We recently wrote about the industry’s trends and a forecast amid the pandemic. But a look at where beauty overlaps with CPG provides additional insights AND some critical questions about the industry’s future, particularly its adaptation to new and primarily digitally based norms.
Has the CPG industry come up with a uniform strategy for digital transformation?
The Digital Transformation of any brand today is not only necessary but is the distinguishing factor for beauty brand success. And the lock-downs have only made the transition more urgent as typical retail traffic was directed to e-commerce. In a podcast prior to the pandemic, retail thought leader Dr. Brian Harris was asked about the CPG industry’s high level moves for the next 5–10 years, where he noted that the industry had not come up with a common or uniform strategy for the brands’ digital transformation.
Have digitally native and D2C brands introduced a new roadmap?
Digitally native and DTC brands’ growth rates have surpassed that of traditional and legacy brands, and in turn large CPG conglomerates and big retailers have been gobbling up emerging brands through M&A. McKinsey breaks down the market share, growth and other segmentation quite succinctly here.
For a hot minute a DTC playbook appeared to be forming, but a quick study of the approach as a business model boils the strategy down to having better data — for CPG, particularly customer data. Being younger and more agile companies, emerging brands have fresh data and subsequently less data challenges, potentially less integration hurdles. And so the long running discussion on how to get the most accurate consumer and customer data, how to get a 360 degree view of the customer journey, for example, also becomes simpler. For the DTC brands raising absurd amounts of cash to get in front of the consumers behind screens, they may be leveling the playing field with large CPGs. Glossier, for example, illustrates a similar shopper marketing and ad buy breakdown to that of the CPG majors. Now, the main challenge is — how can brands most efficiently process the data and then forecast? Again, we’re talking largely about an integration issue. For which brands should consider partnering with an integrations guru (like one of ours at XY Retail) and/or onboarding more implementation expertise in this space.
At what point are large and small brands competing for the same customer?
In McKinsey’s analysis of the CPG business models of past and future, the how-to-win model will “reinvent marketing to focus on customer relevance and build new largely digital commercial capacities”… “with an evolved operating model that prioritizes closeness and local decision making”. Because the beauty industry inherently involves a more personalized product experience, it very well may have a leg up compared to other CPG categories. As for this new operating model, according to McKinsey, evergreen brands will be updated AND emerging brands will scale, which begs the question — at what point are the large legacy conglomerates and the emerging brands, particularly those they’ve acquired, competing for the same market? This, I believe, speaks to why active investor expectation, referenced in the same McKinsey analysis, is that CPG players need to achieve higher organic growth moving forward.
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