The CPG Industry’s 5 Biggest Barriers to Innovation
We’ll cut right to the chase: Consumer packaged goods (CPG) companies simply aren’t investing in research and development (R&D) nearly as much as they should. There are a lot of factors at play here, both internal and external, and both within and outside the realm of their control.
Our latest e-book, 5 Challenges Slowing R&D at Today’s Top CPG Companies, guides you through the top CPG challenges companies face today when it comes to moving the innovation needle, so to speak.
Let’s dive into them just a bit further.
CPG Sourcing and Procurement Challenges
Products don’t exist without the materials required to make them. If COVID has taught us anything, it’s that businesses cannot depend on an endless supply of materials. Eventually, every CPG manufacturer will face the day when a material runs out for good.
Coming up with a strategy now to address that day must become part of the R&D process. In the meantime, you need to develop an interim plan for short-term supply shortages, taking advantage of the temporary delay to refine your R&D approach so you can hit the ground running once resources are replenished.
Coupled with this, consumer behavior is getting more particular when it comes to which materials are used in their favorite products. In fact, over a quarter of consumers base their purchasing decisions on sustainability–pushing for sustainable and ethically sourced products.
Rising Costs in CPG R&D
CPG companies are struggling to keep prices reasonable despite record-breaking cost increases in materials. A blog post by The Consumer Brands Association highlighted just how much costs have skyrocketed.
- Producer prices were up 4.2% year-over-year–the largest YoY increase since 2011
- Up 20% is the cost of wood pulp–a key ingredient used in toilet paper
- Corn is at its highest price since 2013, impacting everything from “gasoline to meat to industrial products like wallboard and insulation used in houses.”
Companies will need to experiment with new materials and sources in order to keep these cost increases from reaching consumers. In situations where there are no alternatives, they’ll have to get creative with other parts of the process and optimize in other ways.
Technology Optimization Challenges in CPG Industry
A McKinsey study found that the COVID pandemic sped digital transformation by three to four years. One key way that CPG companies are using technology is to access more real-time customer insights from their data, in order to target the right buyers, pinpoint their needs, and develop fit-for-purpose products.
However, critical thinking is still a crucial part of the R&D process. While technology makes it faster and easier to analyze data, it takes human intuition, training, and experience to elevate and translate analysis into a plan for continued innovation.
CPG companies need to strike the right balance of art and science, so to speak, within their R&D function. Technology can surface data, but only experienced people can turn those into meaningful insights in the context of a particular brand.
CPG R&D Talent Development
Never before has the workforce been so diverse. Today there are five generations working together at any given organization– Traditionalist, Baby Boomer, Generation X, Millennial and Generation Z.
CPG companies in particular rely heavily on expert talent. Take for instance one of our clients who needed a consultant with R&D leadership experience in improving food processing and products as well as expertise in coatings formulations and processes. This talent isn’t exactly plentiful.
It’s important to cross-train talent as much as possible, to ensure that consultants and employees on either side of the age continuum share their knowledge and expertise.
Change Management in CPG
COVID’s impact on our world was life changing, and for CPG brands, it was filled with radical consumer change. The current challenges in the CPG industry are very different than they were just 3-4 years ago. CPGs need to move fast to keep up.
Overcoming a fear of change is one of the most important actions CPG companies can take—to embrace cutting-edge R&D and prepare for the challenges of the next decade, not just the next year.
Balancing short-term with long-term changes effectively requires a good set of data on consumer habits from which to make decisions, as well as alignment to a strong corporate vision. There’s so many possibilities, but not all decisions are right for every company.
CPG Business Innovation
Innovation gives you options for overcoming R&D challenges—from innovation in the formulation of a product, to innovation in design, and even innovation in the supply chain itself. It’s the bedrock of competitive advantage.
And, sure, there are plenty of good ideas. But not all good ideas translate into a workable solution. This is where innovation shines: it applies comparative analysis to good ideas to help you evaluate tradeoffs—if I do X, or do Y, what do I get in return?
It highlights the art of the possible and practical when it comes to arriving at new solutions that will support continued growth without jeopardizing product quality.
But innovation is most game-changing when there’s an expert who can step in and help you prioritize ideas to determine which are most impactful in the short-term and which should serve as the catalyst for transformation over the long-term.
Learn from the CPG experts at Intellex
Unfortunately, these challenges are here to stay, at least for the foreseeable future. The good news is that Intellex has the expertise to help you navigate these challenges and come out ahead.
Intellex experts eat, sleep, and breathe CPG innovation. From molecular chemistry to supply chain optimization, to coatings formulation and clean cosmetics manufacturing, our community of consultants is broad and its knowledge-base is deep.
Our latest e-book gives you first-hand advice on how to excel in R&D despite the challenges facing the CPG industry.