Preserving CPG Quality in Turbulent Times
Learn why product quality holds the key to continued CPG success
Since the height of the pandemic, CPGs have experienced a rapid change in consumer behavior. Inmar Intelligence data from 2021 found that more than 80% of consumers switched from their usual brand, and 44% of those indicated they’d rather repurchase the new brand. Not much has changed.
It’s now 2023, and CPGs are still struggling as they confront the added burdens of inflation, supply chain issues, sourcing woes, and worker shortages. A recent Deloitte survey found that 70% of CPG manufacturers expect this year to be more stressful than in the past five years.
While not all of today’s challenges are within a CPG company’s control–inflation, supply chain issues, and worker shortages, to name a few–CPGs can take control of what is arguably the most important factor: product quality.
The real value of CPG quality: consumer attraction
Manufacturing a quality CPG product has become table stakes in consumers’ eyes. Yes, producing quality goods is the right thing to do. But it’s also the one thing that can help CPGs retain, and even gain, market share. It all hinges on customer response.
Customers embrace quality in a way they never have before. Long gone are the days of brand loyalty passed down through generations, regardless of product quality. Or the days of consumers chalking up a product issue to an anomaly for which a brand gets the benefit of the doubt.
Today, if a brand can provide a consistently high-quality offering, consumers are willing to pay a premium for it. Conversely, one quality issue or product recall and consumers are willing to bail. A PwC Customer Loyalty Survey found that nearly 35% of CPG customers will walk away after a single bad experience.
From Yelp to Reddit to Google, Twitter to Instagram to TikTok, product quality is instantly known, shared, and discussed. This can be an immediate boon for a brand, or an immediate bust if a quality problem goes viral. To attract and retain customers, maintaining quality despite economic and industry turmoil must remain priority #1.
Support CPG quality with reformulation or downsizing
To say that current economic conditions are challenging on CPG product quality is an understatement. Inflation, in particular, is a significant issue. It continues to drive up materials prices, which hits CPG profitability harder given the cost of materials is a greater portion of the total cost of a product compared to other industries.
For the most part, however, companies are not sacrificing quality in order to compensate. At least not the ones who hope to remain successful. Instead, CPGs are responding to the added pressure to save costs on materials in two ways: reformulation or downsizing.
Those choosing the reformulation path are doing so with the goal of maintaining quality while using less expensive ingredients. This is the harder path to take. Less expensive ingredients are more popular across the board, especially with competitors. The resulting supply chain and sourcing issues could prove an insurmountable barrier, but for those who do manage to find materials that cost less without impacting quality, the potential profitability benefits can make it worth the effort.
Those choosing to “downsize” product volume relative to existing packaging have an easier path, up to a point. For example, using the same bottle (with a slight label change) to provide 15.2 ounces of shampoo, instead of 16 ounces, at the same prices is a cost-efficient means of incrementally reducing materials use while ensuring consumers still receive the same high-quality product.
For some products, this practice is barely noticeable. For others, the shrinking portions are more apparent. The key for CPGs is to find the sweet spot where downsizing is deemed “still acceptable” at a particular price. But there is a ceiling. At some point, consumers will be turned off by what they consider “shrinkflation.” And, eventually, CPGs will legally reach a point where they can no longer reduce portions relative to existing packaging, and instead must create new packaging. In both cases, profitability gains are canceled out by the cost of new packaging.
4 ways to ensure quality: advice from a seasoned expert
As a senior Quality, Food Safety, Technical Services and R&D executive with 30+ years’ experience in PE-backed, high-growth and global CPGs, Intellex expert Bill Theis has seen it all when it comes to trends and challenges impacting product quality.
Here, Bill shares four tips every CPG should consider when thinking about the future of quality within the organization.
- Believe in the business value of quality. It can be hard to believe in something you can’t quantify, like the benefit that consistent, high-quality products bring to an organization. But if you look at the negative impact that low quality has, it becomes easier to see why quality is a valuable business asset.
For instance, quality issues can result in a lawsuit that costs a company billions of dollars, or a product recall resulting in millions in lost sales. At the very least, sub-par quality can send consumers running to competitors, drastically impacting market share and profits. Maintaining quality may have some upfront costs, but ignoring quality costs more.
- Realize that quality is ever-evolving. Quality is not static. What quality looks like and what it means changes over time. Continuous improvement is the only way to ensure products retain a high level of quality and can compete in a fickle consumer marketplace. Your competition is always innovating. It’s up to you to keep—or exceed—pace to win market share and come out ahead.
- Don’t put your sourcing eggs in one basket. Supply chain and logistics issues remain a very real problem. As a CPG, it’s imperative to ensure you aren’t single-sourced on key materials. If you receive certain additives from only one supplier, and that supplier raises their prices or their supply runs out, you have no options. Of course, for some niche ingredients, there may be only one supplier who even offers the materials in the first place. But if that’s not the case, the sooner you can source an alternative supplier, the better.
- Make sure quality is a “top-down” focus. Weave quality into the very fabric of the company. It can, and will, drive bottom-line margin and top-line sales, but only if leadership is willing to invest in quality as a core value and live it and breathe it every day. Whether it’s by the board or the C-suite, quality must be given a seat at the table. Smaller CPGs may have an easier time achieving this goal, given there are fewer layers to cut through. On the flip side, smaller companies may be more challenged to scale without having the buying power of larger organizations.
To learn more about how Intellex can help you prioritize quality, see how we helped a leading snack brand reformulate its coatings with quality in mind.