Prepare for slower CPG growth between now and 2020

Articles
July 21, 2009

Prepare for slower CPG growth between now and 2020

Ten years from now, a smaller share of United States households will have children, a larger share will be older, and the most growth will be in the numbers of lower-income consumers, projects Nielsen. Therefore, consumer packaged-goods marketers and retailers will need to radically rethink their historic reliance on middle-class families as their primary targets. Facts, Figures & the Future suggests this will require the development of more sophisticated segmentation strategies affecting everything from new product development, packaging and brand messaging to store formats and category alignments. The trade has already been scrambling to satisfy budget-conscious shoppers in this recession. But the demographic and economic shifts that are coming could make this exercise of 2008-2009 seem like a warm-up to the main event. One of Nielsen's most telling statements at its recent Consumer 360 Conference: "While the aging population will be dominated by non-Hispanic white consumers, the majority of new families will be multi-cultural in less than two decades." Nielsen forecasts how these divergent shifts will affect purchases: The top CPG growth categories in 2020 will include ethnic health and beauty products, medications and remedies, health aids, vitamins, and cooking essentials such as flour, shortening, sugar, yeast and eggs. The slowest growth will occur in toys and sporting goods, breakfast foods, baby care products, and pet products.

Ten years from now, a smaller share of United States households will have children, a larger share will be older, and the most growth will be in the numbers of lower-income consumers, projects Nielsen.

Therefore, consumer packaged-goods marketers and retailers will need to radically rethink their historic reliance on middle-class families as their primary targets. Facts, Figures & the Future suggests this will require the development of more sophisticated segmentation strategies affecting everything from new product development, packaging and brand messaging to store formats and category alignments.

The trade has already been scrambling to satisfy budget-conscious shoppers in this recession. But the demographic and economic shifts that are coming could make this exercise of 2008-2009 seem like a warm-up to the main event. One of Nielsen's most telling statements at its recent Consumer 360 Conference: "While the aging population will be dominated by non-Hispanic white consumers, the majority of new families will be multi-cultural in less than two decades."

Nielsen forecasts how these divergent shifts will affect purchases: The top CPG growth categories in 2020 will include ethnic health and beauty products, medications and remedies, health aids, vitamins, and cooking essentials such as flour, shortening, sugar, yeast and eggs. The slowest growth will occur in toys and sporting goods, breakfast foods, baby care products, and pet products.

A new America with different product preferences and tastes is coming, suggested Nielsen. "It will be absolutely critical for CPG companies to adapt in order to gain the attention and brand loyalty of the aging Baby Boomers, multi-cultural families and lower-income consumers of the future. Those who keep doing what they're doing today will be left behind," said Doug Anderson, senior vice president-global research and development, Nielsen.

Spelling out some of the demographic swings, Nielsen notes:
•    As the share of households headed by someone over the age of 65 grows and the share of children declines, U.S. society will change to reflect this new dynamic. (as above). ("American culture will move from being based on the interests and tastes of young people to being defined by the growing population of older people. Companies catering to them...to make them comfortable...such as medication or vitamins...will be positioned to do well," added Anderson.)
•    While the number of households with children will continue to decline, ethnic (non-white) families are expected to grow at a faster rate than the total population. More than half of families with children are expected to be multicultural by 2025. By 2050, that number is anticipated to be greater than 60%.
•    Household incomes are also expected to stagnate or fall slightly between now and 2020. As a result, household spending will grow "very slowly" compared with the previous decade. The lowest-income population segments will grow the fastest (as much as 17.8%), while affluent and wealthy segments decline (by 9.2% and 5.5% respectively).

"As spending for consumer products falls, marketers will no longer be able to rely on an overall growing marketplace taking their brands along with it. Every dollar in incremental sales in most CPG categories will have to be taken from a competitor....The near future will bring new relevance to the phrase 'share wars,'" summed up Anderson.