THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017....

20
CPG at the Tipping Point: How Brands Can Win in the New Routes to Market With consumer packaged goods increasingly moving to digital shelves, the old ways of promoting brands are obsolete. Brand providers will need to rethink product value, meet consumers’ digital and physical ‘moments of need’ and enhance visibility in their demand-based fulfillment models. THE ROAD TO 2025 July 2017

Transcript of THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017....

Page 1: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

CPG at the Tipping Point: How Brands Can Win in the New Routes to Market

With consumer packaged goods increasingly moving to digital shelves, the old ways of promoting brands are obsolete. Brand providers will need to rethink product value, meet consumers’ digital and physical ‘moments of need’ and enhance visibility in their demand-based fulfillment models.

THE ROAD TO 2025

July 2017

Page 2: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

2 | CPG at the Tipping Point: How Brands Can Win in the New Routes to Market

THE ROAD TO 2025

EXECUTIVE SUMMARY

In 2025, the center store is gone.

Replenishment of consumer products such as laundry soap and snack foods that shoppers

used to pick from the shelf has morphed into a largely online task. Consumers restock their

cupboards from wherever they are, with a tap and swipe or a conversation with an AI

assistant (think amped-up versions of today’s Siri and Cortana). In some cases, smart

appliances trigger replenishment on their own.

Packaging has changed, as well. Fast-moving consumer goods that once constituted the

bulk of center store inventory – personal care, beauty and cosmetics, home cleaning

products, food and beverage – are now designed for easy, speedy shipment through online

channels. Product formulation is about “eaches” rather than cases and pallets.

Dystopian, yes. But not far-fetched: The disappearing center store is much closer than you

think.

In 2018, online sales are expected to represent a scant 5% of the books of business for

consumer packaged goods (CPG) companies.1 By 2025, however, digital routes for

center-store volume will mushroom to 40%. According to a joint report from the Food

Marketing Institute and Nielsen, consumer spend on online grocery shopping is forecast to

reach $100 billion within the decade – the equivalent of 3,900 grocery stores based on

store volume.2

The shift is happening far more quickly than predicted. In a recent move to build its

e-commerce sales and challenge Amazon, Walmart rolled out its Pickup Discount program,

which reduces prices on purchases that consumers make online and retrieve at its stores.3

In June, Walmart grabbed headlines with its acquisition of men’s online retailer Bonobos –

just as Amazon announced its purchase of Whole Foods.

Page 3: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

3CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

THE ROAD TO 2025

The actions of both giants highlight the direction in which the CPG market is heading, if not

hurtling.

How will CPG companies win when the major routes to market tilt toward digital? The good

news is that as the physical shelf shrinks, lower trade spend will decrease costs. But gone

is the once clear path for driving foot traffic and obtaining preferential shelf position. The

loss leader model will no longer work. Trade promotion will evolve from the banner level to

the individual level. Personalization will be key.

Perhaps even more challenging for CPG companies, brand loyalty will take a back seat to

price and convenience in the digital market. Way, way back. “If you were among those kids

who had Kellogg’s Corn Flakes on the breakfast table, drank a Coke from time to time,

enjoyed your favorite KitKat and . . . have always used Tide, don’t expect the next generation

to follow you,” cautions branding guru Martin Lindstrom. “Your familiar global brands will

begin dying in 2017.”4

For CPG companies, transparency will become a lifeline to relevancy and profits. At the

digital shelf, consumers will view everything about a product, from its price, to the processes

used to manufacture it, to its provenance. Consumers will shop based on need, not brand.

The challenge will be to meet customers wherever they are. With only a sliver of personal-care

products being sold online today, there’s plenty of opportunity for brands to make their

mark. But they’ll have to move fast: Just three e-tailers – Amazon, Walmart and Target –

comprise 82% of those sales.5

How will businesses get on consumers’ shopping lists at home? How should strategies

change when stores are places for experience rather than product distribution? The answer

is to rethink brand value, the relationship between digital and physical shelves, and the

supply chain.

Page 4: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 4

BRAND VALUE: TRANSPARENCY IS CRITICAL

In 2025, fewer consumers will shop in stores for utilitarian goods. Long aisles of fast-moving con-

sumer goods will be replaced by smaller spaces stocked with convenience products that emphasize

freshness, such as to-go items and perishable goods. To replenish consumer goods, customers will

reach for the digital shelf.

To ensure consumers will reach for their brand, businesses will increasingly rely on establishing brand

value, which is the summation of not just the product but also the product’s story and the convenience

it offers. Ninety-four percent of consumers surveyed by Label Insight say they’re likely to be loyal to

a brand that offers complete transparency.6 The emphasis on transparency will fundamentally change

the construct of products, as well as the ways in which consumers access them.

