What is the Consumer Goods Sector?
The Consumer Goods sector manufactures and markets everything from food and beverages to luxury goods to household appliances. As the name suggests, businesses in this industry produce goods that are bought and consumed directly by households and individuals rather than by businesses or factories. Many companies in this sector rely heavily on advertising and brand differentiation, given the similarities across products. Moreover, performance of the sector is highly dependent on consumer behavior. Thus, developing and marketing new flavors, styles, and designs that are embraced by consumers is always a priority. The Consumer Goods sector is the foundation of the modern consumer economy because it not only generates significant portions of the GDP but also because it pumps a substantial amount of funding into other industries, such as retail and advertising. Over the past decades, with the advancements in technology, the industry has evolved dramatically in terms of the ways in which products are manufactured, distributed, marketed, and sold.
COVID-19 Impact on the Consumer Goods Sector
The COVID-19 pandemic has placed tremendous strains on the Consumer Goods industry. Businesses in the sector have had to face a challenging physical environment, supply-chain disruptions, and unprecedented volatility in demand – all while remaining under pressure to get products onto shelves and keep employees and customers safe. Since the pandemic began, variability has emerged as a strong theme in consumer shopping behavior. As working-from-home became the norm for many consumers, purchases related to home nesting increased. Thus, there was a significant rise in at-home consumption of packaged meals, paper and plastics, packaged produce, and dish care. Consumers also bought significantly more fresh food, bakery products, meats, and seafood for their homes. Moreover, companies within the sector have also shouldered increases of up to 50 percent in certain cost categories, including supply-chain costs, labor costs, and warehousing costs, etc., as a result of the pandemic. While some of these costs could return to pre-pandemic levels in 2021, most companies expect costs to remain elevated for a period of time. Looking ahead, the Consumer Goods sector will probably continue to face challenges, including competition from small and private-label brands, greater price transparency (with the shift to online sales), and pressure from retailers.
Consumer Goods Key Trends
Digitalisation: The shift to digital is not a recent phenomenon, but it has accelerated at an unprecedented rate this year due to the pandemic, with physical visits to stores becoming less practical or even possible. Department store sales and sales from "non-essential" retailers saw significant declines as a result. While restrictions are being lifted gradually, consumers are still reluctant to congregate like pre-pandemic times, so it will likely be a long time, if ever, before in-store traffic returns to the level it once was. This means that businesses that have primarily relied on in-person traffic will need to more quickly pivot to omnichannel fulfillment capabilities in order to remain competitive in the new environment. Specifically, they will need to drive traffic to their stores through services, such as Buy online and Pick Up in Store (BOPIS), and will need to offer an expanded set of ship-from-store services. They may also need to focus on the digital aspect of customer acquisition and engagement by optimizing their marketing for social media and ensuring that the order/delivery process is as seamless as possible.
Increased Price Sensitivity: Although governments around the world have made efforts to stimulate their economies with tax cuts and checks in the mailing, the economic situation remains dire for most people. As a result, consumers are more price sensitive, meaning that businesses have to make an extra effort to prove the value of their products and/or services.
Emphasis on Sustainability and Health: While people have always been concerned about the environment and their health, the degree of attention paid to these issues has skyrocketed recently. More and more consumers are focused on purchasing items that are produced ethically and sustainably, while health and wellness consequences have become primary considerations for consumers. As a result, businesses in this sector are also reflecting this new consumer consciousness in their product and service offerings, for example, by highlighting healthy ingredients in their products.
Supply Chain Volatility: Globalisation has been a huge opportunity for many companies in the Consumer Goods sector by providing them with opportunities to expand into new markets as well as source products from markets previously out of reach. At the same time, however, this has led to fewer, yet larger, more specialised suppliers, which has contributed to the increasing volatility of industry supply chains. With shortages in natural resources, such as water, a natural disaster or political disaster could create severe disruptions to the global supply chain. Minimizing potential exposure to this volatility is a new challenge companies in this industry will have to face going forward.
Consumer Goods Subsectors & Key Players
The Consumer Goods sector includes a wide range of varied industries. Broadly speaker, this industry can be divided into two categories: Durable Goods, which include items, such as cars, appliances, and household electronics, and Non-Durable Goods, such as foods, beverages, cosmetics, over-the-counter drugs, and other consumables. Non-Durable Goods are usually Fast-moving Consumer Goods (FMCG) – packaged goods with high sales volumes, low costs, rapid inventory turnover, and short shelf lives.
Some of the leading players in this industry include: Nestlé, Procter & Gamble, Christian Dior, LVMH, Tyson Foods, etc.