In the fast-paced world of consumer packaged goods (CPG), success hinges on continuous innovation. Strong research and development (R&D) and innovation programs lead to the creation of products that are appealing, competitive, and aligned with consumer expectations.
Savvy CPG businesses understand this. According to BCG, innovation rose as a top corporate priority in 2023 despite an uncertain economic environment. Almost 80% of companies ranked it among their three top goals, and 42% planned to increase innovation spending significantly.
To determine where to invest – and avoid barriers to innovation – CPGs need an understanding of the latest market trends. This blog will explore the dynamic trends shaping the CPG R&D and innovation landscape in 2024.
Top CPG R&D and Innovation Trends in 2024
1. The AI Revolution
Artificial Intelligence (AI) is on the radar of any organization that has been paying attention. More than half (61%) of companies surveyed in the BCG Global Innovation Survey said they are delving into this transformative technology.
CPGs are already betting on AI. Beauty giant L’Oreal has deployed AI to analyze millions of comments, images, and videos posted online via social media, beauty blogs, and reviews, to identify future market trends and achieve faster time to market than the competition.
AI also expedites consumer personalization, allowing CPGs to personalize products, recommendations, messaging, campaigns, and content more quickly and effectively than ever before. For example, Coca-Cola is using AI to create unique beverages in response to consumer preferences.
2. Personalization and Hyper-Personalization
Consumers continue to enjoy – and expect – personalized products and brand experiences. Personalization helps CPGs differentiate their brands, forge deeper customer connections, drive customer loyalty, and boost sales. CPGs will continue to invest in powerful market research to gain valuable insights into customer demographics, preferences, and behaviors to personalize effectively.
Advancements in data and analytics are helping brands better understand the purchasing history, demographics, and online behavior of individual consumers. This enables them to create products that meet individual consumer preferences – hyper-personalization.
An example is The Farmer’s Dog, which takes new customers through a brief quiz to deliver a customized food recommendation based on their pet’s unique activity level, age, weight, food preferences, breed, and more. CPGs will continue to invest in such powerful market research to gain valuable insights into customer demographics, preferences, and behaviors to personalize effectively.
3. Direct-to-Consumer
Closely linked to increased consumer personalization is direct-to-consumer (D2C), which allows CPGs to interact directly with their customers instead of going through a third party. D2C helps brands reduce their reliance on third-party data so they can create even more customized offerings.
D2C e-commerce sales are expected to reach $213 billion by 2024. Megababe, the D2C beauty brand, has been profitable since launching in 2017 and has grown 70% year-over-year, selling more than 1 million products annually. Traditional CPGs also are embracing the trend. PepsiCo launched PantryShop.com and Snacks.com, which allow consumers to purchase their favorite PepsiCo brands such as Lay’s and Doritos online.
4. MoCRA Compliance
The Modernization of Cosmetics Regulation Act (MoCRA) applies to every company in the world that is responsible for a cosmetic product sold in the United States. This includes brand owners and manufacturers of personal care, salon, and intimate products.
All cosmetic manufacturing facilities that sell products in the United States—including those outside the country—must register with the FDA. Effective in 2024, CPGs that manufacture cosmetics brands sold in the United States will be required to:
- Establish a system for managing adverse events
- Maintain current and thorough safety substantiation records
- Register all product details with the FDA
- List FDA-designated fragrance allergens on labels
Here is a full MoCRA compliance checklist.
5. Sustainability
Increasingly, CPGs are focusing on sustainable product development. This includes creating products that have a lower environmental impact via eco-friendly materials, reduced packaging waste, and sustainable supply chains.
Companies are exploring packaging alternatives such as compostable packaging, recyclable materials, and biodegradable options. According to McKinsey, more than half of U.S. consumers are willing to pay more for a product with sustainable packaging. CPG giant PepsiCo is expediting sustainable packaging innovation with a new greenhouse learning center for Frito-Lay and Quaker Oats.
CPGs are looking to optimize supply chain sustainability via ethical materials sourcing, green manufacturing, efficient transportation and distribution, circular economy initiatives, and tech innovations.
6. Price Inflation
Price inflation poses a significant challenge for CPGs, impacting pricing strategies, margin compression, and intensifying competition. As prices for branded products have increased, many consumers have turned to their private-label counterparts. This is particularly true in grocery. For example, Wal-Mart has voiced concern over inflation in packaged food prices, saying their customers have turned more to the retailer’s private-labeled products in 2023.
According to the Q3 Advantage Outlook, 53% of retailers are following suit, and plan to expand private label products as their top strategy for growth over the next 12 months. To compete with the growth of private brands, 60% of manufacturers say they will rely on marketing the quality of their brand and introducing innovative products. The goal is to prevent an exodus away from their brands to lower-priced products.
7. Talent Constraints
Accessing talent with the right skills is a challenge for CPGs of all sizes. According to The Josh Bersin company, ‘Pacesetter’ CPGs emphasize R&D, marketing, and data science skills. This helps them ensure they are making the right product at the right time, distributing it through the right channel, and communicating with the right messaging to match consumer preferences.
To meet these goals, CPGs need experts in R&D, innovation, data science, and customer experience. Pacesetter CPGs employ 31x more people in research roles than their lower-performing counterparts and 9x more people in production Roles. Startups in this space dedicate 3x more talent to R&D when compared with traditional CPGs. Collaborations and strategic partnerships are essential for innovation in resource-limited environments.
8. Faster Time-to-Market
Accelerating time-to-market is a must for CPGs looking to beat the competition and meet changing consumer demand. Businesses are reshaping product development strategies to bring products to market swiftly, reflecting the industry’s need for agility.
Many companies are looking to technology such as AI to expedite their time-to-market. Doing so helps them quickly gain valuable insights into consumer preferences and market trends. Supply chain optimization also is crucial for getting new products onto shelves faster.
9. Health and Wellness Evolution
Health and wellness trends continue to influence CPG R&D and innovation. For example, as consumers move away from ultra-processed foods, CPGs are responding with products containing fewer, recognizable ingredients, and less sugar.
In personal care, a move to clean products continues to gain steam. According to Nielsen, more than half of all beauty and personal care products are now paraben-free.
And, while more data is needed to determine their impact on the industry, CPGs such as Conagra and Pepsi are keeping an eye on Ozempic and other weight loss drugs, anticipating potential shifts in consumer preferences.
The CPG R&D and innovation landscape of 2024 is marked by a convergence of technological innovation, regulatory compliance, sustainability imperatives, and a relentless pursuit of consumer-centricity. Navigating these trends will define the success of CPG companies in this ever-evolving industry. To learn more about how Intellex can help you navigate CPG trends in 2024 and beyond, please reach out today.