What’s more, businesses will no longer vie for consumers’ attention with other products in the same

category. Instead, their rival will be experience. “We compete with the latest song of Beyoncé, with the

latest telephone from Samsung or Apple,” Mauro Porcini, PepsiCo’s first-ever chief design officer, told

a conference audience in March. “We compete for mindshare and relevance in the life of people.”7

Against that backdrop, price still matters, perhaps more than ever. Private-label brands, such as

Walmart’s Great Value brand, form an immediate threat. Walmart’s CEO Doug McMillon recently pre-

dicted that the widespread availability of name-brand products online will compress product margins

over time. “Having a private brand from a margin mix point of view has always been important, but it

is even more important now,” he said.8

Amazon’s entry into private-label brands is already making inroads in more than a dozen categories,

including grocery items, pet supplies and home goods.9 One Wall Street analyst forecasts Amazon’s

total U.S. market share will surpass 50% in five years.10

Transparency Beyond Pricing

The emergence of online shopping has already given brands a lesson in the power of price transpar-

ency. Within seconds, smartphone-wielding consumers can scout the prices that provide the best

deals and the most convenience. Walmart’s CEO pointed to price transparency as a key motivator in

the retailer’s Pickup Discount program.11

Now the same openness applies to all aspects of a product’s perceived value. For starters, top-selling

products will need to fulfill consumers’ desire for improving their lives. Concern for the environment

also influences product purchases for 45% of consumers, according to Nielsen’s 2015 poll. Social

value and the consumer’s community also weigh in, each influencing 43% and 41% of respondents.12

To ensure consumers will reach for their brand, businesses will increasingly rely on establishing brand value, which is the summation of not just the product but also the product’s story and the convenience it offers.

Page 5: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

5CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

But such “good for you, good for all of us” products are about more than being green. They connect

with individuals in more personal, emotional ways. Transparency in sourcing and ingredients helps

shape brand value by deepening consumer trust. It guides consumers to products that feel tailored to

their interests and worldviews. It’s through transparency – and the sense of belonging it creates – that

CPG companies will achieve brand preference.

Equally important is openness about a product’s provenance. Consumers want to know how a product

is processed, the source of its ingredients and who made it. They’re interested in what others say

about the product in online reviews and social media. Many are increasingly curious about certifica-

tion and guideline compliance. Demand for transparency is especially high among food products.

Getting Started With Transparent Labeling

Labels are a key component in transparency, and consumers will pay a premium for this information.

Seventy-three percent say they would pay more for a product that offers complete transparency in all

attributes, according to Label Insight.13

Industry initiatives such as the SmartLabel QR code offer CPG companies a way to begin. Launched

by the Grocery Manufacturers Association in 2015, the effort lets consumers access product informa-

tion online through search engines as well as on brands’ and retailers’ websites. Smartphone users

can scan QR codes on packaging.

The GMA predicts that within five years, the initiative will cover 80% of food, beverage, pet care, per-

sonal care and household products.14

Albertson and Conagra Brands have signed on to SmartLabel, and

more than 1,100 products in Mondelez International’s U.S. snack portfolio are now searchable on the

SmartLabel app.15

Some brands are going a step further. Earlier this year, Target announced plans for full visibility into

chemicals contained in or used to make products it sells.16

Unilever is voluntarily disclosing online the

fragrance ingredients in products sold in the U.S. and Europe.17 With the move, Unilever has its eye on

both the bottom line and consumer satisfaction. Its “sustainable living” brands have experienced 30%

higher growth than other product lines.18

Embrace One-to-One Engagement

With stores’ roles diminishing and the digital shelf ascending, it’s imperative that CPG companies

engage directly with consumers to preserve brand value. Until now brands have never been required

to engage one-to-one with consumers. Most know only the most basic details about who their custom-

ers are and how they shop, with little visibility into in-store information such as footfall and sales.

Page 6: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

THE ROAD TO 2025

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 6

Knowing consumers and engaging one-on-one with them represents power for brands and rocks the time-honored model of working through retailers as the middleman. E-commerce sales, however, are a different story. In the digital realm, brands can see an array of con-

sumer behaviors, from click-throughs, conversions and average order value, to navigation paths.

Knowing consumers and engaging one-on-one with them represents power for brands and rocks the

time-honored model of working through retailers as the middleman.

Companies are already instigating consumer dialogs around new product development. Discount cos-

metics brand ELF Beauty, for example, launches new products first on its web site, and then widens

distribution to retail after online consumers give products the thumbs up.19

Launched as an online-only operation in 2004, ELF now rings up strong retail sales per linear foot of

shelf space at Target, Walmart and CVS. It also operates 15 branded brick-and-mortar retail stores, and

sells through the digital shelves of e-tailers such as Amazon.20

Page 7: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

7CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

THE ROAD TO 2025

Outside-In: Innovation Starts With Consumers

By 2025, consumer participation will be embedded into all innovation processes. Real-time input will

replace panel feedback and other backwards-looking approaches to product development. Consum-

ers’ role in development, marketing and promotion will intensify and start much earlier in the process.

