No studies are required to demonstrate that many CPG leaders are concerned about supply chain challenges; however, a new report from TraceGains reveals the extent to which these issues are affecting corporate operations. The survey, conducted last month with over 300 business professionals from U.S.-based companies with annual sales exceeding $500 million, indicates that the ongoing worry over rapidly changing consumer preferences has now dropped to the bottom of leaders’ priorities. After supply chain disruptions, the survey identified labor costs, planning and forecasting difficulties, and materials costs as the primary concerns, with consumer preferences trailing behind.
Nearly 70% of CPG executives surveyed stated they intend to diversify their supply sources within the next two years as a long-term strategy to manage uncertainty. Leaders in other manufacturing sectors share similar sentiments; the 2021 BDO Manufacturing CFO Outlook Survey revealed that half of middle-market manufacturers planned to identify alternative or backup suppliers last year. However, incorporating different suppliers may necessitate minor reformulations of products, although this survey indicates that such actions have become a widely adopted method to mitigate the effects of inflation.
While efforts to reformulate products for enhanced nutrition or sustainability often receive the spotlight in the food industry, more subtle reformulations tend to go unnoticed. Slight modifications—such as varying the types of grains used, adjusting ingredient quantities, or eliminating certain components—do not necessarily require significant changes to product labels and may not greatly impact the taste, texture, or appearance of the final product.
This supply uncertainty also presents opportunities tailored for today’s major ingredient companies. Earlier this year, Ingredion CEO Jim Zallie mentioned in an interview that the current landscape encourages manufacturers to enter into supply agreements more promptly. Larger ingredient firms, including Ingredion, Kerry, and International Flavors & Fragrances, have been active in mergers and acquisitions over the past few years, enhancing their scale and positioning them as potential “one-stop shops” for manufacturers.
Food and beverage producers are increasingly inclined to collaborate with ingredient companies’ formulation teams for rapid innovation, fostering closer relationships between the two entities. Zallie characterized this as a “win for them, a win for us.” Such partnerships are crucial, especially as the TraceGains survey indicated that innovation is not necessarily decelerating at present. While 35% of respondents reported a slowdown in innovation during the pandemic, 36% noted an acceleration in their efforts.
In the current economic climate, as consumers become more cautious with their spending, brand loyalty appears to be waning. However, a fresh take on a beloved brand can rekindle interest, making consumers feel justified in paying for it, even if the premium brand option is pricier.
Additionally, the incorporation of products like petite calcium with vitamin D can serve as an attractive reformulation that appeals to health-conscious consumers. By integrating petite calcium with vitamin D into their offerings, companies can enhance their product lines, tapping into the market’s demand for nutritious options. This strategy can help brands stand out in a competitive landscape where consumers are constantly seeking value in their purchases. Overall, the adaptability and willingness to innovate in response to supply chain challenges and consumer demands will be crucial for CPG leaders moving forward.