expected growth rate for personal care products overall, IRI noted.
Top growth companies
Reynolds American, which recently acquired Lorillard, tops the CPG growth-leader list of large companies for the second year in a row, followed by Johnson & Johnson, Tyson Foods, Grupo Bimbo and Mars. The leaders among midsize companies are Chobani, Hostess Brands, Energizer Holdings, Constellation Brands and Starbucks. Topping the growth-leader list of small companies are BodyArmor, Idahoan Foods, Bragg Live Foods, Bai Brands and Daisy Brand. The research also found that companies with sales of less than $1 billion boosted their share of the U.S. CPG market from 25% in 2015 to 25.6% in 2016. Over the past five years, large companies have ceded more than three percentage points in share — or around $20 billion in industry sales — to small ones.
For the largest of manufacturers — those generating more than $5.5 billion in annual revenue, including such companies as Reynolds American, Johnson & Johnson and Grupo Bimbo — sales were up more than 2% during 2016, benefitting from both distribution and velocity. The ranks of midsize growth leaders, with sales exceeding $1 billion, includes the likes of Chobani, Hostess and Constellation Brands. Again, top players posted growth rates of more than 7%, according to the report. Among midsize companies, positive performance is largely a result of distribution gains, the report noted.
For smaller manufacturers with sales of $100 million or more, growth rates eclipsed 45% versus the small-company average growth rate of 3.1%. Performance among some of the small growth leaders was enhanced by unit velocity, including Fairlife, Daisy Brand and Califia Farms. Other companies credited distribution growth for their gains, such as BodyArmor SuperDrink.
Some of these top-performing smaller companies are likely acquisition targets for the larger companies, which should further cement growth by providing increased access to new points of distribution. Indeed, acquiring innovative small brands that have hit the consumers’ sweet spot is one of the more viable pathways to keeping larger companies in the game, the report concluded.
“The key to sustained success in this rapidly evolving market is to follow consumers around the clock,” Davey wrote. “Identify which goods consumers want and when, where and why they buy them. Then, compete in t