Most CPG companies are just getting up to speed on techniques such as social media sentiment

analysis. But in 2025, it will become standard practice to take the pulse of consumer opinion as it’s

happening.

Equally important, CPG companies will listen to the products themselves. As home appliances get

smarter, with everything from refrigerators to washing machine components pushing out data, they’ll

alert consumers and manufacturers when parts need to be replaced and systems replenished and

then automatically replenish them. Receiving and acting on the rivers of data feeding in from smart

products will be a core competency for CPG companies.

Receiving and acting on the rivers of data feeding in from smart products will be a core competency for CPG companies.

New Products Will Fuel Brand Loyalty

Such changes in product development and replenishment will completely disrupt the way consumers

choose products. For one thing, brand loyalty will be a volume business, dependent on a steady stream

of new products that consumers engage with at multiple touchpoints. The market is already headed

this way. UK-based appliance maker Dyson Ltd., known for its flashy cordless vacuum cleaners and

high-end hair dryers, says new products fuel 80% of its sales.21

In addition to needing as many opportunities to connect with consumers as their innovation pro-

cesses can deliver, CPG companies will also need to roll them out much more quickly. ELF launches

new products in as few as 20 weeks from concept, and 27 weeks on average.22

A business’s brand portfolio is only as good as its newest product success. The challenge will be to

integrate shopper participation into the CPG enterprise, from innovation to purchase. Many brands

still rely on processes designed to invent products and push them out. But success in 2025 will flip

that scenario: Brands will switch to an outside-in perspective. They’ll need processes that support the

involvement of consumers and shoppers in everything from ideation and beta testing to packaging

and rollout.

Moving from traditional software-defined, push-based models will require a transition away from

legacy brand systems that are not equipped to receive and track the consumer-centric information

that’s at the center of enterprise-wide digital processes.

Page 8: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 8

Innovation Platforms: At the Heart of Brand Value

Innovation platforms will serve as the heart of CPG businesses’ efforts to stoke brand value in 2025.

Most innovation platforms consist of the following elements:

• Real-time, outside-in architecture, consisting of open APIs, ecosystems of partners and plug-

and-play capabilities. It’s the platform economy, and for CPG companies accustomed to the linear,

producer-driven model, the new demand-driven platforms require changes not only to infrastruc-

ture and organizational structure but also alterations across the value chain.

• Listening capabilities. Knowing what consumers are saying online about a business’s products

and services is essential to outside-in product development. While social monitoring collects tid-

bits such as mentions and posts, social listening adds analysis and reflection. It helps brands see

where they fit into the public discourse.

Sentiment analysis, which involves machine learning and artificial intelligence (AI), is another pow-

erful but still emerging tool that is not yet a replacement for traditional market research. By 2025,

social listening will make sophisticated correlations among data sets that will help brands deter-

mine how information is changing brand perception and driving ROI.

By 2025, social listening will make sophisticated correlations among data sets that will help brands determine how information is changing brand perception and driving ROI.• Real-time product updates. Social listening lets brands refine products in real time. For an indus-

try accustomed to development cycles that often last five or 10 years, this is a seismic shift.

Already, companies can launch a new product in the evening, watch for the social response and

iterate based on feedback. By morning, the company might be on the fifth product release.23

• Collaborative value networks, based on the shopper-led, pull-based value chains that are inte-

grated by the Internet of Things (IoT).24

Personalization will require brands to increase their focus

on collaborative value networks and, as product providers, participate in the communities that

form around them, such as smart cities.

THE ROAD TO 2025

Page 9: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

9CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

Key Recommendations

The following guidelines can help brands increase transparency internally and across the network of

business partners and consumers.

• Corporate soul searching: What will the brand be? The question might sound existential, but a

fundamental issue all CPG companies must address is whether their brand portfolio will focus on

replenishment-based products, or on products that consumers experience and drive in-store traf-

fic. Utilitarian and experiential brands require very different capabilities and brand journeys. With

its immersive store experiences and product consultants, beauty retailer Sephora innovates in

ways that are very different from, say, Clorox Corp., which pioneered shippable bleach crystals and

the “connected” Brita water pitcher. Knowing their objective will drive organizations’ choices in

technology, people and processes.

• Define what transparency means for the brand, consumers and retail customers. What details

do consumers want about the brand and category? Is the business able to convey that information

in clear, accessible language that resonates with different communities? Consumers and shoppers

aren’t chemists, and lists of ingredients are only the first step. Consumers want experiences that

are simple and straightforward, and that offer context for how a product fits into their community.

Along the brand journey, transparency needs to occur during awareness, intent and selection

phases, as well as during consumption and sharing.

• Transparency doesn’t happen overnight. Because transparency cuts across the enterprise, it

requires a roadmap and a phased implementation. A transparency roadmap can help businesses

prioritize, synchronize and measure implementation. Organizations should define new processes

and an enterprise information architecture, including capabilities to address customer identity

access management and ensure the architecture accounts for new transparency content require-

ments, such as social media outreach, blog posts and videos.

