By Krishnakumar (KK) Davey, IRI
This year has been an interesting one for the CPG industry. Sales continued to outpace pre-pandemic levels despite supply chain challenges, thanks in part to ongoing elevated in-home consumption. And consumer behaviors started to shift back toward more normalcy. But the landscape for CPG and retail in 2022 is expected to look a lot different.
Peering ahead, at IRI we believe that mobility will continue to increase and anticipate that inflation will cool a bit after peaking in the first half of the new year. Consumers will likely continue to go out more. At the same time, they’ll feel ongoing inflationary pressure as costs of many essentials go up and large CPG manufacturers continue rolling out price increases. And shopper comfort with and excitement for e-commerce solutions will only grow further in the coming year, increasing the importance to retailers and brands of addressing both in-store and online shopping experiences.
CPG retailers and manufacturers need to adapt to this changing landscape with the right answers for pricing, products, assortment, promotions, and their other marketing and digital investments. Our analysis of IRI point of sales, panel, frequent shopper and other data suggest that the seven following approaches will be sound strategies for CPG success as we head into the new year.
- Strategically drive price growth. Despite a downward pressure on CPG volume spurred by increased consumer mobility and inflation, we expect between 1% and 5% growth for CPG in 2022 — and that will largely be driven by price increases. Manufacturers and retailers can drive net price realization by using advanced analytics (elasticity), new technologies (machine learning and automation) and different datasets (shopper, consumer and point-of-sale). This allows for real-time management of price gaps, a granular understanding of consumer price sensitivity and focused use of promotions.
- Evolve your portfolio and footprint to win both in and out of home. Flexible work schedules will keep at-home consumption above pre-pandemic norms, but increased consumer mobility will also boost restaurant sales and consumers will have a need for more on-the-go products.
- Invest in e-commerce capabilities that provide a better shopper experience. These include improving the variety in your digital versus in-store assortments, boosting online delivery speed and improving the overall customer experience. We expect these types of enhancements will drive continued e-commerce growth in market share across both food and beverage and the nonedible CPG categories.
Note: E-commerce data is based on projected receipt-based sample and reported data with varying levels of granularity and accuracy available. Source: IRI Omnichannel, data ending 10/3/21
We also expect to see high e-commerce, shelf-stable categories like coffee, tea and nuts migrate back more to shipment, and pickup and home delivery trends continuing their advance for heavier, larger and more crushable products.
- Drive more impulse opportunities. We saw shoppers return to making more trips to store by mid-year 2021. As consumers spend more time in stores and become more price-aware on their staples, impulse purchases may become an increasingly important growth driver. Make the most of these opportunities using third-party delivery apps and in-store promotional offers tailored to meet shopper needs in real time.
- Use assortment to drive growth. As prices increase, some of the demand for premium products will remain. Manufacturers should look for balanced growth in their portfolios across price tiers, including mainstream, value and private brands, and offer a diverse price/pack architecture to meet these diverging consumer needs.
- Focus on custom, targeted marketing investments in digital channels. Lower-cost, high-value investments in digital grocery, direct-to-consumer sales, third-party delivery options and retail media networks can pay off with the help of strategic audience segmentation and personalized offers.
- Leverage insights and analytics to more quickly identify and act on opportunities. This will help you meet the behaviors driving 2022 demand with the right products and services. For example, there has been a shift to suburban living, more people returning to in-person work and school and an increase in self-care habits, and we still see a trend toward premium indulgences with an emphasis on strong and novel flavors. Consumers are continuing to look for ways to break up the monotony that brought on by the pandemic, and innovation (across products, certainly, but even in delivery/pickup and experiences) can help deliver that excitement.
Source: IRI POS Data ending 11/28/21
CPG manufacturers and retailers can meet this moment through a focus on convenient meal solutions, unique flavors and pack variety, and new products providing dietary alternatives with a focus on functional benefits and sustainability.
Source: IRI Executive Insights
With the Omicron variant still a wildcard, supply chain issues still a challenge, and inflation potentially peaking by midyear, we remain in an unpredictable CPG environment. But these seven strategies, which are based on our integrated data, predictive analytics and industry expertise during other times of market and consumer uncertainty, remain sound investments for any version of the future we can envision. As such, they can provide a helpful roadmap for focus areas that will support ongoing growth for CPG in 2022.
For more trends, predictions and advice for 2022, including how you can best drive growth for your brand or banner, read IRI’s CPG Market Review and Outlook for 2022 Report and/or reach out to your IRI representative or IRI@IRIworldwide.com.