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The Consumer Crossroads within CPG and Retail

Insufficient shipment history, increases in pressure to reduce supply chain costs, skewed visibility of shelf-life, inaccurate reports of demand cycle and inventory analytics in addition to the increasingly intelligent customer—the retail industry is continuously pinched by such factors. And neither Consumer Packaged Goods (CPG) companies nor retail stores (brick-and-mortar and online included) are exempt from such ramifications. Not to mention, the lingering impacts of the economic recession leave some consumers still hesitant today about where they spend their dollars, causing unpredictable inventory demands. As a result, CPG companies and retailers must both work smarter about their go-to-market strategies and investments to overcome such challenges and win the customer back—outside of traditional management of POS and shelf-life inventory optimization.

“Customers are more intelligent—they want product where they want it, how they want it and when they want it,” said Sara Lewis, Worldwide Industry Marketing Lead, Automotive and Supply Chain for IBM. “And even similar to CPG companies, the level of service that is expected is huge. But for CPG specifically, what we have seen is a huge increase in volatility end to end. CPG companies are in dire need to find a way to reduce inventory costs as well as reduce out-of-stocks. A lot of the CPG industry talks about the up-and-coming private label phenomenon coming in with low-cost competitors. And based on these private labels, if a product is not there at the right time—consumers are smart and they have done the research and they know what the next best option is and they will buy that instead.”

Processes at play

Numerous industries require the customer to be the focal aspect of most decision-making—a vital driving force for both CPG brands and retail stores combined. And as consumers continue to demand more in quality of goods, convenience and service, a relevant shift has occurred in the way all angles of retail compete to deliver on those requests. In other words, the consumer has come to a crossroads of whether they want to stay loyal to their brand of product; or to the goods outlet that allows them to purchase an item.

One example of this is Amazon.com Inc., which most recently announced plans of delivering same-day shipping to meet consumers’ needs during the holiday season and beyond. On top of that, retail giant Wal-Mart announced it would no longer carry the Kindle e-reader or tablet. As a result of this, consumers are faced with a number of scenarios such as: ‘A). As loyal Wal-Mart customers now have to go elsewhere to purchase the Kindle items, does this increase the chances that they may also start to turn to other outlets to purchase other electronics items as well? B). Does the ‘potential option’ of same-day delivery mean that they will start to only purchase items from Amazon.com? And C). what impact do these developments have for online retail versus brick-and-mortar retail depending on where consumers go to purchase specific items?’

“If you walk into a store as a consumer and you don’t see a product on the shelf, there is nothing that prohibits you from taking your smartphone out, looking up a product on Amazon or on any other sites to see where else you can find it,” confirmed Guy Courtin, Director of Product Marketing, Retail Solutions Inc. (RSi). “And that could potentially take you away from that specific retailer. The CPG company might be ok because you’re still buying their product but now all of a sudden, instead of buying it at your local CVS, you might be buying it through Amazon or another channel. So as a retailer, you’ve lost a sale. And that’s going to potentially impact some of the consumer loyalty and allow switching cost to be greater in going from one channel to the other.”

In fact, 46 percent of consumers use their mobile device while in a store to locate a retail store, while over half (56 percent) make purchases via mobile while at a location, according to new data from Shopzilla Inc.

In addition to product availability, convenience and price comparison, retail differentiations are also coming into play as part of the decision-making process when it comes to where the consumer loyalty is shifted—whether it’s to the retail outlet or to the CPG brand.

Retail store Target is one outlet that upped its game in adding a produce section to its brick-and-mortar chains across the country. “Target is trying to add enough food products so that the consumers do all of their shopping there and stock up on items based on convenience,” explained Jonathan Golovin, Ph.D., Chairman, Chief Executive Officer and Co-founder of Retail Solutions Inc.

