Food and Beverage CPG: What Awaits the Industry in 2022 and Beyond

foodandbev

Illustration by Diego Blanco

The CPG industry was hit hard throughout the pandemic. Some companies experienced massive sales hits and layoffs, while others saw wild spikes in demand, with US household spending on CPG items growing by 19% year over year.

Meanwhile, trends have accelerated at unimaginable rates, pushing CPG players into unknown territories. But as consumer goods manufacturers, they reinvented and reimagined themselves, expanding into digital sales and relevance-led marketing, and making heavy investments into ecommerce. 

This guide will give you a look inside what they did, with tips on how you can expand as a CPG brand.

  1. What are consumer packaged goods (CPGs)?
  2. How big is the CPG food-and-beverage industry?
  3. What was the impact of COVID on the CPG food-and-beverage industry
  4. 7 CPG food-and-beverage trends to adopt
  5. Small brands are eating up CPG market share

What are consumer packaged goods (CPGs)?

A consumer packaged good (CPG) is a product used daily by consumers that must be replaced regularly, such as wellness products, vitamins, clothes, beer, food, or toiletries. 

Within the CPR market is a subset called fast-moving consumer goods, or FMCG, which are products that are sold quickly and at low cost. Examples include candies, cosmetics, packaged foods, dry goods, and other consumables. 

CPG differs from retail. A CPG company is one that manufactures, markets, and sells goods to retailers, who in turn sell to consumers. CPGs can also be produced by retailers that sell their own products direct to consumers. There are a few cases where retailers are also a CPG company—for example, Walmart manufactures, markets, and sells its own products. However, CPGs and retailers are separate entities and should be seen as such. 

How big is the CPG food-and-beverage industry?

The global CPG packaged food market was valued at $1.9 trillion in 2020 and is expected to generate a compound annual growth rate (CAGR) of 5.2% from 2021 to 2030. The market is also expected to reach $3.4 trillion by 2030. 

Grocery was the top online CPG category in 2020, according to the Food Industry Association and NielsenIQ, accounting for 44% of all CPG ecommerce. That trend continued through 2021, with online grocery totaling $97.7 billion in sales via pickup, delivery, and ship-to-home channels, as more than 70% of US households received one or more orders during the year, according to strategic advisory firm Brick Meets Click.

What was the impact of COVID on the CPG food-and-beverage industry?

For the last 40 years, leading up to the 2008–2009 financial crisis, CPGs generated the highest returns to shareholders across many industries, including food and beverage. The category was led by giants like Coca-Cola, Doritos, Crest, and Lipton. These brands relied on mass-market appeal, partnerships, and brick-and-mortar channels for distribution and had relentless dominance over smaller brands. 

But times are changing, and a new model for the consumer goods industry is popping up. Prior to the COVID-19 crisis, large CPG brands in the US lost market share at a rate of 1.5% per year between 2017 and 2019. Smaller brands grew 1.7% in that same period. 

The pandemic amplified this trend, creating a new model for consumer goods success. More food shoppers are turning to ecommerce to discover and purchase CPG goods. A recent survey by McKinsey & Company showed that 76% of respondents switched either to a new brand or a new way of shopping during the pandemic, and 66% of those respondents are expected to stick with those new brands. 

The shift has allowed smaller food and beverage brands to thrive, such as:

image4

With the good comes some bad. The pandemic has also impacted the CPG industry negatively: 

  • This past year, the CPG food-and-beverage industry was hit with distribution and staffing shortages. Reuters reports that the problem continues to this day. Distributors have had to raise their prices from $7,000 to up to $22,000 for shipping goods coast to coast.
  • More than 120,000 CPG positions are being left unfilled. The National Grocers Association reports that many grocery stores are operating with only 50% of their staff
  • Despite the high demand for CPGs, supply chain challenges and inflation threaten the success of food and beverage retail brands. In 2020 alone, supply chain costs increased by 50% for the CPG industry. 

7 CPG food-and-beverage trends to adopt

A shift to sustainability and working with local suppliers 

CPG brands face the challenge of consumers' desires for sustainable products and packaging, according to a recent survey from Retail Insight. 

Some 77% of 1,000 US consumers surveyed by the firm said they’ve tried to be more sustainable in their consumption habits over the past 12 months. Nearly half (49%) of respondents said they’ll pay more for green goods. New findings by Cargill also found that 55% of global consumers are more likely to purchase packaged food items that are labeled with sustainability claims. 

image1

The issue? What shoppers want isn’t matching up with what’s in grocery stores. With 67% of shoppers saying retailers could be doing more when it comes to sustainability around food packaging, food waste, and greener supply chains, according to Retail Insights. 

