Marshal Cohen, chief retail industry advisor for Circana, warns of the rising cost of lack of innovation in CPG

In 2019 new products accounted for approximately 5% of overall discretionary general merchandise purchases in the US according to Circana retail tracking data. However, over the course of four years, this has dropped to just 2% (for the full year ending December 2023).

Supply change issues and other factors during the pandemic limited new product development. Retailers too have developed less of an appetite for launching new products as they began to take a more risk-averse approach. Fast-forward to today and there continues to be a lack of enthusiasm between manufacturers and retailers to bring new products to market.  

With fewer innovations, alongside a continued cost-of-living crisis, pricing is less competitive, which has dampened consumer demand. Recently however this has changed.

Even while key areas to retail growth, such as newness, impulse and urgency are all lacking, there are small pockets of exception. Nonetheless, the US retail environment is stuck in a product dormancy rut and is unable to catch up to where it should be. The expectation is that retail would have reached the turning point already. Instead, this dormancy may be becoming more of the norm as there appears to be less desire to create non-repetitive purchases and a clear risk-averse culture to invest in new product launches.

A replenishment-dependent retail environment raises concerns

The replenishment cycle is slower than the accelerated purchase of new and innovative products. A slower purchase cycle means less consumer spending over time. The consumer is settling into this slower spending cycle, potentially creating another hurdle for retail to overcome.

It is clear that many big brands are being short-sighted in their future thinking. Yes, restarting the product development cycle isn’t easy – it’s time-consuming, and initially takes its toll on profitability as the profits are invested back into new product development. But finding opportunities to cater to a mode of new growth is essential if the sector is to see any growth at all. There is a fine line between the right time to bring in the new and the right time to hold back. Cycling product introductions in such a way that it creates both new growth and longevity is the goal. Given the length of inactivity, getting back to this cadence will take some time, but the long-term payoff is critical to the health of retail.

Collaboration is required to spark a retail reawakening

Essentially US retail is off-cycle. Recovery at the product level is lacking. Whether this is by choice or necessity, change needs to come in the form of a partnership between retailers and manufacturers, working together to restore consumer demand for products. Retailer appetite joining with manufacturer desire to bring something new to consumers is where the excitement starts.

Pockets of newness over the past few years have demonstrated the consumer’s interest in spending when there is something worth their while. That worth comes in many forms and can be cultivated in a variety of ways. Whether it is a new colour, a viral sensation, upgraded features, new technology or new brands, consumers really do have an appetite for new products. Now is the time for brands and retailers to be brave. They need to come together to bring the consumer a mix of offerings that they both need and crave.