CPG firms need to innovate

26 October 2010

NEW YORK: Consumers are doing without what have historically been recession-resistant staples, due in part to a lack of innovation in the CPG sector.

According to a report in AdAge, some industry commentators believe that firms in the sector have fallen behind the technology sector, which is more willing to innovate to stay ahead.

"Only four in 10 CPG companies are investing more in product research than they were 10 years ago ... they've lived on product extensions as opposed to developing truly innovative products," Pat Conroy, vice chairman at Deloitte, commented.

Meanwhile, Stef Gans, ceo of consultancy EffectiveBrands pointed out that electronics are now delivering what packaged goods and home appliances did in the 1960s.

"The big breakthroughs in life: status, convenience, enabling people - especially women - to lead more meaningful lives," he added.

Last month, Sanford C Bernstein issued a report comparing today's global household and personal-care marketers with the prescription drug marketers of a few years ago - a time when key patents were expiring.

Prescription drugs have since lost share to generics, in a similar way to how branded household and personal-care brands are currently losing share to private label products.

Bernstein's report argues that, since 2001, private label sales have been growing at double the rate of national brands in developed markets.

Another challenge is the diminishing perceived quality gap between branded and private label products.

Deloitte research shows that eight out of 10 consumers believe private label products are produced by the manufacturers of national brands.

Studies by Bernstein last year revealed that 77% of consumers reported their experiences with "less expensive" brands were as good as or better than with more expensive ones.

Michigan's Ross School of Business released the American Customer Satisfaction Index (ACSI) last week, showing that customer satisfaction with personal care and cleaning products is decreasing.

But Unilever ceo Paul Polman pointed out that there remain pockets of innovation in the CPG market.

"In the US, our launch of PF Chang's meals offering restaurant-quality Asian cuisine has done very well with consumers seeking an indulgent treat or choosing to eat at home rather than eat out," he said.

Meanwhile, bodywash brands are up nearly 10% for the last quarter, while razor sales also increased by 35% in response to new system launches from Energizer's  Schick Hydro and P&G's Gillette Fusion ProGlide.

Data Sourced from Advertising Age; additional content by WARC staff.