• Just do it: Develop an effective digital strategy to address Amazon, Walmart and emerging

non-traditional players. Some CPG companies continue to turn a blind eye to digital’s ramifica-

tions on brand value. Businesses need to assess the position their brand will play in the 2025

market ecosystem, and identify the retailers, channels partners and direct-to-consumer partici-

pants to partner with.

THE ROAD TO 2025

Page 10: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

THE ROAD TO 2025

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 10

DEMAND SHAPING: REIMAGINE THE SHELF

Brands have always defined their value and telegraphed messages to consumers. The difference

today is that brands must go to consumers, not the other way around. The extent of the shift can’t be

overstated. According to Google, we stop to buy, research and discover on our smartphones 150 times

a day.25

Impressive, but the job for brands extends beyond that: In addition to being where smart-

phone users are, brands need to be everywhere consumers are offline, as well.

We call these potential points of intersection with consumers “need moments.” They happen every-

where, and replenishment brands must be ready for them. Need moments are about engaging with

consumers wherever they happen to be and serving them in the moment, whether it’s an impulse buy

or a conversion that takes several visits.

Transparency helps answer the questions that arise at need moments. Which diaper will help my baby

sleep through the night? Which brand of sparkling water contains vitamins? If CPG companies aren’t

fully transparent both on the digital shelf and in need moments, they will miss out on the digital world

of commerce.

Social Networks and Need Moments: Can They Deliver Profits for Brands?

With their critical mass and ability to influence purchases, social networks are target-rich environ-

ments for need moments – and often the first step to meeting consumers where they are. Destinations

such as Facebook and Instagram are also at a key inflection point: Brands must be there, but profits

have thus far been elusive. How does social influence purchases? Even more important, will brands

find a way to sell directly through social?

Twitter and Facebook have retired their commerce operations, with Twitter shutting down its Buy

button in early 2017 due to lack of traction with consumers and brands.26

Now Instagram is embedding

a shopping capability, offering shoppable images on brands’ Instagram posts that connect consumers

to “shop now” buttons and then on to brand websites to complete the transaction.27

Establish an Always-On Shopping Platform

By 2025, when 40% of CPG purchases will move through digital channels, an always-on shopping

platform will provide a path to consumers. It lets brands be everywhere the shopper is in the digital

and physical spheres, and it allows them to extend personalization services critical to connecting with

consumers in need moments.

Page 11: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

11CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

THE ROAD TO 2025

The always-on shopping platform consists of the following elements:

• A real-time architecture that’s anticipatory. Brands need an architecture that can receive and

respond to large streams of real-time digital data to gain insight and understanding.

Localization is the mantra for retail and CPG companies, and achieving this capability depends on

data. Kroger, for example, is testing sensor-laden interactive shelves, which detect shoppers in the

aisles via their smartphones and offer them personal pricing and product suggestions as they walk

along. The chain is also testing “digital shelf edges” in 14 stores. Sensors detect a customer with

the store’s mobile app while walking down the aisle, and high-definition displays on the shelf edge

highlight relevant products. For a gluten-free shopper, the shelf in the nutrition-bar section might

highlight gluten-free products.28

• Transparency construct. Transparency is also a data issue. An important goal of the always-on

shopping platform is to provide immediate answers for consumers and shoppers, throughout the

buying journey and beyond. Because existing product information management systems (PIMs)

typically do not contain the accurate data to do that, a renewed emphasis on transparency needs

to be embedded into PIM and ERP systems and continuously updated across both digital and phys-

ical packaging.

• Connection to the digital shelf. How do CPG companies translate brick-and-mortar shelf pres-

ence into digital success? Online grocery has sputtered so far, but 2025 suddenly looks very

different given reports that Amazon has set the goal of becoming a top-five grocery retailer by

then.29

The online giant’s Pantry could crack open e-commerce momentum for the CPG cate-

gory,30

with its offerings of crackers, cookies, chips, coffee and other non-perishables for a delivery

fee of $5.99 per carton.

We envision augmented and virtual reality playing a role in these new shopping experiences, espe-

cially to manage the first moment of truth, instigate impulse buys and energize consumers.

Page 12: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 12

The digital era has turned the tables on the traditional relationship between brands and retailers. In the days of physical-only shelves, retailers expected suppliers to perform. Now it’s brands that expect retailers to deliver.

THE ROAD TO 2025

Page 13: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

THE ROAD TO 2025

Banding Together: Retailers and Brands as Collaborators

The digital era has turned the tables on the traditional relationship between brands and retailers. In

the days of physical-only shelves, retailers expected suppliers to perform. Now it’s brands that expect

retailers to deliver.

