An industry known for stability and consistency confronts the whipsaw of change. In this environment, the best signal of success comes from those consumer packaged goods (CPG) companies that solve an increasingly complex equation to achieve profitable growth. Prepare for the year ahead and help your business embrace the changing consumer with actionable insights from our 2023 consumer products industry outlook.
Report preview—State of the consumer products industry
Feeling a little frazzled? Whether you are an executive with a food and beverage, household goods, personal care or apparel company, seven in 10 respondents say their job is more stressful today than it was five years ago. Despite favourable tailwinds for the industry in recent years, executives’ stress levels today are no surprise. Record inflation, supply chain issues, labour shortages, global conflicts, climate change and a potential recession—each in isolation is challenging. Combined, they are overwhelming.
And consumers' heads are likely spinning. Their context keeps changing and with it their behaviours. Major demographic, political, environmental, technological and cultural shifts are underway that forecast more change to come. Executives in our survey think keeping up with the changing consumer will be one of their greatest challenges.
Managing to grow sales and profit margins while chasing the changing consumer in an inflationary and challenging economic environment is no easy feat.
Specific actions set profitable growth CPG companies apart
So, what sets these leading companies apart? We find that profitable growth leaders act and invest differently in five distinct areas:
To take a deeper dive into these strategies and help position your company for profitable growth, download the full report.
Read the complete consumer product industry economic outlook from Dr. Ira Kalish, Chief Global Economist, by downloading the report.
About the report
Deloitte surveyed 150 consumer products executives from an industry-proportional mix of food and beverage, household goods, personal care and apparel companies in November 2022. Most of the companies are multinationals, all with more than $500 million in revenue. We conducted additional surveys with executives in Japan and China (50 in each country) to expand our view into those unique consumer markets. Survey questions were developed through an analysis of trending topics found in company communications and disclosures using an AI-assisted analytics tool, as well as through internal surveys and interviews with Deloitte client leaders in each consumer market. Finally, we conducted a financial analysis of consumer products companies in the top 30th percentile of performance based on three-year average total shareholder return, return on assets and economic margin productivity as well as three-year revenue and EBITDA growth to ensure they fit our profitable growth profile.
According to the 150 industry executives that took part in our global Consumer Products Industry Survey, it seems that no matter which sector you’re in, the squeeze is now well and truly on, and from many different directions. Inflation, supply chain, infrastructure challenges and the shifting behaviours of consumers are cited as the industry’s top challenges, with global conflicts, climate change, private label competition and a potential recession also being named.
The global findings from this survey are also recognised by South African Consumer Products (CP) companies, but even so, when it comes to the South African context, we face some unique local challenges that will weigh on the country’s growth outlook in 2023. Which is why we are providing this South African viewpoint, with the aim of highlighting areas that we believe CP companies should take note of this year.
Inflation fears among South African consumers and CP companies
Due to inflation, 8 in 10 companies worldwide plan to raise their prices further, but only 48% think they can get away with it without materially affecting demand.
“South Africa’s headline inflation (6.9%) has been partly driven by global priceincreases in food and fuel. This has affected the cost of living drastically and is severely constraining consumers’ purchasing power, especially when it comes to discretionary spending,” says Rodger George, Consumer Industry Leader, Deloitte Africa. “The findings of Deloitte’s Global Consumer Tracker for South Africa at the end of 2022 show that financial stress is a key concern for South Africans. Which means that all three factors are areas of concern for South African CP companies for the year ahead.”
The negative impact of climate change on CP companies
Despite Africa’s relatively low contribution to global emissions, the continent faces exponential risk from the effects of climate change. Severe weather events such as 2022’s floods in KZN or the recent heatwaves are having a huge impact on CP production, property and livelihoods. “This is forcing manufacturers and retailers to change the way they strategize, which in turn affects supply chain. Companies that have large distribution centres [DCs] in areas that have been severely affected by floods or droughts are realising that spreading their DCs geographically to meet consumer demand patterns is the wise thing to do to enable them to service their market continually and decrease risk.” The limitation of resources such as water is an issue, with weakening infrastructure also contributing to the challenges CP manufacturers face.
Another limitation is power. Since 2007, South Africa has experienced multiple periods of ‘load-shedding’ as the country’s demand for electricity exceeds available supply, and 2022 was one of the worst years on record for power cuts. “This is having a massive impact on the industry as the disruption to operations and supply chains is affecting the way companies manufacture and supply their products,” says George, “which, in turn, affects margins and price points. Manufacturers are realising they need to be more agile and rethink categories, and how and where they produce, aligned to levels of output.”
Political instability & social unrest
CP companies tend to behave cautiously with regards to investment and spending in times of uncertainty. “Recent civil protests, such as the KZN riots which resulted in the looting and burning of stores and warehouses, are another reason for considering geographic spread in a company’s business strategy,” says George. “CP manufacturers are starting to factor geopolitical instability as well as the effects of climate change more into their business strategies than in previous years.”
Ongoing supply chain challenges
The executives from our global Consumer Products Industry Survey cited several concerns when it comes to the supply chain, including cost inflation, their ability to do business with suppliers, supply reliability, and how supply chain data is meeting sustainability reporting or other regulatory or safety objectives. And the survey shows that 94% of companies are investing in supply chain improvement and operational excellence.
For South African CP companies, weather events, spiralling shipping costs, the availability and price of raw materials, and supply chain disruptions caused by recent global challenges are also issues of concern. Most companies are looking to their value chains to drive localisation and are accelerating the move to manufacture and source products locally. “Companies are also looking at how they can support and empower local communities and suppliers in their supply chain operations,” says George. “Community outreach and stimulating job creation to address our high unemployment rate (+35%) is particularly relevant to the South African context.”
Following in the footsteps of profitable manufacturers
So in an environment of financial squeeze and continual change, it’s safe to say that the best signal of success comes from those who can achieve profitable growth. But which of the trends mentioned in the report resonate the most for success among South African CP companies?