Finding Volume in the Discovery Era

While sales gains made by major CPG companies in recent years appear impressive, much of this growth has been driven by price increases rather than genuine consumer demand. According to a recent Bain report, in the US and Europe, price increases accounted for a staggering 95% of revenue sales value (RSV) growth.

Dig deeper and you’ll find further evidence of a global volume crisis. In the UK, NIQ has measured 80% of CPG categories to have lost volume in 2023. In the US, CPG volumes have declined by 6% in the period 2021-2023. On a global scale, the firm says that volumes are down 1%, with only emerging markets generating any kind of volume gains. India's balanced growth stands out, whereas China’s fragile consumer confidence continues to suppress volumes.

Companies must now confront the harsh reality that volume growth has stalled.

There can be little doubt that the ‘volume crisis’ is a response to recent price hikes made by manufacturers who are battling with cost increases. And with consumers getting used to the idea of buying less - the return to volume growth will not be easy. Not least, because I believe people are becoming less impulsive. My analysis of over 30 market reports highlights a range of developments that all point to a less spontaneous shopper ahead.

• The popularity of weight loses medications, like Ozempic, will nudge down people’s overall caloric intake.

• The well-documented shift towards more purposeful, goal-directed buying behaviors will leave less room for discretionary spending.
• The continuation of media fragmentation will further reduce advertising's ability to trigger incremental spending by consumers.
• The increase in regulatory pressures to counter a global health (obesity) crisis are and will continue to reduce opportunities for impulsive in-store placements and TV advertising.

When all these dynamics are taken into consideration, it is clear that CPG must rethink its growth strategies.

In the years ahead, finding growth will rely on a reinvigoration of innovation spirit like never before.

Kantar notes the importance of innovation in driving category growth, stating that 43% of sales growth for the top 10 branded manufacturers in 2023 came from new products.

Yet, latest industry figures show that innovation spirit is at a low ebb. Circana (formerly IRI) reports that CPG innovation has fallen 16.5% annually. This decline has been attributed to economic pressures, as brands focus more on their core products to maintain profitability amidst rising costs and consumer spending constraints. According to Circana, innovation tends to stimulate new need states, which can lead to incremental volume gains.

So, where do CPG brands look for inspiration for volume led recovery?

Despite the gloom, I believe there is a glimmer. New and novel products are increasingly valued, particularly by a new generation of shoppers who are bombarded by social media hype that is increasingly focused on calling out new stuff.

A recent MMR study highlighted that Gen Z views new and novel products as a key value driver. Meanwhile, data from Circana estimated that as many as 1 in 4 consumers now consider themselves to be early adopters. Increasingly, the role of new products in people’s lives will grow.

As consumer confidence returns and younger generations take control, we must prepare for the discovery era of CPG.

In addition, extensive analysis from MMR Social Listening Unit has found that in the past year alone, online conversations about discovering something new have lept 11%. When restricted to conversations relating to CPG categories, the escalation is nearer 35% in the last 12 months alone. Clearly, consumers’ quest for and adoration of new experiences is taking on a whole new level of momentum.

To reignite volume growth, manufacturers must embrace and leverage consumers' desire for discovery and novelty. Innovation will need to take centre stage once again, requiring:

Faster, more frequent product launches: Adapting to rapidly changing consumer needs and desires.

Continual upgrades: Ensuring the core ranges remain relevant and aspirational.

Better product experiences: Advancing brand equities, enhancing mental availability, and ultimately improving consumers' lives.

Supporting this approach with commercial rhetoric, industry expert Mark Ritson emphasizes that product experience will be central to brand success in today's market. New products drive category growth, and brands that prioritize innovation are better positioned to capture the changing consumer's attention.

In an environment where volume growth is increasingly elusive, innovation becomes the lifeline. By responding to the changing consumer landscape, FMCG manufacturers can navigate the pressures of inflation, volume decline, and shifting consumer behaviors. The path forward is clear: embrace experimentation, focus on delivering novel product experiences, and reignite impulse behaviors that drive volume growth.

We are at the cusp of the Discovery Age in CPG. Manufacturers that can stay ahead of this shift will not just survive – they will thrive.

Discover more on our 'Delighting the New Consumer' content hub, where we dive into the latest research on the Discovery Era and provide actionable insights for your business. Stay informed with expert perspectives and key industry updates!