consumer product goods industry<\/strong> manufacturers and retailers are looking ahead to a time when their costs outside of wages return to \u201cnormal\u201d and they\u2019re planning how they\u2019ll react.<\/p>\nAs is often the case, these partners\u2019 priorities and strategies aren\u2019t exactly aligned, especially in the critical areas of pricing and promotions. That could translate to missed opportunities and more negotiations for both.<\/p>\n
As our latest quarterly Advantage Sales Outlook report reveals, when their expenses fall most grocery manufacturers will invest in their businesses, while most grocery retailers will lower prices for inflation-weary shoppers. Asked to select their top three strategies \u201cfor handling deflation,\u201d 70% of surveyed manufacturers chose \u201cinvesting in my brand through marketing.\u201d Half told us dropping the savings to their bottom line would be a top strategy; nearly 40% selected \u201cfurther developing my e-commerce capabilities.\u201d<\/p>\n
Meanwhile, 79% of retailers said \u201clowering everyday price\u201d would be a top strategy if their costs fall in the next six months. Nearly two-thirds (64%) said \u201cincreasing promotions\u201d is high on their list.<\/p>\n
In short, manufacturers\u2019 top strategies signal they are going on the offense, taking on competing brands by making themselves stronger. Retailers\u2019 strategies are more about defending their turf as they focus on offering their customers a break at the checkout to stop them from leaving to go to competitors and retail channels perceived as offering lower prices.<\/p>\n
But as retailers set their sights on lowering prices, few manufacturers are motivated to support that strategy. Here\u2019s why: CPG manufacturers have absorbed a good portion of their significant, unplanned or unscheduled pandemic-related investments in supply chain, e-commerce and other capabilities as they\u2019ve spent more on commodities, transportation and production. Even multiple increases in list price haven\u2019t covered all the increased costs, as the time lag between deciding to raise prices to the close of a 60- to 90-day price-increase notification can be six to nine months. As one CPG leader told me, \u201cWe\u2019ll have to experience deflationary costs for many months, if not over a year, to fully recoup our losses and lower our list price.\u201d<\/p>\n
Pricing Tensions and Promotional Gaps<\/h2>\n
On the subject of trade promotions, the chasm between retailers\u2019 and manufacturers\u2019 plans isn\u2019t likely to be bridged soon \u2014 but would benefit both parties if it was. More than 60% of our surveyed manufacturers have cut trade marketing spending in the past six months \u2014 one-fifth trimmed this spending by more than 10%. Even so, if costs fall, just one-third say \u201cincreasing trade promotion budgets\u201d will be a Top 3 strategy.<\/p>\n
Here\u2019s my prediction: CPG manufacturers who overcome supply issues and can effectively use trade promotion as a competitive lever sooner rather than later will win in the marketplace. Just as brand loyalty took a hit when out-of-stocks were rampant, many consumers are switching brands as price hikes run rampant. As my neighbor said to me, when she goes to the store now, she buys the yogurt on sale. It may not be her favorite brand \u2014 she may never have tried the product \u2014 but if it\u2019s a good deal, she\u2019s buying it. With a typical 16-week lead time before seeing promotions in stores, many manufacturers may be scrambling later this year and early next year to push products at a perceived discount to remain competitive.<\/p>\n
Whether you\u2019re a manufacturer or retailer, investing in your customer is never a bad move.<\/p>\n","protected":false},"excerpt":{"rendered":"
What goes up, must \u2014 at least in part \u2014 come down. But, then what? As I write this in late October, the annual U.S. inflation rate sits at 8.2%. Although the cost of some commodities has inched down, economists and experts expect higher prices to linger well into the new year. Still, consumer product […]<\/p>\n","protected":false},"featured_media":2613,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"advantage360-category":[46],"class_list":["post-2749","advantage360-reports","type-advantage360-reports","status-publish","format-standard","has-post-thumbnail","hentry","advantage360-category-shopper-study"],"acf":[],"yoast_head":"\n
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