Falling Prices Pressure CPG Manufacturers

In the age of disruption, changing consumer behaviors can dampen sales even for a manufacturer that has been producing household products for nearly 150 years. As consumers move more of their shopping online and seek the lowest prices, wars between mega retailers are putting a pinch on manufacturers.

Kimberly-Clarke, the consumer goods manufacturer of brands such as Huggies, Cottonelle and Kleenex, announced it will cut more than 12 percent of its workforce this year. Chairman and CEO Thomas J. Falk said the company is in a “challenging environment” that is putting downward pressure on prices.

“Personal care companies are struggling as stores compete with online retailers by offering discounts or creating their own private label products,” said NPR.

The company has announced a restructuring plan that will close 10 plants and eliminate up to 5,500 jobs. Kimberly-Clarke said it will save up to $550 million, and Falk said the cuts would make the company “leaner, stronger and faster.”

“the roadmap on how to achieve profitable growth in grocery and consumer goods continues to evolve. analytics will be critical for retailers and manufacturers to understand these digitally engaged shoppers on a deeper level.”

Kimberly-Clarke also is striving to save more than $1.5 billion through its FORCE (Focus on Reducing Costs Everywhere) program which includes improved productivity at factories and more efficient distribution. The company said it has generated more than $3.3 billion in savings since the inception of its Global Business Plan.

CPGs are increasingly pressured by changes in the retail industry as wars between Amazon and Walmart drive down prices for commodity-type items. Walmart’s intent to have the lowest price on more than 80 percent of the items it carries has ignited pricing issues at companies like P&G, Unilever, PepsiCo and Kimberly-Clarke. At the same time, retailers are also manufacturing more of their own private label brands at lower price points. Kimberly-Clarke reported its selling prices fell more than 1 percent last year.

Proctor and Gamble, which manufactures Pampers and Dawn dish soap, has seen slower growth in the past year, something it also attributes to falling prices. And big companies have been losing market share at the expense of smaller ones in the “fast-moving consumer goods” category. P&G is now putting a stronger focus on innovation and product differentiation.

Consumer goods manufacturers also are having to better embrace digital strategies as more consumers shop for these products online. A report from the Food Marketing Institute and Nielsen found that 70 percent of consumers will be grocery shopping online by 2024.

Chris Morley, U.S. president of FMCG (fast moving Consumer goods) and retail at Nielsen, said the roadmap on how to achieve profitable growth in grocery and consumer goods continues to evolve. He said analytics will be critical for retailers and manufacturers to understand these “digitally engaged” shoppers on a deeper level.

Craig Guillot
Craig Guillot is a business writer based in New Orleans, La. His work has appeared in Wall Street Journal, Entrepreneur, CNNMoney.com and CNBC.com. You can read more about his work at www.craigdguillot.com.

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