One way CPG food and beverage brands are improving sustainability efforts (and reducing supply chain disruptions) is by working with local suppliers. According to data from the US Chamber of Commerce, 56% of consumers shopped locally and bought locally sourced products during the pandemic. Another survey from BrightPearl found that 75% of consumers planned to shop local over the coming  year. 

Research shows that consumers want to support their local communities and buy from businesses that do the same. 

Take ice cream retailer Jeni’s Splendid Ice Creams, for example. The brand’s mission is to work with local farmers and suppliers on its expanding ice cream flavors. It believes that companies should be involved in their local communities by supporting and serving them. All suppliers and producers are local.

The brand’s locally sourced approach benefited it during the pandemic. In 2020, when lockdowns were at their height, Jeni’s still grew 22% in the US. In 2021, the company added locations in three new states and added 100 new wholesale customers.

Focus on brand culture and value proposition

Younger consumers are seeking value propositions that are about more than money. Some  83% of millennials want companies to align with their values, and 76% want CEOs to speak out on issues they care about. The same survey showed that two-thirds of millennials have boycotted a brand that took an opposing stance from theirs on an issue. 

Rowdy Mermaid Kombucha is a company founded on the idea that kombucha can taste good and still be healthy. Because it believes in holistic health, the brand thinks all people and things are connected and should be respected and cherished. 

The brand supports many causes and organizations in a community that align with its customers’ values. With just 12 employees, Rowdy Mermaid is pulling in $2.35 million in annual sales.

image2

Our commitment to Healthy Systems means that we must support plants, the processes, the people, and the communities along our supply chain. All must be vetted for sustainable, ethical, and inclusive qualities.”

—Rowdy Mermaid

Frictionless shopping online and in-store

Consumers' excitement for fast and convenient shopping experiences surged during the pandemic. Contactless checkout and fully autonomous “walkout and pay” checkout solutions are leading the way into the future of retail. 

A recent survey by Piplsay revealed that a majority of consumers (89%) found Amazon Go stores “excellent” or “good.” Some 57% of US shoppers were excited to see Amazon Go or similar tech-enabled stores near them. 

One new trend is the use of computer vision to identify and ring up items for sale, which makes self-checkout faster and easier. Toby Awalt, Director of Product Marketing at Mashgin, reports that this checkout system is “four times faster than cashiers when it comes to the speed of transactions.” 

What’s cool about computer vision is that Mashgin can quickly ring up every item in a transaction at once—no need for customers to fuss around with bar codes. They just place their items down and, in half a second, they are ready to pay.”

—Toby Awalt

When it comes to ecommerce, CPG brands that sell online are focusing on providing seamless checkout experiences. Using Shop Pay is a no-brainer for its cost-effectiveness, plus it makes checkout easier and faster for customers. CPG brands using Shop Pay have seen a 15% increase in conversion rates on mobile, and a 60% increase in AOV with orders through Shop Pay Installments. 

Ecommerce investments and partnerships

At the end of 2021, global ecommerce sales almost hit $5 trillion. The percentage of retail sales that were ecommerce grew from 18% to 19.5%, with that figure projected to continue to rise to over 21% by 2024. More and more people have turned to ecommerce to get the things they need, and now that they’ve tried shopping online, they like it. 

The old value-creation model for CPG companies was partnering with grocers to gain distribution. But with the rise of e-marketplaces and the squeeze of mass merchants, successful brands want to invest in all growth channels and embrace digital sales. 

​​The new model uses digital to move away from mass marketing and sales and toward targeted commercial execution. —Perspective on Retail and Consumer Goods, McKinsey

Giants like Nestlé are shifting their budgets to digital channels. During 2020, 47% of Nestlé’s total media spend was on digital channels, compared to 41% in 2019. Smaller brands must find their best fit distribution channels. 

In McKinsey’s new model for consumer goods success, the research firm outlined four commercial capabilities CPG manufacturers must adopt:

  • Revenue growth management (RGM). CPGs must connect the levers of RGM (pricing, assortment. promotion, and trade investment) to the brand’s expansion and activation strategy. 
  • Emarketplace management. CPG players will need to partner with developer teams to produce the right assets at POS and manage technical execution daily. 
  • Omnichannel and D2C. CPG brands will want to adopt the D2C business model to acquire customer data and test new opportunities. They’ll also want to succeed at managing both online and brick-and-mortar stores, given the two to three percentage point share increase online retail will gain post-pandemic. 
  • Data management. CPG brands will want to become experts in retailers big data, demonstrating expertise in insight generation, analytics, and ROI tracking. 

It’s clear CPG is entering a new era. Successful companies will get on the right side of these trends to strengthen their brand and focus on relevant marketing and selling across all growth channels.  

Buy now, pay later (BNPL)

Consumers now have alternatives to credit cards when it comes to financing options. Buy now, pay later” services, such as Shop Pay Installments, Affirm, Afterpay, and Klarna, let consumers make interest-free payments on a purchase over a set period of time. 

