A new era for consumer goods: Capturing the hearts of Gen Z and millennials
For decades, global consumer-goods companies have prospered, building brands that have become household names. If you take a moment to think about the number of these products in your bathroom and kitchen, you’ll understand how the industry delivered one of the highest total returns to shareholders, at 15 percent, in the four decades before the 2008 financial crisis.
This week, why the model that consumer-goods leaders have relied upon for decades is no longer creating steady growth. Plus, Nick Vlahos, CEO of The Honest Company, on consumer trends, building community, and a strategy for expanding into new markets.
For decades, global consumer-goods companies have prospered, building brands that have become household names. If you take a moment to think about the number of these products in your bathroom and kitchen, you’ll understand how the industry delivered one of the highest total returns to shareholders, at 15 percent, in the four decades before the 2008 financial crisis.
The same business model since WWII. Leading consumer-goods firms haven’t really changed their business model since the 1940s: they build brands, create innovative products, expand to developing markets, and partner with distribution channels, like grocers. This has created a virtuous cycle that generated steady growth and enabled further investment.
Consumer-goods growth has stalled out. Over the past decade, the sector has seen narrowing margins and worsening stock-market performance. The model’s no longer working. What’s changed? A number of trends, including the dominance of digital media and the expansion of small brands, are disrupting traditional methods of promoting brands and transforming sales channels. The COVID-19 crisis has accelerated many of these changes.
For instance, the use of digital has become increasingly important. With consumers spending more time at home as a result of the pandemic, e-commerce is surging in a way we haven’t seen before. According to our analysis, in the US alone there’s been a 15 to 30 percent jump in the number of people who do most of their shopping online. And, over the past five years, the revenues of e-marketplaces have grown 17 percent.
Image-conscious consumers. Many consumers, particularly millennial and Gen Z shoppers, care about their image and buy products as a means of self-expression. These self-conscious consumers seek brands that are ethical, sustainable, and make a positive difference in the world. To stay relevant, consumer-goods leaders need to imbue their brands with purpose and originality.
Another trend upending the industry. Small brands and private labels have seen an explosion of growth. In fact, leading brands in recent years have captured a paltry 25 percent of value growth in US Nielsen-covered channels, despite making up 50 percent of sales. Small brands acquired by major companies often perform better, but scaling up to $100 million in sales can remain a challenge. Anyone acquiring a smaller label would be wise to consider providing supply-chain training or other support to help the brand quickly scale up operations.
To thrive in this new era, industry leaders need a new strategy. For starters, businesses should embrace e-marketplaces and online sales channels. In addition, they will need to invest in relevance-led marketing, which must include a sharper targeting of consumers. They’ll also need to establish brands in developing markets, particularly in emerging Asia. Finally, companies should evolve their own operating models by digitizing wherever possible—enabling both rapid change and growth in productivity.
Nick Vlahos, the CEO of The Honest Company, talks about the changing consumer and the future of the company—a fast-growing maker of baby and beauty products. Launched in 2012 by actress and mompreneur Jessica Alba, the company began as a direct-to-consumer online brand but has since expanded into stores across the US and in Europe. “We have a connection with the consumer, and we have insights into what you’re putting on your baby’s skin, so we started thinking about what you put on your own skin and what you put on your family’s skin,” he told McKinsey. “Going from baby products to beauty products made sense.”Πηγή: McKinsey
