CPG retailers are at a crossroads as a new threat rises

Once upon a time, consumer products like soap, sugar and soft goods were found in bins and shelves in general stores, measured out in small quantities by amenable shopkeepers. Those days are gone.

Shopping for household goods evolved steadily from ye olde shopkeeper days, but it changed dramatically in the mid-20th century as multi-brand companies like Procter & Gamble, Unilever and General Foods emphasized branding and marketing — think Mad Men — and introduced visceral, emotional reasons to buy. Along with real advancements in the products (like enzymes to break down stains and formulas that worked in washing machines), CPG companies began appealing to consumers (usually women) with slogans that made ample use of exclamation points. “Get out of the kitchen sooner!” read a mid-century Lux liquid dishwashing detergent ad, also stating, “and it’s Lux-mild on your hands.”

While early on that advertising juggernaut was centered on newspapers, magazines and television, these days it’s swiftly moved to the internet and social media, though CPG advertising has lagged on those newer platforms, according to Deloitte. In any case, with the extra marketing and extra cachet, products became more expensive, bulking up margins for manufacturers and retailers alike. To appeal to price-conscious consumers more inured to advertising, “generic” store brands emerged, too, a circling back, in a way, to the bulk bins of old.

Today, however, consumer product retail is at another crossroads. In an era when just about everything — apparel, household items, electronics and even furniture — has become commoditized, brands face new competition and price pressures. Disruptors, not least Amazon, are entering the space and upending previous sales models and channels.

For all that, CPG brands, the companies that make them and the retailers that sell them do continue to enjoy a huge level of trust, according to Steven Barr, PwC’s U.S. retail and consumer sector leader. “The consumer products companies have built world-class products that are highly effective,” Barr told Retail Dive. “Let’s not forget that many of the brands have created tremendous trust and loyalty with their overall brand and identity so many consumers have come to trust particular brands.”

The disruptors

Still, younger shoppers, particularly the millennials who came of age during the Great Recession, are less brand-loyal than their parents and grandparents. That’s provided fertile ground for retailers with high-quality private label brands. The number of heads of households shopping at dollar stores under 35 years-old earning more than $100,000 a year increased 7.1% between 2012 and 2015, compared to 3.6% at all retail stores, according to Nielsen research. Some 29% of millennial dollar store consumers earn over $100,000 annually and accounted for about 25% of sales at those stores, much of it no-name brands of common household items, according to market research firm NPD’s Checkout Tracking.

Subscription and replenishment services like Amazon’s Subscribe and Save and Dash buttons have many shoppers ditching their usual shopping trips for online orders. And startups like Harry’s have challenged the “razors-and-blades” pricing model (sell one cheap razor, continue selling many expensive blades).

Unilever went the if-you-can’t-beat-em-join-em route last year and bought startup Dollar Shave Club for roughly $1 billion. And Target similarly sought some of Harry’s magic, through a deal to sell its products in stores, though presumably many of those customers will end up as Harry’s subscribers, potentially making Target an enabler of its own demise in that space. Gillette, meanwhile, has slashed the prices of its blades in the face of the new wave of competition.

Amazon has tackled the CPG space from many angles. These days, along with its subscription and Dash efforts (aided in no small part by its formidable Prime membership), the e-commerce giant has a new sidekick in these efforts — the artificial intelligence-powered voice assistant Alexa. The bot is primed to shake up CPG orders: Alexa remembers what detergent Prime members tend to order, but fills in the Amazon private label version in a pinch. That might be a point of contention for consumer products companies dealing with Amazon, according to Matt Sargent, senior vice president of retail at consulting firm Frank N. Magid Associates. “I was surprised there isn’t more of [an outcry] about that,” Sargent told Retail Dive earlier this year. “If you look at Alexa and how it does ordering — if you haven’t set ‘I always want Tide,’ it’ll make a selection for you. That’s a hugely terrifying proposition for manufacturers.”

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