COVID Recession 2021: The Need For Digitalization in the Consumer Goods Industry

Executive Summary

  • 38% of European consumers plan to reduce their spending; intense competition within the consumer goods industry

  • The need for digitalization high in face of tougher market conditions

  • Capitalize on market trends by setting up a digital, agile supply chain

  • Consumer Product companies need new sources of growth to reinvigorate demand

Dampened Demand in the Consumer Goods Industry

With recessionary pressures setting in, consumers are increasingly cost-conscious when making their purchases. According to McKinsey’s December 2020 Survey on US consumer sentiment, despite the recovery of sentiments since July, “consumers are still mindful of how they spend their money”. The same holds for European consumers; according to PwC’s Global Consumer Insights Survey 2020, 40% of European consumers experienced a decrease in household income and, thus, 38% plan to reduce their spending over the next few months. The intent to decrease discretionary spendings suggests a pessimistic outlook for the overall consumer goods industry.

"40% of European consumers experienced a decrease in household income and, thus, 38% plan to reduce their spending over the next few months"

With consumers determined to spend less, suppliers in the industry will face ever greater competition to obtain a share of consumer spending. The contracted demand on the consumer side, while the number of market players remains constant, increasingly enables the consumers to exert greater bargaining power over suppliers. Coupled with low switching costs that are characteristic of the consumer goods industry, suppliers will have to fight viciously to achieve even moderate sales figures.

Digitally Transform to Adapt to Price-Conscious Consumers

Increased price sensitivity of consumers makes it very difficult for companies to pass on inefficiency costs to consumers in the form of higher prices. With market pressure to optimize operational costs, businesses are now in prime time to re-strategize their supply chains.

In face of the fierce price pressure exerted by the market, actually executing on the frequently referred promise of ‘digital transformation’ is imperative not only in long term but increasingly so in the near term. As more market players roll out their ‘Digital Transformation’ projects, the competitive loss by being late in the digital race, or worse yet not implementing one at all, can be fatal.

'Go Digital' to Capitalize on Market Trends

Market trends in the consumer goods industry, most particularly in beauty care, come and go with a frequency of a few months. The fast-paced industry dynamics mandate an integrative planning process, where demand insights are quickly picked up to be executed as production intelligence. The ability to swiftly act on key demand trends is not only about cutting superfluous costs but also about heightening product appeal.

By ensuring a short time to market through its digitalized supply chain, the company can introduce features and functions in high demand, thereby making its products more relevant to the prevailing market preference. Via differentiating its products out of the bunch, agile companies can capitalize on market opportunities despite the short window of market trends and reduced customer demand.

Why It Matters

Covid-induced uncertainties prompt the need for businesses to re-evaluate their operational structure. Changes in consumers’ purchasing patterns— in price sensitivity, customer tastes, and preferred retail channels— necessitates that operational structure and business practices co-evolve.

As part of business model adaptation, market players need fresh sources of growth to revitalize their sluggish consumer business units. Given the significant impact of the supply chain on basic business operations, and, thus, the greatest potential impact on the growth of revenues, committed investments on supply chain digitalization are the surest way to realize returns on investment.

"Digital Transformation, once a necessary journey, is now an urgent priority for consumer products brands." says BCG

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However, despite the significant revenue potential of such investment, market players within the consumer goods industry are generally taking only modest digitization measures, with only “2% reporting that supply chains are the focus of their forward-looking digital strategies” according to McKinsey’s Case for Digital Reinvention. As illustrated in the graph above, the consumer goods industry still lags in digital penetration compared to other industries. Accordingly, a strategic commitment towards supply chain digitalization is expected to yield outsized returns for those that do make the first move to forge ahead of others in digitalization.

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