Report abridged from Kline & Company's November newsletter.
There is no doubt, says Kline & Company's Carrie Mellage, that 2009 will likely go on record as one of the toughest years in the world’s economic history, leveling a serious blow to the consumer products industry. Struggling with declining sales and profits, many retailers have shuttered doors or closed down completely. However, new U.S. GDP figures already show a promising 3.5% growth rate for the third quarter, and there are signs of a slow (and hopefully steady) recovery. As the industry looks ahead to 2010, Kline & Company examines the burning question: What can consumer product companies do to get a jump on the recovery and get ahead in the coming year? In nearly every sector, 2009 was unquestionably a rough year for the consumer markets.
The news for marketers hasn’t been all bad, so long as one knows where to look. The naturals segment remains a relatively high-growth proposition from both a product and packaging standpoint in personal care and in home care. Sales of natural personal care products in the United States have grown by about 8% in 2009, down from 15.3% in 2008, but remains well ahead of the overall market.
In the BRIC countries (Brazil, Russia, India, and China), the growth in naturals has been spectacular, with each market adopting its own unique perspective on this trend. In Brazil, the naturals movement is about biodiversity and the rain forest connection; in Russia, the emphasis is on Siberian earth minerals; India’s surge is based on traditional ayurvedic principles; and China’s long heritage of herbal medicine serves as a foundation in this high-growth market.
Value brands and value channels have weathered the storm quite well, albeit at the expense of luxury brands and retailers, as consumers look to cut costs at every opportunity. Perhaps the biggest indicator of this trend has been the incredible surge in sales of private-label products. In many product categories, private-label products registered double-digit gains (as much as 30% in liquid soaps), while the product categories as a whole barely treaded water or even lost steam.
Already a number of earnings reports have indicated that 2010 will be the Year of Recovery—Procter & Gamble and Estée Lauder have both posted better-than-expected quarterly results. By far, the key to success in the coming year will be to take action—serious action—to turn these tip-of-the-iceberg glimmers into sustainable growth.
Innovation: The Key to Recovery
Innovation in both product development and marketing strategy will be a key component in getting ahead of the curve as consumers begin to feel more comfortable. It took the industry about five years to recover from the last major recession (1990–91), and it was innovation, particularly in the mass skin care category, that lit the path to recovery.
While the new GDP recovery numbers are promising, there is some evidence that the recovery may be coming at the expense of “intangible investments” such as research and development and new product design. In other words, in an effort to cut costs and quickly restore profitability, some companies have slashed investment in areas that drive innovation, which could come back to haunt them in the very near future.
To prevent this innovation backslide, new product activity must be dusted off and pushed forward to renew consumer excitement in shopping, spending and trying new products. By invigorating the market with new formulations, novel delivery systems, and updated packaging, branded companies can differentiate themselves against the private-label surge. It may seem tempting to pull back brand support to trim costs, but marketers must continually re-invest to maintain a competitive edge and stave off pressure from private-label competitors.
Beyond product innovation, marketers must leverage the power of the Internet and social media to connect with consumers. As a sales channel, the Internet is no longer insignificant in the personal care market with online sales tripling over the last five years. Consumers love the wider selection, competitive pricing, and the convenience of shopping online, especially for replenishment of higher priced items.
Global Market Perspective: A Must for Success
From a manufacturing and distribution standpoint, marketers must become well-attuned to the competitive landscape—on a global scale—and keep a watchful eye on changing cost structures, competitors’ activities, product development and consumer trends. With the worst of the recession behind us, access to accurate and timely data about the markets and consumer behavior will be critical in remaining agile to stay one step ahead of evolving opportunities. With retailer inventories tighter than ever, marketers must be able to anticipate changes in demand and up-and-coming trends to maintain a proactive—rather than reactive—posture.
Ironically, even though the economy seems weak, now is the perfect time to explore a global strategy. The market has suffered the most in mature countries, but growth in nearly all product categories in developing countries like Brazil, India, and China remains quite robust. Tempting as it may be, now is not the time to restrain international expansion; instead, embrace it as an opportunity to gain an early foothold as these economies take off. With a strong presence on the ground in these regions, Kline’s international experts know the culture, understand the competitive landscape and can provide invaluable insight that can maximize the opportunities and minimize the risk.
The complete report is available on the Kline & Company Web site.