Target’s planned redesign in 600 stores features two entrances – one for quick shopping, and the

other for shoppers who want to peruse aisles more casually – which is an indication of retail’s race to

keep up with customers who want it all.31

Capitalizing on center-store opportunities will be essential for CPG companies and retailers. Yet for

most brands, traditional POS measurement tools reflect only brick-and-mortar sales, and do not factor

in e-commerce sales and the role this channel plays in driving overall category and brand growth. That

disconnect can leave brands and retailers at a disadvantage: When online and offline sales are com-

bined, many categories viewed as flat or declining are actually growing.

With retail analytics, stores can measure the effectiveness of online and offline campaigns in driving

store traffic. Sometimes called “phygital,” this consolidated view will be all-important in 2025.

Store-Level Planning: Getting Replenishment and Planning Right

Store-level planning helps CPG companies determine how much of their book of business comes from

in-store purchases rather than online orders. How will brands get the assortment right at each store?

Most CPG companies manage at regional or national customer levels, yet getting replenishment and

planning right at local levels will be a must in the shrinking middle space. Space planning will be a

balancing act: Brands will adjust space downward to reflect the lower levels of foot traffic, but not so

far that consumers can’t find them.

Given the shift in how consumers search and find products, the integrated shelf – spanning digital and

physical channels – will redefine categories. For example, “good for you, good for all of us” products

require realigning the physical shelf to accommodate transparency and new packaging and digital

access for more information.

As merchandising and demand planning move to finer levels of granularity, CPG companies will need

to respond to real-time shelf activity and conditions, and incorporate shelf-level economics into their

thinking. For example, how will their innovations improve retailers’ overall shelf economics over a

private label SKU?

13CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

Page 14: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 14

Key Recommendations

The consumer brand journey will continue to evolve across the changing landscape, and shoppers will

expect brands to be there for their need moments.

• Understand the brand journey and the associated need moments. Look across awareness,

intent, purchase and payment, consumption and feedback, focusing on the full range of digital and

physical platforms:

» Amazon platforms, including Prime, Alexa, Dash and Pantry.

» Walmart’s in-store, online and fulfillment services.

» Direct-to-consumer opportunities, including chatbots and life management platforms.

» E-tailing boutiques.

» Online and physical channels, such as convenience, prescriptions and grocery.

» Home-delivery retailers.

» Smart home appliances.

• Evolve digital brand shelf and digital merchandising capabilities. Major opportunities exist to

alter demand-shaping activities in marketing, trade spend and new-product introduction. For

example, businesses will need to redefine brand categories to align with consumers on transpar-

ency issues such as nutrition, provenance and social responsibility.

• Define and implement an enterprise information architecture that enables personalization.

The new architecture must incorporate sourcing and communication of transparency across the

consumer brand journey and need moments. It also must be able to manage millions of consumer

and shopper identities in a secure, effective manner.

• Move to store-level category management, leveraging clustering where appropriate. Busi-

nesses need to move to store-level planogramming, reframing categories based on transparency

and aligning physical and digital shelves.

• Restructure sales organizations and empower account managers with store-level P&L

responsibilities. Organizations should equip account managers to optimize key demand-shaping

levers, such as trade spend, media spend, pricing and new product placement. They should create

monthly go-to- market executable plans across digital and store levels, and measure the effective-

ness of online and offline campaigns in driving store traffic.

• Develop the capabilities to translate marketing insights into field action and compete in

shorter intervals. Go-to-market plans need to accelerate from quarterly to monthly across media,

trade promotions and new-product introductions. Businesses should work with retailers to craft

new category definitions based on transparency. With the shift to digital, businesses need to shift

trade spend and marketing execution from mass to personalized approaches.

THE ROAD TO 2025

Page 15: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

15CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

RETHINK FULFILLMENT: NETWORK-BASED SUPPLY CHAINS

With digital commerce, demand shaping can be changed in an instant. As a result, fulfillment by 2025

will require moving from the push model to responding to individual intent and demand signals.

Getting there is no small feat. After decades of loading pallets and shipping them to retailers, CPG orga-

nizations now face the task of fulfilling online orders that are picked and packed as “eaches,” that is,

single boxes with individual items routed to customers’ homes.

A key challenge for all brands today is rethinking manufacturing and distribution practices to reduce the

cost of “eaches” fulfillment. As they do, the shadow of Amazon looms long: There’s no doubt the online

giant will continue to improve its shipment times to counter any advantages that brick-and-mortar chan-

nels can leverage.

How can fulfillment begin to respond to individual intent signals? Even before the first moment of

truth, predictive signals such as digital couponing offer clues regarding intent. They can be early indi-

cators of how demand is developing and take the pulse of store-level new-product introductions.

These early signals provide fulfillment with input to production and distribution plans.

Blockchain: Supply Chain, Provenance and Food Safety and RecallBlockchain has important implications in the supply chain. This decentralized software mechanism func-

tions as a public, digital ledger. It records transactions between two parties – purchases, contracts and

records – and arranges them in data batches called blocks. The blocks are distributed across a chain of

computers, each of which approves transactions before they are verified and posted. Each update is a

block in the chain.