“All the retailers are starting to look alike as they compete on the same basis,” Golovin continued. “So if you think about grocery or pharmaceutical, the drugstore chains are starting to add more and more food products. If you go to Duane Reade in New York, you can actually get a sandwich or sushi—so they are starting to look like a convenience store, which is their strategy. If you go to a grocery chain, they have a pharmaceutical department in the back, they have bakeries—so they are trying to look like they can be a one-stop shop. So on top of the competition from Amazon and these price comparisons, everybody is saying ‘I’d like to get as many of the consumer’s shopping trips as possible,’ so even the competition across traditional lines is getting stronger. And the consumer really has a lot more choices these days.”

The power of promotion

Especially crucial now during the last weeks of the holiday season, the power of promotion is one factor that will change where the power is today in terms of “both the CPG and retail companies making their numbers, getting the return on investment that they are working to get in order for their business to survive,” said Courtin.

“What is happening is that the loyalty programs are really the key—they are going to be the make or break for these retailers because it is the only shot they have to have a one-to-one communication with their shoppers and actually keep some of them by analyzing what they are buying, what is not in the basket and what they think their consumers might want,” added Golovin.

Safeway Inc.’s “Just for U” program is one such loyalty program which provides personalized deals according to a consumer’s needs (i.e., past purchases) to help them plan their shopping trip better.

“If I think about Safeway and their ‘Just for U’ program, one of the things that they do is they always have these Friday specials,” explained Marie Jackson, Chief Marketing Officer, Retail Solutions Inc. “But if you are a ‘Just for U’ member, they extend that for the entire weekend. So if you can’t get to the store on Friday, you now have the opportunity to get to the store on Saturday or Sunday to get the same thing. So it’s the loyalty by giving you tips and making you feel special about the way they are treating you or communicating with you.”

While price and delivery are the main factors that come to mind when it comes to consumer demand, part of the continuing battle in the CPG and retail space will also encompass the entire shopping experience overall. While an online retailer may understand some of your needs based on items in your “virtual” basket, they don’t capture all of the consumer visibility because a consumer may only be buying a portion of products online, while still going to their local store for items they would prefer to have direct contact with, for ex., furniture. Enter Costco, which provides shoppers with standard items such as food and beauty items, but has a power of keeping season items in stock based on location and surrounding communities.

“Some of the reasons that people go to Costco is because while there prices are fantastic, you’re always curious about what they are going to have there,” said Golovin.

Add to that the free samples of food to munch on while shopping and you’ve got a case “shopper experience” scenario already.

“It’s just more value-add—it’s building a deeper relationship where the retail store becomes more of a place a consumer wants to go and a trusted advisor than just a commodity making a transaction,” said Golovin. “So there is going to be a trade off in, in-person experience versus convenience and price—and they are going to battle back and forth.”

Data tracking and profit capture

While the concept of “multi-echelon”—whether referring to an overall supply chain design, inventory optimization or forecasting—has been around for years, increasing supply chain pressures—such as “intelligent” consumer, continuous economic recovery conditions and sporadic inventory demands—are causing CPG companies and retailers to take note and focus on the way they power their processes through best-in-class optimization.

“The key pain points become how do companies best manage and plan for volatility—both economic volatility and that which is specific to rapid variations in demand,” explained Lewis. “The way that leading-class companies are looking at this right now is to take control of their inventory and policies across the entire supply chain to achieve lower inventory levels and reduce the out-of-stocks. A lot of out-of-the-box solutions these days will look only at one node of the supply chain—they only have visibility going out and coming in. Not having complete visibility adds a significant amount of unknown and a significant increase in the amount of inventory that is being held end-to-end. It’s not efficient and it really does not add a whole lot of service to your supply chain. Running this sort of multi-echelon inventory optimization is a core process that regularly tunes their policies to keep inventory closely aligned with changing conditions. So it’s not just reorganizing your processes but it’s powering them with best-in-class optimization into everything that you are doing in making decisions,” concluded Lewis.

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