5 Ways CPG Brands Can Thrive Amid Volatility

As we progress into the second half of 2024, uncertainty still looms. For consumer packaged goods (CPG) companies, unpredictable factors like ongoing geopolitical instability and a volatile economy make forecasting trends difficult.

We’re likely to see the uncertainty continue, making it hard to achieve the level of visibility that aids companies in their planning.

Fundamental questions remain around supply chain strategies, how prolonged inflation might continue impacting consumer spending, hiring difficulties plaguing operations, and the role of emerging technologies in bridging gaps.

However, one guarantee holds true — those demonstrating flexibility and agility amid these volatile conditions will maintain the best positioning to seize opportunities when they emerge.

Here are five key trends we expect to see shaping the CPG space throughout the rest of the year and well into 2025:

1. Resilience stands out as the most essential trait.

Building resilience starts with securing supplier relationships despite lingering unpredictability. We saw nearshoring develop as a trend in 2023, giving companies as much control over their supply chains as possible. We expect that trend to continue this year. But it’s about more than just bringing manufacturing closer to customers. Diversifying sourcing options opens the door to overcoming intermittent capacity constraints or spikes in raw material costs. While it’s impossible to assure all the supply a company may need, reducing the concentration of sourcing options is a great way to de-risk if and when setbacks strike.

Enhancing visibility through data integration and collective forecasts also makes a supply chain more responsive and agile. Integrating with suppliers allows for a better data flow, making everything from planning to shipment tracking easier for all stakeholders.

When the next disruption inevitably emerges, CPG brands exhibiting agility will fare best. Those clinging to antiquated plans built for obsolete environments risk chasing rather than leading market trends.

2. Economic uncertainty affects customers, too.

While inflation may continue moderating, consumers still face significant economic headwinds. High interest rates are projected to remain at the current level for most of the year, constraining disposable incomes. Across Europe and North America, discretionary budgets remain depressed.

With wages failing to keep pace across many sectors, these dynamics show little sign of reversing overnight. With less cash to spare after paying for essentials, value stands out as the primary driver in purchase decisions.

Many retailers have kept prices low by private labeling or acquiring suppliers downstream in the supply chain. Instead of negotiating with bigger brands and paying large margins for their products, these approaches give companies more control over the whole supply chain and the ability to provide better prices to consumers.

Navigating this landscape without sacrificing quality or brand value proves tricky. Those struggling to dial the right balance risk losing customers to more affordable alternatives.

3. Hiring skilled labor may still be a challenge.

While pandemic-era labor shortages have eased in some sectors, hiring skilled talent and reducing turnover persists in industries like manufacturing. According to the most recent data from the Bureau of Labor Statistics, 587,000 manufacturing jobs in the U.S. went unfilled in October. Roles dealing with manual workflows seem less alluring to younger generations seeking more stimulating careers.

High quit rates have become more prevalent within shorter-tenure staff. A true sign of a skills gap, many of these employees aren’t up to speed on the requirements of supporting customers in the way that companies expect. Given the costs of recruiting and onboarding, progress on retention will be a priority whether headcounts grow or stay put.

Until deeper roots take hold across corporate culture, shoring up morale where possible pays dividends. Tactics like skills training, job rotation, and more flexible scheduling patterns have a tremendous impact.

4. AI and advanced technology can fill voids.

While many open jobs are physical labor, and thus hard to automate, generative artificial intelligence (GenAI) can still help companies bridge a talent gap. Many companies have turned to AI for customer service, although reportedly 40 percent of Americans believe it’s made their experience worse. This isn’t the only use for AI, however.

AI copilots can also serve as knowledge hubs, putting information at users’ fingertips and providing productivity gains. One recent survey showed roughly 70 percent of manufacturing CEOs saw “significant ROI in key areas such as supply chain management, quality control, and procurement.” As AI continues to evolve, there may be more breakthroughs in other applications to aid CPG companies, but it’s clearly a technology ripe for improving operations and workflows already.

5. Direct-to-consumer models will grow more popular.

Beyond established e-commerce players, an expanding group of CPG companies will explore going direct-to-consumer (DTC). Whether via owned e-commerce channels or subscription models, the promise of higher margins and tighter customer connections is appealing. However, changing the model means transforming operations.

Most consumer goods brands lack the intuition to pivot business models and supply chains ingrained over decades. It’s not as easy as selling on your own site instead of Amazon.com. You must own all the processes after a customer hits the buy button. Companies that take the DTC path need to rethink everything about their supply chains, from the physical layout of the network to how they plan and forecast demand.

Taking this approach requires careful planning. Companies must validate that they can deliver on a DTC model with capabilities like precise order orchestration, personalized marketing, and intuitive customer experiences. Done right, this approach has plenty of upside, but it’s typically an undertaking that few are prepared for.

From supply chains to sales channels, companies embracing flexibility fare better when the terrain shifts, which it undoubtedly will this year. We just don’t know how yet. The CPG organizations continuously shaping capabilities around agility and resilience stand primed to win, even against unknown challenges.

Michael Gylling is vice president of product, CPG at RELEX, a unified supply chain and retail planning platform.