The technology offers a unique combination of security and versatility. For supply chains, it offers

improved visibility and transparency. Because blockchain’s distributed ledgers allow all parties in an

ecosystem to have copies of transactions, they bring clarity to often opaque supply chains.32

Blockchain

can also streamline and secure interactions among manufacturers, retailers, financial institutions and

government organizations. Its ability to certify authenticity gives it an important role in the food indus-

try. (For more details on blockchain’s rippling retail impact on CPG companies, read our report, “How

Blockchain Can Help Retailers Fight Fraud, Boost Margins and Build Brands.”)

More companies are testing blockchain implementations. Microsoft recently announced Project Mani-

fest, a blockchain solution the company hopes will help distributers and retailers track goods with a

radio frequency identification device (RFID).33

The solution is designed to ensure products and labor

policies comply with Microsoft standards.

Blockchain’s supporters see the technology as an ally in food safety and recall. The coffee industry is

testing a solution that benefits small farmers in developing countries and first-world coffee lovers.

Walmart is running two blockchain pilots that track food from farm to store.34

Smart contracts show off distributed ledger technology’s versatility throughout enterprises. An

important development brewing in advertising and promotions is the development of blockchain-based

contracts that offer transparency and an audit trail. MadHive is one of the newcomers in this arena. It

runs a blockchain-powered platform that focuses on digital advertising networks.35

Fulfillment by 2025 will require moving from the push model to responding to individual intent and demand signals.

Page 16: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

THE ROAD TO 2025

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 16

Key Recommendations

With the shift to digital and the hollowing of the center store, supply chains will require major restruc-

turing and alignment with shopping platforms. A key goal will be to rethink manufacturing and

warehousing to optimize brick-and-click as more sales move online.

• Develop supply chain management control towers that provide an understanding of how brick-

and-click channels are shifting, what brands are moving more quickly online, and where, from a

geographic and store level.

• Implement new supply chain management processes that rethink replenishment. Demand

signals originate from a wide range of sources. Many existing and emerging demand signals can be

collected and aggregated, enabling operations to respond more precisely to shopper demand.

Businesses need to ensure the supply chain can leverage all demand signals, including smart prod-

ucts, digital commerce, point of sale and social media.

• Develop provenance capabilities that address transparency and, where applicable, counter-

feiting and food safety and recall. We suggest businesses begin exploring blockchain as a

promising mechanism to address provenance and transparency.

Page 17: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

17CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

THE ROAD TO 2025

FOOTNOTES

1 “U.S. e-Commerce Poised to Net 5% of CPG Sales By 2018: Report,” Progressive Grocer, March 10, 2016, http://www.progres-

sivegrocer.com/industry-news-trends/national-supermarket-chains/us-e-commerce-poised-net-5-cpg-sales-2018-report.

2 “Grocery Is the Next Big Retail Sector Being Reshaped by Digital,” Food Marketing Institute, http://www.fmi.org/digital-shop-

per/.

3 George Anderson, “Walmart May Win the Store Pickup Battle But Not the War with Amazon,” Forbes, April 19, 2017, https://

www.forbes.com/sites/retailwire/2017/04/19/walmart-leverages-in-store-pickup-in-battle-with-amazon/#67e8811f4cc5.

4 Martin Lindstrom, “The End of Global Brands,” LinkedIn, Dec. 14, 2016, https://www.linkedin.com/pulse/end-global-brands-

martin-lindstrom.

5 “U.S. Baby Products Market Down $3 Billion and Online Sales Drop Five Percent from 2016,” TABS Analytics, April 26, 2017,

http://www.tabsanalytics.com/blog/topic/press-releases.

6 “2016 Transparency ROI Study,” Label Insight, 2016, https://www.labelinsight.com/Transparency-ROI-Study.

7 Michelle Toh, “Pepsico’s First Chief Design Officer: People Don’t Just Buy Products Anymore,” Fortune, March 20, 2017, http://

fortune.com/2017/03/20/pepsico-design-chief-mauro-porcini/.

8 Mark Hamstra, “Walmart CEO Cites Growing Importance of Private Label,” Supermarket News, March 14, 2017, http://www.

supermarketnews.com/walmart/walmart-ceo-cites-growing-importance-private-label.

9 Sarah Perez, “Amazon’s Private Label Brands Are Killing It Says a New Report,” Techcrunch, Nov. 3, 2016, https://techcrunch.

com/2016/11/03/amazons-private-label-brands-are-killing-it-says-new-report/.

10 Lauren Thomas, “Amazon Shares Get New $1,100 Price Target from Wall Street Analyst,” CNBC, April 10, 2017, http://www.cnbc.

com/2017/04/10/amazon-stock-upgraded-on-its-prime-program-growing-market-share.html.

11 Marc Lore, “Empowering Customers With More Ways to Save,” Walmart, http://news.walmart.com/2017/04/12/empower-

ing-customers-with-more-ways-to-save-introducing-pickup-discount.

