The consumer packaged goods sector faces tough hurdles in 2018. That's mainly because of long, steady shifts in consumer preferences. But new players are disrupting the market as well, as are changes in the distribution channel.
Challenge No. 1: Many Consumers Are Buying Private Labels
The private-label market once was largely driven by demand from lower-income shoppers. Then came budget-conscious millennials. Now, wealthier consumers are going for private labels as well, tightening the squeeze on national brands.
A September survey by IRI found that more than half of consumers with household income of more than $100,000 said they expect to buy more private-label products over the next six months.
The squeeze isn't just coming from consumers shifting their tastes. Retailers, too, are adding to the pressure on national brands, using private-label goods as a way differentiate themselves from rivals and draw shoppers.
Challenge No. 2: The Consumer Shift Toward Fresh Foods Shows No Sign of Easing
Many packaged foods makers have had to refocus themselves to accommodate consumers' continued shift toward foods that are perceived as fresher and healthier.
Campbell Soup, which recently completed a purchase of Pacific Foods, a maker of organic soups and broths, said IRI data shows that organic food sales increased at an average of nearly 16% over the past four years. By contrast, canned and other shelf-stable liquid soup products have seen unit sales decline in each of the past four years, according to Nielsen.
Related: Campbell Soup Looks to 'Get Real'
Challenge No. 3: Amazon Is Putting On the Pressure
Amazon's disruption of the the retail sector is only the start. The ecommerce giant is now is in the process of disrupting multiple sectors by selling its own lines of furniture, clothing and, yes, packaged goods. The company's best-known private-label goods are electronics such as the Kindle reader and the Echo line of smart speakers, but consumer packaged goods make up a huge portion of its private-label sales.
According to 1010data, CPG items accounted for 41% of Amazon's private label sales in the first half of 2017.