February 11, 2020
The Innovation Game: The Consumer Goods Industry in the Age of Digital
By
Spencer Stuart’s Global Consumer Practice
“If you’re going to do something new, it needs to turn into a leader brand. You’re in the innovation game.”
— James Quincey, chairman and CEO of Coca-Cola
We’re now deep into the digital age, and no industry is immune to the influence of digital and data. For all its roots in traditional commerce, the consumer goods industry is no exception. Along with evolved shopping habits and expectations of e-commerce, consumers now demand a level of personalization and customization that can only come from a savvy use of data and the insights it engenders. And digital has a profound impact on the operational side of the industry, too, from the supply chain to the back office.
In fact, the consumer goods industry is barely recognizable from 10 years ago. Today, innovation drives every aspect of the business, from the products making it to shelves to efficiencies in the supply chain to using artificial intelligence (AI) for more intelligent predictions. If you’re a consumer goods company today, you’re either innovating or you’re stagnating.
In a recent series of conversations between Spencer Stuart consultants and leaders of some of the world’s largest consumer goods companies, we discussed exactly how the consumer goods industry has changed — and what that means for leaders who need to make sure their companies stay competitive in a quickly transforming world.
E-commerce is just the tip of the digital iceberg
For consumer goods companies, perhaps the biggest takeaway of the digital age is that e-commerce is no longer an additional revenue stream but an integral part of the overall business. In the U.S., online consumer goods sales grew 35.4 percent in 2019 and represented 11 percent of the total market. With e-commerce now woven directly into the fabric of consumers goods’ brands, truly digital companies have gone way beyond simply selling their goods online.
“The digital question gets oversimplified into ‘what percentage of your sales are e-commerce,’ but that tremendously oversimplifies how fundamentally digital will transform everything around us,” explains James Quincey, chairman and CEO of Coca-Cola. Digital now impacts every single aspect of a business, from the supply chain to customer service. For digitally transformed businesses, Quincey continues, “Digital stops being a thing to measure, because it is the business. Digital success now becomes business success.”
Data is at the center of everything
Every day, 1.32 billion people log into Facebook, 3.5 billion conduct a Google search and approximately 602 million apps are downloaded. The data created by all that activity, along with the data from online and in-store shopping, creates a treasure trove of possibility for consumer goods companies.
But access to all that data is not enough. For companies to use it for innovation, they have to have strategies and methodologies for getting the data into the hands of everyone in the organization who might be able to use it. It’s not surprising that over the past five years, Spencer Stuart has seen a 320 percent increase in hiring activity in the data and analytics domain.
Organizations must be able to respond to the growing desire for authenticity and transparency
Traditional advertising tactics are still relevant, but today sophisticated marketing must be infused with authenticity and transparency. As Grant Reid, president and CEO of Mars, explains, “I've seen a big shift around the level of transparency that consumers want. There’s a quest for authenticity and for a product as straightforward as a candy bar to have a backstory.”
Customers now care not just which celebrity endorses a product, but where it comes from and how it was made. They’re looking for purpose in every purchasing decision, which gives brands an opportunity to innovate their products and marketing from a position of ethical leadership. “It's not a ‘big brand’ versus ‘small brand’ battle,” says Jan Zijderveld, former CEO of Avon, “It's a ‘relevant’ versus ‘irrelevant’ battle. The brands that serve customers best win. But to do that you need to be close to your consumers, super agile and faster than anyone else.”
Environmental values in particular are moving to the forefront as consumers demand that the brands they support create less of a carbon footprint. One of the biggest takeaways from the 2019 Consumer Goods Forum Global Summit was that sustainability has become an industry priority, with a lot of manufacturers looking for ways to decrease packaging and rely less on plastics. Consumers Goods Forum and its membership contingent have committed to cutting food waste in half by 2025, and the discussion around “zero waste” was lively at the event. As one CEO in attendance put it, “Consumers don’t want transparency about the company, they want transparency about the product.”
For businesses that can be agile in their innovation, there’s a huge opportunity to carve out a strong position based on value systems.
Everyone is moving much faster to market
One of the biggest ways the consumer goods industry is evolving in the age of digital is a faster pace of innovation. New products have to get to market much faster than ever before, as Jean-Marc Duvoisin, SVP of strategic business partnerships, joint ventures and brand licensing at Nestlé and former CEO of Nespresso, explains, “If you are not fast, the trend could be dead by the time you get to market.”
Traditional production cycles and ways of working no longer suffice. Consumer goods companies must embrace new ways of working and a culture that promote speed and agility. For many, that means pushing decision-making down in the organization, creating smaller innovation teams that can move quickly and operate more like startups, and fostering a culture comfortable with failing fast and learning.
Along with a willingness to take risks, a big part of innovating quickly is the ability to tap into the abundant data that large consumer goods companies have at their disposal. Leveraging customer data, including local data, and predictive analytics can help companies spot opportunities earlier and market in a more highly targeted way.
The explosion of innovation for consumer goods companies
The abundance of consumer and supply chain data now available, heightened expectations from consumers and pressure to compete with startups are all contributing to the digital transformation of consumer goods companies. The bottom line, says Ram Krishnan, global chief commercial officer and CEO, PepsiCo, Greater China and Asia Pacific: “You need really rapid innovation enabled by a very flexible supply chain.”
The consumer goods companies that thrive into the 2020s will be those that can harness data while still tapping into the authentic human values of their products and companies.