12 “Consumer Goods Brands that Demonstrate Commitment to Sustainability Outperform those that Don’t,” Nielsen, Oct. 12,

2015, http://www.nielsen.com/us/en/press-room/2015/consumer-goods-brands-that-demonstrate-commitment-to-sustain-

ability-outperform.html.

13 “Study: Nearly Three-Fourths of Consumers Would Pay More for Products that Offer Complete Transparency,” Cision, Aug. 30,

2016, http://www.prnewswire.com/news-releases/study-nearly-three-fourths-of-consumers-would-pay-more-for-products-

that-offer-complete-transparency-300318901.html

14 Melissa Kvidahl, “GMA Q&A: What You Should Know About SmartLabel,” Supermarket News, Sept. 13, 2016, http://www.super-

marketnews.com/marketing/gma-qa-what-you-should-know-about-smartlabel.

15 Douglas Yu, “Mondolez Rolls Out SmartLabel App to Keep its Consumers Informed,” Bakery & Snacks, Feb. 17, 2017, http://www.

bakeryandsnacks.com/Manufacturers/Mondelez-rolls-out-SmartLabel-app-to-keep-its-consumers-informed.

16 Anya Khalamayzer, “Target’s New Chemical Policy Hits a Bullseye,” GreenBiz, Feb. 10, 2017, https://www.greenbiz.com/article/

targets-new-chemicals-policy-hits-bullseye.

17 “Unilever Announces New Ingredient Transparency Initiative for its Home and Personal Care Brands,” Unilever, July 2, 2017,

https://www.unilever.com/news/press-releases/2017/Unilever-announces-new-ingredient-transparency-initia-

tive-for-home-and-personal-care-brands.html.

18 Anya Khalamayzer, “Unilever Rises Above the Regs on Chemicals Transparency,” GreenBiz, March 6, 2017, https://www.green-

biz.com/article/unilever-rises-above-regs-chemicals-transparency.

Page 18: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

| CPG at the Tipping Point: How Brands Can Win in the New Routes to Market 18

19 Chris Lange, “ELF Beauty Closes In On Secondary Offering,” 24/7 Wall St, March 31, 2017, http://247wallst.com/consum-

er-products/2017/03/31/elf-beauty-closes-in-on-secondary-offering/.

20 Elaine Low, “ELF Beauty CEO Amin on Social Cosmetics and the Ageless Beauty Boom,” Investor’s Business Daily, Dec. 29,

2016, http://www.investors.com/news/e-l-f-beauty-ceo-amin-on-social-cosmetics-and-the-ageless-beauty-boom/.

21 Mark Scott, “Dyson Is the Apple of Appliances (and Just as Secretive),” The New York Times, April 2, 2017, https://www.

nytimes.com/2017/04/02/technology/dyson-british-consumer-electronics-company.html.

22 Ibid.

23 Mark Chinn, “Six Ways to Tap into Your Customers for New Product Innovation,” Business 2 Community, Feb. 26, 2015, http://

www.business2community.com/business-innovation/six-ways-tap-customers-new-product-innovation-01168940#vwxkB-

p67YWzjlQjx.97.

24 “Rethinking the Value Chain,” The Consumer Goods Forum and Capgemini, 2015, http://www.futurevaluenetwork.com/media/

downloads/2015/09/FVN-2025-report.pdf.

25 Sridhar Ramaswamy, “How Micro-Moments Are Changing the Rules,” Think with Google, April 2015, https://www.thinkwithgoo-

gle.com/articles/how-micromoments-are-changing-rules.html.

26 Ingrid Lunden, “Twitter Is Phasing Out the Buy Button,” Tech Crunch, Jan. 17, 2017, https://techcrunch.com/2017/01/17/bye-

buy-on-twitter/.

27 Elyse Dupre, “Warby Parker Aims to Increase Visibility of Shopper Intent and Sales with New Instagram Functionality,” DMN, Nov.

6, 2016, http://www.dmnews.com/social-media/warby-parker-aims-to-increase-visibility-of-shopper-intent-and-sales-with-new-in-

stagram-functionality/article/570948/.

28 Kim S. Nash, “At Kroger, Technology Is Changing the Grocery Store Shopping Experience,” The Wall Street Journal, Feb. 20,

2017, https://www.wsj.com/articles/at-kroger-technology-is-changing-the-grocery-store-shopping-experience-1487646362.

29 Spencer Soper and Olivia Zaleski, “Inside Amazon’s Battle to Break Into the $800 Billion Grocery Market,” Bloomberg, March

20, 2017, https://www.bloomberg.com/news/features/2017-03-20/inside-amazon-s-battle-to-break-into-the-800-billion-gro-

cery-market.

30 Aliza Freud, “Amazon: CPG Friend or Foe?” Media Post, Jan. 9, 2017, https://www.mediapost.com/publications/article/292456/

amazon-cpg-friend-or-foe.html.

