Growing CPG Brands
in the New Normal An R3 Report
A New Status for CPG Brands Call it the “quarantine economy.” Amid the health pandemic, social distancing and ”shelter-at-home” order, the consumer-packaged goods (CPG) industry has experienced a surge in demand for products centered around health and the home. At no other time in recent history have canned food, bottled water and diapers been so in demand, with people stocking up during periods of uncertainty. The impact has not been limited to “peak COVID.” Packaged food consumption rose 20% for the week ended June 20 compared to 2019, and even though some local governments have been lifting restrictions, allowing restaurant dining, consumers continue to eat more of their meals at home. The pandemic has ushered a suite of consumer behaviors that marketers have rushed to respond to, but as situations evolve and people adapt to the New Normal, knowing what behaviors will stay and what might change is the marketer’s next challenge. The dynamic nature of marketing today demands agility, and in this report, we explore what might lie ahead for CPG brands. We look at risks as people come out of lockdown, potential areas of investment, and how leading marketers are thinking outside-the-box to grow brand awareness and drive sales. We hope you find it useful.
Growing CPG Brands in the New Normal
Five CPG Trends In “The Quarantine Economy”
1. Strong CPG Brands Grew Stronger Brands that were growing prior to the COVID-19 pandemic saw their share disproportionately increase.
2. Declining CPG Brands Got Weaker Even though sales went up during Extreme Buying, declining brands saw their market share decrease with time – even with greater sampling available.
3. People Remained Loyal
4. Comfort First, Then Desire
Brands with a highly loyal customer base that don’t experience seasonal fluctuations fared well during the periods of extreme buying and home confinement.
Once pantries were loaded, consumers sought to satisfy their desires. Mid- and high-range brands have experienced higher share of sales than bargain brands that compete on price.
5. Advertising Works Brands with aggressive advertising strategies prior to — and during — the pandemic achieved higher growth than brands that had pulled back their advertising.
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DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES
As of May 10, 2020 Home-confined buying stage still tracking at higher average U.S. CPG household spend than pre-COVID-19 PRE-COVID-19 BUYING
PREPAREDNESS BUYING
EXTREME BUYING
HOME-CONFINED BUYING
+2% vs. Pre-COVID-19 Buying
+35% vs. Pre-COVID-19 Buying
+34% vs. Pre-COVID-19 Buying
2/24
3/11
5/10
3/22
The power of strong creative and continued advertising during COVID-19 Campaign Period
Pre-Campaign Period
BRAND DOLLAR SHARE
Post-campaign period Measure HH Exposed to Ads
Lift due to creative
20%
Determines lift due to targeting
Responsive HHS have 6X higher brand dollar share 10%
Exposed HH that responded to ads (1.8% of exposed HH) HH unexposed to Ads
0% 3/29/2020
2018
2019
2020 TO DATE
Source: NCS analyzed the purchase behavior of more than 51 million U.S. households and the sales and advertising data for 50+ brands (3-4 brands for 16 different advertisers) for a spectrum of brands (growing, declining, stable, etc.) throughout various stages of the pandemic.Â
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Growing CPG Brands in the New Normal
How Economics Affects Spend on CPG Even though demands and sales increased for many CPG brands during lockdown, the growth may not be sustainable as economic challenges overtake health concerns. Unemployment will be a significant driver of this change.
Reshaping of consumer spending dynamics The economic impact of COVID-19 will affect both the newly unemployed and even high earners. This means CPG brands will need to navigate product portfolios and pricing strategies.
Recalibration of priorities Many consumers are recalibrating their lifestyles. We may still be making more meals at home, but what we eat and how much we are able to afford will change. It means consumers may delay purchases on non-essential products, such as luxury goods, appliances, cars or homes. Some consumers may also shift from organic products to non-organic products.
Changes in household shopping dynamic As jobs dry up and young people are forced to stay at home with their parents, we will see millions of new multi-generational households.
COVID-19 disruptions associated with a large increase in the share of young adults living with parent(s) % of 18- to 29-year-olds in U.S> living with a parent 60%
2020 51
52
52
52
47
47
47
May
Jun
Jul
49
50%
46 46
47 46
46
47
2019 40%
Jan
Feb
Mar
Apr
Note: “Living with a parent” refers to those who are residing with at least one parent in the household. Source: Pew Research Center
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Growing CPG Brands in the New Normal
Investing In Purpose-Driven Packaging Online consumers are more eco-oriented than ever before. In fact, Acosta reports that more than 73% of consumers are willing to change their purchasing habits to improve the environment. The Honest Company made a name for itself by promoting natural, sustainable ingredients in its baby products and grew 32% during the quarantine period from March 2020. Seventh Generation emphasizes plant-based ingredients and recyclable packaging. Though its products are higher-priced, the rising tide of necessity has lifted sales. In a four-week period in March 2020, demand for Seventh Generation cleaners grew 386%. In addition to sustainable practices, showcasing authenticity and brand values in all aspects of CPG products will lead to higher yields and more loyal customers over time. In fact, 50% of CPG growth from 2013 – 2018 came from sustainable products alone.
The importance of sustainable materials for consumers % who say the following are important when it comes to their day-to-day purchases 80% 70%
72%
60%
52%
50%
42%
40%
41% 35%
30%
27%
25%
20% 10% 0% Products that are affordable
Well known/ trusted brand
Products that use recycled/ sustainable materials
Products that are cruelty-free
Products made with natural/ organic ingredients
Products that are certified fair trade
Premium-branded products
Source: GlobalWebIndex, March 2019 Base: 1,589 (U.S.) and 2,244 (UK) internet users aged 16-64
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Growing CPG Brands in the New Normal
Growing Brand Awareness Through Cross-Category Marketing Travel and hospitality brands partner with Clorox & Lysol United Airlines announced a tie-up with Clorox dubbed ‘United CleanPlus’ to enhance the airline’s cleaning program, redefine disinfection procedures and equip customers with amenities at select locations that help support a healthier and safer environment throughout their travel journey. The United partnership with Clorox comes on the heels of a similar partnership between Hilton and Clorox competitor Lysol, which is owned by CPG giant Reckitt Benckiser (RB). Under ‘Hilton CleanStay with Lysol protection’, the hotel giant will prominently use Lysol products in North America in an effort to reassure guests that their rooms are safe and clean. According to the company, RB will bring key talent and Lysol experts in hygiene and disinfection to the multi-year partnership. RB and Hilton are also exploring opportunities to expand the program into a global partnership.
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