According to respondents in a recent C+R Research survey, 60% say they’ve used a BNPL service, and nearly half (46%) are currently making payments through one of these services. Out of all purchases made, respondents reported 20% of BNLP purchases were made on food and drink. 

Large retailers like Target have begun adopting BNLP payments, partnering with Buy Now, Pay Later solutions Sezzle and Affirm to help consumers take advantage of the good deals and pay at a pace that works for them. 

Through our partnerships with Affirm and Sezzle, Target is investing in new financial tools that make our shopping experiences more flexible and personalized to guests’ needs, right in time for the holiday season.” 

Gemma Kubat, President of Financial and Retail Services

Subscriptions 

Another trend popping up is subscription offers from CPG companies. Considering CPG items are used daily by consumers and require constant replenishment, a subscription service is smart for retaining customers and generating recurring revenue. 

The subscription model in ecommerce is growing fast. The global subscription economy is projected to grow at a CAGR of 71.45% from 2020 to 2025, taking the total market size from $51 billion to an estimated $442 billion. According to insights from Recharge, food and beverage subscriptions have the highest AOV of any vertical. Both online and brick-and-mortar food and beverage brands are pivoting to subscriptions to give customers flexibility and convenience. 

Partake offers shoppers a “Subscribe & Save” option with 10% on recurring orders:

image3

A CPG brand can offer subscription services a few different ways:

  1. Product trials. A popular subscription type, these boxes include curated products with different levels of customization. Brands can let customers sample items or send seasonal food boxes based on their preferences and dietary requirements. 
  2. Refills. Product refill subscriptions replenish items on a recurring basis for a set period of time, saving customers time and money. 
  3. Membership subscriptions. This model gives customers access to exclusive products, discounts, or perks. Memberships like Thrive Market’s offer access to the best healthy products at guaranteed savings, for only $5 per month. If you don’t make back your membership in savings, Thrive Market will credit you the difference in Thrive Cash. 

Brands like Jenny Craig have turned to the subscription model to appease customers and increase sales. Pre-pandemic, consultation services and meal purchases happened in-store. In an attempt to expand the brand’s digital presence, it built an online store on Shopify Plus and began offering subscription services, seeing a 2.5% conversion rate immediately after launch. 

Fire Dept. Coffee, a veteran-owned coffee roaster in Rockford, Illinois, also saw a spike in sales after upgrading to Shopify Plus and offering subscription services. With a small but mighty team of 25 employees, the brand brought in nearly $10 million in revenue in 2021, with a 25% share of revenue coming from subscriptions.

Shopify fit us when we had just one product. Shopify Plus fits us now as a $10 million business with multiple product lines. And it will fit us as a $100 million or $200 million business. That’s the beauty of it—there’s nothing we can’t do with Shopify.”

—Luke Schneider, Founder and CEO, Fire Dept. Coffee

Consumers will look for greater transparency and connection

Consumers may have tighter budgets in 2022, but that doesn’t mean they’re willing to cut corners when it comes to their health or personal values. Instead, they’re carefully reading the labels to find out not just what goes into their food, but where and how it’s made.

This comes at a time when FMCG Gurus’ research indicates that over a quarter of North American customers don’t trust claims made by food brands, while 35% of global consumers say that brands are not transparent when communicating practices and policies.

In addition to seeking to establish trust and transparency, online shoppers in 2022 are looking to support local businesses and actively searching for stores that offer same-day delivery or click-and-collect pickup.

“Customers are looking to support brands that they connect with on an emotional basis,” say Eli Weiss, Director of Customer Experience at healthy soda retailer Olipop. He says that Olipop has found that when customers develop a deep relationship with the brand, it helps drive sales. Weiss cites the case of a recent launch of a new Olipop flavor, in which existing customers were sent an SMS announcement. It resulted in $30,000 of revenue in just 15 minutes.

“This is a testament to the value of exclusivity and authentic community building via the many platforms available to brands,” says Weiss.

Yes, budgets will be a major factor in online purchases, but consumers will also be willing to pay extra for what they determine to be quality products. Arresta says one key example is organic food products.

“People think the average consumer doesn’t have the resources to buy organic because of the pandemic,” he says. “But it’s not true—the organic industry has been growing.” 

Small brands are eating up CPG market share

CPG players that are nimble and respond to market changes will be able to take advantage of changing consumer habits. Smaller brands that prosper will win through relevance-led brand building, actively leveraging commercial levers, and marketing with the consumer in mind. By adopting the CPG food and beverage trends above, you’ll be well on your way over the $100 million barrier and beyond. 

About the author

Michael Keenan

Michael is a SaaS Marketer and SEO and founder of Peak Freelance. He’s inspired by learning people’s stories, climbing mountains, and traveling with his partner and two Xoloitzcuintles.