31 Ben Rosen, “Are You a Speed Shopper or Browser? New Target Stores to Accommodate Both,” The Christian Science Monitor,

March 21, 2017, http://www.csmonitor.com/Business/2017/0321/Are-you-a-speed-shopper-or-browser-New-Target-stores-to-

accommodate-both-video.

32 Alison Schiff, “Blockchain Is Bubbling Up as a Solution to the Supply Chain’s Transparency Woes,” Ad Exchanger, March 21,

2017, https://adexchanger.com/online-advertising/blockchain-bubbling-solution-supply-chains-transparency-woes/.

33 Luke Jones, “Microsoft Announces Project Manifesto Blockchain for Tracking Projects,” WinBuzzer, Jan. 26, 2017, https://

winbuzzer.com/2017/01/26/microsoft-announced-project-manifest-blockchain-tracking-products-xcxwbn/.

34 Erica Shaffer, “The Blockchain Gang,” Food Business News, Feb. 27, 2017, http://www.foodbusinessnews.net/articles/news_

home/Food_Safety_News/2017/02/The_blockchain_gang.aspx?ID=%7B01D9ABFC-FF0C-4430-A5C7-F19F9A3DEC95%7D.

35 Jeremy Epstein, “The Digital Advertising Strategy No One’s Told You About: Blockchain,” Venture Beat, April 9, 2017, https://

venturebeat.com/2017/04/09/the-digital-adverstising-strategy-no-ones-told-you-about-blockchain/.

THE ROAD TO 2025

Page 19: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

19CPG at the Tipping Point: How Brands Can Win in the New Routes to Market |

THE ROAD TO 2025

ABOUT THE AUTHORS

Hari Natarajan is a Senior Leader with Cognizant Business

Consulting with more than 19 years of business and IT

management and consulting expertise. He specializes in

business transformation for the consumer packaged goods and

retail industries, with a focus on digital commerce, business

insights, sales and marketing strategy, trade promotions and

supply chain management. Hari is an expert in the application

of design thinking, persona-based design, the Question to

Action™ framework and user-centric design principles. Hari can

be reached at [email protected] | LinkedIn: www.

linkedin.com/in/hari-natarajan-542944/.Hari NatarajanSenior Leader, Cognizant Business Consulting

Upendra Kendurkar is a Senior Consultant with Cognizant

Business Consulting, aligned with the Retail and Consumer

Goods Practice. He has over 12 years of hands-on experience in

trade promotion, social media, mobile business, e-commerce,

sales transformation, procure-to-pay, marketing and loyalty,

while helping to create cohesive, value-added customer

experiences across multiple channels. Upendra holds an MBA

from SP Jain School of Global Management, Singapore, and a

computer engineering degree from DAVV University, Indore,

India. He can be reached at Upendra.Kendurkar@cognizant.

com | LinkedIn: www.linkedin.com/in/upendrakendurkar/.

Upendra Kendurkar Senior Consultant, Cognizant Business Consulting

The authors would like to thank Keith Scovell for his immense con-

tributions to the creation of this white paper.

ACKNOWLEDGMENTS

Page 20: THE ROAD TO 2025 - Cognizant · PDF fileHow Brands Can Win in ... THE ROAD TO 2025 July 2017. 2 ... distribution to retail after online consumers give products the thumbs up.19

ABOUT COGNIZANT BUSINESS CONSULTING

With over 5,500 consultants worldwide, Cognizant Business Consulting offers high-value digital business and IT consulting services that improve business performance and operational productivity while lowering operational costs. Clients leverage our deep industry experience, strategy and transformation capabilities, and analytical insights to help improve productivity, drive business transformation and increase shareholder value across the enterprise. To learn more, please visit www.cognizant.com/consulting or email us at [email protected].

ABOUT COGNIZANT

Cognizant (NASDAQ-100: CTSH) is one of the world’s leading professional services companies, transforming clients’ business, operating and technology models for the digital era. Our unique industry-based, consultative approach helps clients envision, build and run more innova-tive and efficient businesses. Headquartered in the U.S., Cognizant is ranked 205 on the Fortune 500 and is consistently listed among the most admired companies in the world. Learn how Cognizant helps clients lead with digital at www.cognizant.com or follow us @Cognizant.

© Copyright 2017, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means,electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

TL Codex 2595

World Headquarters

500 Frank W. Burr Blvd.Teaneck, NJ 07666 USAPhone: +1 201 801 0233Fax: +1 201 801 0243Toll Free: +1 888 937 3277

European Headquarters

1 Kingdom Street Paddington Central London W2 6BD EnglandPhone: +44 (0) 20 7297 7600 Fax: +44 (0) 20 7121 0102

India Operations Headquarters

#5/535 Old Mahabalipuram RoadOkkiyam Pettai, ThoraipakkamChennai, 600 096 IndiaPhone: +91 (0) 44 4209 6000Fax: +91 (0) 44 4209 6060