Consumer Packaged Goods
The Consumer Packaged Goods (CP sector, financially at least, was one which managed to weather the pandemic of the past two years better than most. Demand for consumer-packaged goods soared as consumers stockpiled even as prices increased. However, it is not a sector without challenge. As inflation continues to bite and put pressure on our collective costs of living and consumer spending trends downward, weakened supply chains during the pandemic face renewed shocks from the war in Ukraine. At the end of the chain is us, the consumer, increasingly concerned with prices and the sustainability of the things we buy. The coming year will be a challenging one for the CPG sector, where a company’s reputation is more and more seen through the lens of what social utility they offer and what environmental and climate (top worries in many countries) impact they are having on the planet.
Overall, the CPG sector is seen about as trustworthy as the energy and banking and financial sectors, although those surveyed do not actively distrust CPGs as much. This places them behind pharma, tech, food & drink and retail.
That said, on balance it is generally seen as more untrustworthy than trustworthy among countries in Europe than it is globally, indicating that the Continent has more of a reason to distrust the sector than elsewhere in the World. The Global Trustworthiness Monitor tells us that being reliable, transparent, and responsible are key drivers of trust, and at least globally is seen to be average on these and similar to the energy sector. Indeed, in order to build trust, improving perceptions of the sector in these areas will be key.
Given the current environment, it remains a challenge to ensure that messages cut through. With the financial pain continuing into 2023, a third of Britons reported they were ‘just about getting by’, and a fifth said they were finding things ‘difficult’ last Spring. Moreover, 87% of Britons said 2022 was a ‘bad year’ for their country, and 86% of Britons said it was more likely than unlikely that prices would rise faster than income in 2023. This is a feeling which is supported by Ipsos’ Consumer Confidence Index, which last year showed Great Britain took the largest hit to consumer confidence out of all nations surveyed, down 10 percentage points since February to an index score of 41.8 in November. For context, Hungary saw a 9.9pp drop to 30.4, Germany down 9.6pp to 44.3, and Belgium down 9.6pp to 38.0. It is a gloomy picture exacerbated by a feeling that the UK economy is rigged to advantage the rich and powerful (71%), according to Ipsos’ Broken-System Sentiment Index. Certainly, with cost of living concerns having also almost doubled since the start of 2022, and having held the top spot since March last year, the economic environment is likely dominate the news cycle in 2023 and something astute businesses will be paying close attention to.
As with the many sectors we ask about in the Global Trustworthiness Monitor, cost of living and inflation – which tops the list of worries both globally and in the UK according to Ipsos WWtW data – could prove challenging for CPG in 2023 in particular. As the fallout of external shocks such as Brexit, Liz Truss’ ill-fated economics, and the war in Ukraine continue to drive inflation, and costs are passed onto the consumer, spending is likely to decrease. Affordability will undoubtedly become a key battleground this year, while awareness of ESG practices will continue to play an increasingly important role and noticeable differentiator. In depressed markets, having a reputation for ‘good’ in these areas could prove a key a USP, and in the case of CPG companies this will relate to sustainability in particular. According to a McKinsey report, products making ESG-related claims averaged a 28% cumulative growth over the past five-year period, versus 20% for products that made no such claims.
While the CPG sector is far from the worst in being seen as environmentally sustainable, it is outperformed by pharma, tech, food & drink, banking and retail, and on par with energy and financial services. For a sector which provides goods that are increasingly scrutinised by the consumer in shopping aisles world-wide, it is clear that a favourable perception around sustainability can aide growth, something which may become increasingly harder to come by as people tighten their belts. Plastics for example, is one area in which CPG companies are facing increasing pressure from consumers and an area which will link to perceptions on the sector’s performance on environmental sustainability. This could link to perceptions in most countries surveyed in the Global Trust Monitor that, on balance, there is too little regulation in the sector, particularly amongst those European countries which are more likely to see the sector as untrustworthy.
Indeed, there is some scepticism as to whether people trust business leaders to care for the environment. Globally, 32% trust them compared to 34% who do not, however in Western countries, Great Britain for example, only 18% would trust business leaders compared to 47% who do not. Thus, any products or actions that retailers may consider when attempting to leverage the popularity of environmentally conscientiousness must be backed with tangible actions and evidence. Indeed, over half globally say businesses use the language of changes to the environment or to promote greater equality without committing to real change.
According to half those polled, in the future the most successful brands will be those that make the most positive contribution to society beyond just providing good services and products. Often we find that it is the companies which are striving for (or ignoring) a perceived societal responsibility that are the ones most often in the news. As a sector which is constantly challenged to showcase its ESG credentials at every stage of the product lifeline, from manufacturing, to supply chains to the end result, those operating in the CPG sector are under constant scrutiny where failure to display these, or rather actively ignore such concerns, can result in a reputational threats and damage to trust. Showing a social utility may not be a business’ first instinct, but curating it as a USP does set apart businesses which do from others, and has the power to convert consumers into a loyal customer base. In a time where people are struggling and want companies to take a stand on societal issues, developing such USPs – and reputations – are proven to aide growth.
