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Home Lifestyle Food

CPG Companies Think Beyond Costs to Boost Profitability in 2023

ALY by ALY
January 12, 2023
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The past few years have been anything but predictable for the consumer products industry. So it’s no surprise that 70% of CPG executives say their role is more stressful now than it was five years ago, according to Deloitte’s 2023 Consumer Products Industry Outlook. Three in 10 say it’s a lot more stressful. 

Deloitte asked 150 consumer products executives — from food and beverage, household goods, personal care, and apparel companies — to weigh in on what challenges and opportunities they’re anticipating in the year ahead. They also conducted a financial analysis on top-performing CPG companies to help identify determinants of profitable growth for 2023. 

Although eight in 10 surveyed CPG executives were either neutral or pessimistic about the global economy and geopolitical stability, most remain optimistic about their company’s performance (74%) and strategy (80%). 

At the same time, consumers are not so optimistic — 40% say their financial situation has gotten worse within the last year, and only one in three believes their situation will get better this year. So CPG companies will have to approach price increases with caution as consumers continue to reign in their spending. 

Challenges carry over from last year

New year, same struggles. Many surveyed CPG companies are still encountering workforce, supply chain, and inflation obstacles.

Fortunately, many companies are beginning to see labor shortages improve. More than four in 10 companies (42%) report higher-than-normal voluntary attrition, but this percentage is down 13 percentage points from last year. More than half have already seen labor shortages end or are expecting an end within the next six months, and only a small fraction (8%) say labor problems will be extremely challenging this year.

Supply chain challenges persist, however. More than six in 10 (62%) CPG executives are anticipating challenging supply chain issues this year, and more than half (52%) are shortening their supply chains to de-risk. 

And it looks as though record-setting prices will persist in 2023, as 80% of CPG companies are planning further price increases over the year. Even though the high prices are bumping up revenue, 56% of executives expect sales growth to be an issue for this year, especially with consumers changing their spending habits in search of better value. Less than half (48%) of executives think they can get away with raising prices without materially affecting demand.

Five factors will drive profitability in 2023

To find out what factors will set companies up for success this year, Deloitte identified companies that were on track for profitable growth and determined what set them apart from other CPG companies. As it turns out, their success plan was less about managing costs — profitable growers were just as likely as other companies to work on keeping costs down and improving efficiency — and more about finding creative ways to overcome industry challenges.

Here are five action areas that will differentiate profitable growers in 2023.

Meeting consumers where they are

Changing customer behavior is a top challenge for 80% of surveyed CPG companies, and 93% are prioritizing keeping up with changing consumer demands. But it’s the profitable growth companies that are making the most effort to adopt solutions that help them better adapt. 

Compared to other CPG companies, profitable growers are more likely to invest in direct-to-consumer channels (93% vs. 42%), technology to improve customer and employee engagement (86% vs. 50%), and personalization of the customer experience (86% vs. 54%). 

Product improvement is also part of the strategy — profitable growers are more likely to: 

  • Prioritize new product introduction (86% vs. 46%)
  • Invest in product innovation (77% vs. 42%)
  • Use data to identify new product opportunities (77% vs. 56%)
  • Invest in health and wellness trends (72% vs. 53%)

Increasing market share

More than eight in 10 (85%) profitable growth companies plan to grow their market share this year (compared to 49% of other companies). To do so, they’re more likely to invest more in marketing and advertising (79% vs. 30%) and prioritize expanding by acquisition (48% vs. 21%). 

Embracing creative transformation

Compared to other CPG companies, profitable growers are more likely to take creative approaches to business transformation, such as pursuing vertical integration (68% vs. 32%) and investing in divestitures and portfolio optimization (66% vs. 44%).

Boosting supply chain capabilities

Profitable growth companies are more likely to invest in improving their supply chain data capabilities, including increasing transparency levels with consumers and other stakeholders (90% vs. 46%), enhancing their ability to securely share data with partners (76% vs. 50%), and collecting more detailed supply chain data (48% vs. 21%).

Prioritizing ESG initiatives

Environmental, social, and governance (ESG) objectives are also on the radar for profitable growers. Almost all (97%) have made it a priority to become more environmentally sustainable (compared to 58% of all other companies). And they’re more likely than other companies to invest in ESG reporting (83% vs. 50%), prioritize increasing the company’s positive impact on society (76% vs. 50%), and invest in diversity, equity, and inclusion (75% vs. 47%). 

Although it may not be a differentiator, Deloitte recommends that all CPG companies address cost management and efficiency improvement this year. But it’s worth noting that the most successful companies are also focusing on the above areas so they can better prepare for the changes and challenges ahead. 

See Deloitte’s full report for more insights into the state of the consumer products industry.

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