Food and beverage manufacturers are focusing on product innovations that incorporate health and wellness, sustainability, and other attributes, including indulgent experiences, according to the latest Advantage Outlook report from Advantage Solutions.
Retailers, meanwhile, are seeking increased differentiation in their assortments, which appears to bode well for specialty food manufacturers.
“Right now, the cost-conscious consumer community is growing and increasingly focused on price and promotions,” Jill Blanchard, president of client enterprise solutions for Advantage Solutions, told SFA News Daily. “Private label is having a good day with both dollar and unit sales outpacing branded products, and consumers are leaning into promotions at shelf. CPG manufacturers are reacting to this by choosing to play with price and promotions at the value end of the spectrum and innovation at the mainstream and upper end.”
The Advantage Outlook survey, which polls both retailers and manufacturers, found that 98 percent of manufacturers plan to focus their innovation on mainstream and premium products, including 56 percent who said their innovation would be centered on mostly premium offerings.
Sixty-one percent of manufacturers said their current innovation plans address health and wellness, and 44 percent cited sustainability. Asked if they are focusing on at-home indulgences, 65 percent said they were doing so.
Products with these attributes tend to carry higher margins, “which is much needed as [manufacturers] continue to recover from increased costs,” Blanchard said.
Meanwhile, retailers reported that they are seeking more innovative products to spur sales, with 72 percent saying they expect to accept more innovation over the next six months, and 95 percent saying they will accept new item cut-ins outside of traditional reset windows.
The openness to accepting new products follows efforts by many retailers in recent years to reduce their product assortments and focus on the top brands in each category, Blanchard explained.
“Now they are in a battle to capture the trip,” she said, adding that retailers are seeking to differentiate their offerings from their competitors in order to do so.
CPG manufacturers seeking to get retail shelf placement of new products outside of traditional retailer reset windows must have “a strong category incrementality story, along with differentiation and maybe even an exclusivity offer,” Blanchard said. “Retailers will respond positively to incrementality and differentiation.”
Driving Unit Volumes
The Advantage Outlook report found that CPG manufacturers and retailers are aligned on the importance of driving unit volumes in an environment where sales growth has largely been driven by inflation. Both manufacturers and retailers said they planned increased promotions as their top strategy to drive increased unit sales. Manufacturers also cited increased brand marketing and the introduction of new products as top strategies to build unit sales.
Among other findings from the Advantage Outlook report:
• Most manufacturers are no longer raising their list prices to combat their own rising costs, and are instead focusing their efforts on disputing retailer fines and fees. Ninety-six percent of manufacturers said they were very or somewhat likely to dispute fees, unauthorized deductions, or surcharges to address their own cost increases and profitability. Other strategies manufacturers cited included enforcing existing payment terms and investing in supply chain efficiencies. About a third of manufacturers said they were very or somewhat likely to raise list prices in the next six months.
• The ongoing retail labor shortage is leading to more self-checkout installations and, according to manufacturers, a decline in shelf conditions. More than a third of retailers surveyed said they are using self-checkout “a lot” and expect it to be permanent, and about half of retailers said they are reducing in-store labor at least a little. Manufacturers, meanwhile, said store labor shortages and a lack of planogram oversight are the top two factors affecting on-shelf availability.
The Q2 Advantage Outlook is a quarterly survey of large CPG manufacturers and retailers, published by Advantage Solutions in partnership with Nielsen IQ. The survey was conducted between June 14 and July 6.
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