All I’m going to say about this is this. It’s not good.
As a production cycle grows longer for consumers, the supply chain’s life cycle also slowly ends. Whether it’s because all the factories have closed down in Bangladesh or China, or multiple factories doing the same type of business were all closed in Vietnam, or a simply just a greater emphasis on automation, the slowdown in supply chain production has become more apparent over the past few years.
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A recent Chowder Consulting report highlights many of the reasons why consumer brands could be in for a pretty challenging year.
Here’s just a sampling of its findings:
US gas pump spending plunged from an average of $335 per head in 2011 to $251 in 2017, a decline of 6.5% per year.
The average price of dairy products was just up one cent last year, even as the economic squeeze on many American households increased.
The US auto purchase industry is down nearly 10% from 2014 levels, driving substantial declines in the industry’s total sales – an industry that had traditionally led the US economy out of recession.
Dumb Starbucks: What shocks us more: that a chain with a ridiculous name such as Starbucks sells inferior coffee, or that it manages to charge $3.20 for its frappuccinos? A new report from Canaccord Genuity explored which of these qualities is more shocking. Here are the revelations: only 14% of the stocks in the consumer discretionary space trade above their all-time highs, excluding the oil and gas component. 53% of the stocks are below their all-time highs (excluding the oil and gas component). These numbers contrast sharply with the largest sectors, healthcare and utilities.
Here’s what happens when one of the world’s largest exporters, China, slashes the tariffs on US soybeans and US agricultural exports by 50% in a trade agreement that creates a “Safe Harbor” for US companies investing in China. The result: China’s agricultural exports to the US jumped 20% from August 2018 to November 2018. The increase in Chinese exports to the US this year is in comparison to two months in 2017.
Shorter life-cycles and lower pay
Like any other industry, the sector is going through transitions. Some have seen an expected squeeze on profitability, in which brands try to find new ways to scale production, improve service and reduce expenses. Others are adjusting to a shrinking consumption and off-shelf life cycle.
Today, only about 45% of beverage production is alcohol, but it makes up 60% of the consumer packaged goods space, that the average brand has targeted with a 50% increase in production from 2015 to 2020. But, here’s what you may not expect from a decline in liquid consumption: Beverage companies face immediate pressure to decrease the sizes of products that they sell.
With the increases in the size of soda bottles and all-time high TV advertising as part of our six-screen diet, we are certainly feeling a smaller margin on every glass we pop.
Women’s fashion brand DSW is trying to reinvent itself as a “shoe technology brand” after struggling with low-selling athletic shoes that featured large soles.
Will retailers be adapting to this new era? Will this make for a better business? Or will it actually drive down profits for some brands, forcing them to change their goals?
In an increasingly challenging consumer goods industry, these shifts are going to be a challenge for many of the leading names in the space.
Sheree Waterson is managing director of consultancy Chowder Consulting
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