This article originally appeared on KPMG.
The Consumer Goods Forum brings consumer goods retailers and manufacturers together globally to collaborate and drive positive change, including greater efficiency across the ecosystem. In June 2022, business leaders came together in Dublin to reconnect and explore how the sector will shift and transform.
The world’s consumer goods leaders are used to dealing with a crisis but agree they have never had to deal with so much turmoil and change as they are right now.
As one leader said, “I’m tired of living in unprecedented times.”
Inflation bites
At the Summit we heard consumers are already feeling the impact of inflation on their household budgets and changing their behaviour. In Germany basket sizes are smaller than a few months ago and 50 percent of consumers have downtraded to lower value brands. Twenty five percent have already switched to buy their groceries at discount stores.
Food inflation in Europe is running at approximately 7 percent. This is from a high base noting higher costs were already in place prior to the conflict in Ukraine. The United National Food Price Index went to a record 140 points before the war and is now up to 160 points. One CEO said grocery retailers need to empower customers to use their budget wisely – smart merchandising, informed decision-making, and cost management.
Delivery in ten minutes?
The future shape of market channels and how to deliver profitably in these channels remains a challenge for consumer package goods and retailers.
During COVID some categories peaked at 80 percent online sales e.g., cosmetics but this has subsequently dropped to 35 percent with the easing of restrictions and is expected to settle at around 50 percent of sales online in the medium term.
In Hong Kong some products are delivered in a little as 10 minutes – in other key markets such as London the delivery time achieved for some goods is an hour.
Achieving this excellence in home delivery has caused a rethink of the golden rule – give people what they want, where and when they want it – at a price they are willing to pay. The “where” component is new!
The omni-channel considerations for grocery continue to be different to non-grocery. As one CEO reported – in UK e-grocery – under 50 euros basket size is not making money – above 100 euro you make money but only half the margin compared to if the customer had walked into the store. During the peak of COVID lock-downs on-line e-grocery peaked at 8 but is now back to 6 percent.
I’m not dead – the physical store fights back
Investment in innovative bricks and mortar stores is growing rapidly post COVID lockdowns. There has been a ten-fold increase in the number of innovative store formats such as just-walk-out (cashier less stores), corner stores, robotic stores, and new digital discovery models.
I’ll have mine healthy and sustainable please
The impact of consumer goods on the environment and society was high on the agenda of every leader at the summit. During the pandemic childhood obesity in the UK reportedly increased by 5 percent with 40 percent of children in the UK now classified as obese.
Consumer goods leaders are seeking to contribute to an overall healthier diet. One CEO said the barriers to eating more healthily were – taste, cost, confusion (what’s really healthy?) and time – with the average time for food preparation in the UK reduced from 2 hours down to 20 minutes per day.
Government, industry, and consumer goods leaders have a range of initiatives towards healthier eating e.g., use up day, which is designed to use your food in the fridge – especially fruit and vegetables to eat better, save money and reduce food waste. Other common goals are to halve food waste by 2025, achieve net zero scope 1 and 2 by 2035, have a delivery fleet 100 percent electrified by 2028 and achieve net zero scope three emissions by 2050.
Consistent with KPMG Australia’s recent 30 Voices report, ESG Revolution – all leaders spoke about the need to turn their ESG commitments into action. Scope 3 emissions was often raised, and leaders conceded the solutions and pathways to achieve net zero scope 3 were not yet in place.
Working collaboratively with the supply chain is the only way we can achieve ESG goals including net zero emissions.
Plastics and packaging remain a key challenge for the consumer goods industry. Globally we use one million plastic items every minute with only six per cent recycled.
Leaders consider plastics are essential, but one leader said, “It’s not about plastics it’s about pollution and plastics that leave the useful economy.” For industries with very low recyclability – systems with re-use and refill – will need to be developed and collaboration established with retailers who seek to collaborate in refill systems.
There are an estimated 160 million child labourers in the world today and this is increasing. Seventy per cent of child labour is in the agriculture sector. As consumer goods companies seek to remove practices from the supply chain that harm people and the environment, an increased level of supplier due diligence will be required. If we are to eliminate child slavery the question is, what is the real level of due diligence required and should this be mandated, or should it be voluntary?
Robert Poole is the ESG Lead & National Lead Partner, Consumer and Food and Georgie Aley is the National Sector Lead, Consumer Goods & Agribusiness at KPMG.
