When the CPG pipeline runs dry
Throughout its 67-year history, Food City/K-V-A-T Stores has been continuously swamped with new CPG items. At trade shows, executives have navigated seas of seemingly endless display booths. At the retailer’s Abingdon, Va., headquarters, buyers’ calendars have always been full, with product samples festooning offices and conference rooms. Be it snacks, pasta, beer or dog food, the new product pipeline has never slowed — until now.
Food City/K-V-A-T is not alone. Like other food, drug and mass retailers, it faces a serious new-product shortage, brought on by pandemic-related supply chain constraints, worker shortages and other issues. Sans guarantees that they can consistently fill orders, many CPG manufacturers are not investing hefty sums in developing and marketing new items.
According to Catalina’s Buyer Intelligence Database, 87,149 branded UPCs were unveiled in 2021, compared to 263,436 in pre-pandemic 2019. In private label, new UPCs fell from 63,201 in 2019 to 29,385 two years later. NielsenIQ estimates that CPG shortages and empty shelves cost retailers at least $82 billion in lost sales.
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Dan Glei, executive vice president of merchandising and marketing at Food City/K-V-A-T, has spent decades in the CPG industry, working for several prominent retailers and suppliers. “This is a different space than I’ve ever seen in my career,” he said. “Newness is a challenge now. It’s been hard to find new suppliers. Vendors can’t meet demand for existing goods, so how do you make more? Consumers see empty shelves everywhere.”
Jim Hertell, senior vice president of client development at Winston-Salem, N.C.-based Inmar Intelligence and another industry veteran, said the situation is unprecedented. “Retailers never had to worry about filling holes on shelves,” he said. “For every 10 new items they saw, retailers may have taken one or two. There were always more new products in the pipeline than there was shelf space. They never had to worry about running out.”
Some people blame product shortages on COVID-19-related shipping and manufacturing disruptions, labor shortages, and the Russian invasion of Ukraine. But explanations can be murky. “The supply challenge is universal, although there is a lot of ambiguity regarding the underlying issues,” Glei said.
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IRI outlines the 'seven deadly sins’ of new product innovation
Despite the best laid plans of retailers and suppliers — including millions spent on research, pilots and focus groups — 80% to 90% of new CPG items flop after one or two years. There are good reasons. In IRI’s “2020 New Product Pace Setters” report (published in 2021), Larry Levin, executive vice president of market and shopper intelligence, coined the acronym “FAILURE” in outlining seven criteria that can make the difference between high-flying successes and fatal crashes.
- F-orecasting: Marketing/advertising spending should correlate with performance and distribution expectations.
- A-ssortment: Flavors/variation preferences can vary by region or store demographics. Think about localizing assortments.
- I-ncrementality: How will the item drive incremental sales and benefit the category and aisle? Does it create competition and keep consumers returning to see what’s new? “This is one of the most important aspects of new product innovation,” Levin said.
- L-anguish: A steady marketing/promotional program invigorates introductions and keeps them top of mind. Otherwise, products stagnate.
- U-nclear positioning: What is the brand’s purpose? What does it stand for? How is this communicated?
- R-etread: Introductions should have unique aspects and not be “retreads” in a competitive category.
- E-lusivity: When ad campaigns launch, distribution should be broad enough to reach myriad shoppers.