Driving digital transformation in the CPG industry

Data science technologies will continue to be essential to CPG’s digital transformation.

Vandana Singal, Director, Solutions Consulting at Pimcore Global Services (a Happiest Minds company), discusses the importance of digital transformation for consumer packaged goods (CPG) companies

It was an eye-opening time for the CPG industry and consumers. Just like panic buying items like thermometers, toilet paper, bottled water and hand sanitizer exposed one side little did we know, who would have thought that dispensing and CPG companies would lead the change and meet customer expectations? After all, as a McKinsey industry study reports, 40% of CPG companies thanks to digital and analytical investments have achieved returns just above the cost of capital.

With the onslaught of the pandemic, the digital transformation curve in the retail and CPG segments has begun to record an epic ascent. From $500 million in 2021, CPG makers are expected to increase spending on data and analytics services to $4 billion by 2030. The floodgates opened as retail and CPG companies quickly adapted to consumer sentiment, digitalization, online ordering and new delivery methods such as online shopping, curbside pickup store (BOPIS) and curbside pickups.

As both industries have emerged as first responders in the pandemic, their legacy systems, processes, and capabilities have repeatedly hampered their ability to continue to reinvent and reimagine themselves. So while the CEOs of major CPG companies recognize the need to embrace and operate from a higher sense of purpose, their organizations often report a lack of skilled resources, outdated software models, and a inadequate IT infrastructure. Undoubtedly, digitization has given them the courage to move forward into an uncharted future, but there is work to be done: especially linking a clear strategic vision to their actions.

With that in mind, here’s why digital transformation must take center stage in the future strategy of CPG companies.

Lead with Purpose

The pandemic has exposed compulsions to buy sustainably. Rather than waiting for governments to make major changes, consumers are promoting retailers that help them “shop for values”. Along with the rise of organic, fair trade, conscious trade, and recyclables, retailers and CPGs are looking at allowed brands on their platforms.

A good example is the online marketplace for premium sustainable products – Hive. CPG ecopreneurs include how aligning their business models with current thinking (around conscious trading) relies heavily on data and analytics practices. In 2022, the critical CPG metrics of productivity, agility, speed to market, and personalization will see a new entrant – purpose. From operations to product design, the brand purpose for CPGs must be embedded across the business from start to finish.

Redefining customer value

A series of consumer trends emerged in late 2021. Millennial spending skyrocketed; social media was built for the new shopping window as omnichannel spending grew; loyalty disruptions intensified for retailers who reported stock-outs; and consumers renewed their engagement in out-of-home activities.

FMCG and retail brands have seen intense growth during the pandemic (more absolute growth in 2020 than in the four years from 2016 to 2019) because CPG companies and retailers have managed supply chain disruptions and unprecedented demand volatility. However, for the GCs to locate the new epicenters of consumption, they must realize the gravity changes triggered by the pandemic – namely, lifestyle changes; home work and leisure; relocation to non-urban spaces; and overall reduction in in-store purchases. Ultimately, customer value insights will fuel hyper-personalized product innovations.

Forever adapting to the next normal

The COVID-19 pandemic may have changed the CPG industry forever. The maelstrom forces of relevance, safety and affordability have meant retailers must continue to adapt to a new normal. Affordable health, hygiene and organic products command premiums, but the rules for establishing and building trust are changing. Brands with expert communication that focus on no-frills, no-bias compassion and more accurate value proposition messages maintain the perception of quality.

What will 2022 and beyond look like? Moving from pandemic response to recovery and navigating forward means managing multiple priorities simultaneously – keeping up with changing consumer preferences; identify micro-pockets of growth; adapt to changing business strategies; and finally adopting technology that makes them more agile in seizing opportunities.

Focus on Analytics

The contours of the next normal for CPG companies involve a holistic consumer-centric, analytics-driven approach that increases revenue growth. The reality, however, can be troubling. Consider a $3 billion+ organization with over 30,000 products that still uses 100% manual paper-based data management. Fortunately, that is changing.

On average, CPG companies reported a 8% increase in technology budgets over the past three years. The objective is clear: the transition from “digital passive” and “digital exploration” to “digital active”. CPG companies are adopting predictable analytics and related technologies backed by consistent data management platforms. For example, Team corea AI-based startupuses machine learning to power intelligent workflow automation that tells CPGs and retailers why products aren’t selling and what they can do quickly to fix it.

Customer service reigns supreme

A detailed study four business models shaping the future of digital commerce: sharing; customization; replenishment; and services. Regardless of the model, the defining feature for retailers and GICs remains the focus on customer service.

As CPG brands migrate to Direct-to-Consumer models (PepsiCo builds an end-to-end D2C system – Snacks.com – in less than four weeks), customer service takes on greater importance. With more and more customers demanding personalized relationships with brands, improving the customer experience is a game-changer. Additionally, with increasing volumes of cross-channel communications, CPGs and retailers need to improve their customer service expertise. Whether it’s email, chatbots, or social media, retailers and their customer service reps must not only answer every query, but do so with nuanced empathy in the environment affected by the COVID.

Looking forward

In today’s uncertain economy, even as CPG business leaders consider regional impacts, customer bases and segmental demands to firm up their growth strategies, the focus on digital transformation (investments and advanced) is not weakening. The coming months will see more data science success stories responding to rapidly changing consumer demands, how CPGs and retailers are leveraging automation for flawless execution, or even leveraging the sales data analysis and machine learning algorithms to circumvent market volatility.

The reveal period for GICs and retailers is about to see some exciting twists. Stay tuned!

Written by Vandana SingalDirector, Solutions Consulting at Pimcore Global Services (a The happiest minds Company)


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