SKU’d Thoughts 15: How are CPG companies trying to keep up?

Big CPG isn’t exactly leaders of innovation. These companies have to balance returning shareholder value, usually in the form of dividends, and business processes that will fend off startups who have been slowly chipping away at their market share. To keep up, Big CPG has employed two key strategies:

1. Doubling down on supply chain. In SKU’d Thoughts 3, I highlighted that the supply chain is Big CPG’s ultimate moat against new and emerging companies. To maintain this competitive advantage, many companies are moving to a more dynamic supply chain that integrates customer demands and supplier capabilities. This is more costly than the traditional practice but its benefits equate to better customer experience, shorter lead and delivery times, and a better alignment with customer trends. Pepsico transitioning its supply chain capacity to handle more complex products that meet the consumer demand for more nutritious foods is an excellent example of this.

2. Investing in venture capital. Companies have recognized that the threat of new entrants into the CPG space is one they can no longer ignore. Big CPG is investing in CPG-focused venture capital funds and others are even starting their own corporate VC-arms to make bets on industry trends. The food and beverage sector has had the most activity in developing venture programs (Diageo’s Distill Ventures, Kellogg’s Eighteen94 Capital, Kraft Heinz’s Evolv Ventures, etc.) which makes sense since it’s seen the most change in consumer preferences, like convenience, alternative food sources, sustainability, and wellness.

These two strategies are a step in the right direction for Big CPG companies vying to remain relevant. To properly execute on these strategies the right resources need to be allocated; customer-centric supply chain leaders and venture-minded teams.

Cross-posted on Medium