As customers increasingly shop online, both CPG and traditional retail companies are scrambling to alter their modus operandi to stay competitive. Cash-rich and acquisition trigger-happy online players like Amazon and Alibaba continue to disrupt the market landscape by making forays into the ever-widening retail territories that were once considered the bastion of the old guard, the brick and mortar shops.
While most of the disruption is visible at the front of the value chain in retail, the effects reverberate across the supply chain that includes manufacturers, suppliers, and service providers. As every element of the CPG/retail business is being driven by consumers now, the business has to master the art of demand-driven supply chain.
Concepts such as sharing/renting vs ownership, personalization and curated offering vs one-size- fits-all, automated ordering/replenishment, and services/outsourced economy will play an increasing role on how CPG/retail companies conduct their businesses.
Procurement, manufacturing, distribution, sales, and after sales are all going to be impacted by technologies, including internet of things (IOT), artificial intelligence (AI)/machine learning, robotics, augmented reality/virtual reality, and digital traceability.
Amid this transformation, it is essential for the CPG and traditional retail players to reassess every point in their value chain and ascertain which one would they want to focus on and which one to be given away to partners, some of whom may be even rivals.
Some examples to highlight the above point:
- Recently, Hershey’s decided to double down on their e-commerce initiative on concerns of the declining number of cash registers, which forms the basis of impulse purchases crucial to any confectionary business.
- Retailer Sears has struck a deal to sell its Kenmore appliances on Amazon.com. Shares of Whirlpool, Home Depot, Lowe’s, and other providers of home appliances immediately dropped after the announcement – highlighting the fact that the market liked Sears’ strategy.
- Similarly, Nike’s recent deal to sell its products on Amazon.com brought down shares of retailers including Foot Locker, Hibbett Sports, and Big 5 Sporting Goods.
Thinking differently and acting fast seem to be the only way to keep the traditional CPG/retail companies remain relevant against the onslaught of companies such as Amazon, who are disrupting every element of the value chain in order to increase their market share.
We at Moody’s Analytics Knowledge Services have been helping companies in the consumer packaged goods and retail sectors navigate through the fast-changing landscape of business and technology. We help clients identify market trends in advance, help them navigate the challenges associated with such changes, and also benefit from these changes.