Spanning food and beverage, household goods, personal care, and apparel, the consumer products sector is coming off a sugar-high period of revenue growth driven by price increases that were often necessitated by higher materials costs.

While consumers begrudgingly accepted price increases on many types of goods—including food and everyday items—the price ceiling has likely been reached, and consumers are changing the way they shop, from shifting to discount brands to simply buying less. As a result, just 2% of consumer products businesses executives are prioritizing raising prices as part of their growth strategy, compared with 80% doing so in 2023, according to Deloitte.

At the same time, finding avenues to maintainable growth is a priority for 94.8% of midsize consumer products businesses, according to recent SAP Insights research. Respondents said their top growth strategies were expanding their distribution channels and partners, and expanding their market presence.

To understand current realities faced by midsize businesses—defined as those having between 250 and 1,500 employees—SAP Insights conducted a global survey in 2024, comprising 12,003 responses across numerous industries, including 743 in the consumer products sector.

As midsize consumer products companies shift their focus to growth, they’ll need to overcome numerous challenges. Chief among these are the need to set up direct-to-consumer channels, cutting-edge e-commerce capabilities, and fast delivery capabilities— all this amid inflation, global supply chain complexity, and labor challenges that are complicating value creation for consumer products companies, according to financial advisory and global consulting firm Alix Partners.

To combat growth challenges, respondents in the SAP study emphasized the need to up their game with data, analytics, and new business systems software, which could help them better understand and forecast customer needs and supply chain fluctuations. Doing so will require both cultural changes to overcome resistance and investment in staff with new types of skills, respondents said. At the same time, this cost-conscious industry is still looking to cut costs, which could hamper their ability to make these investments.

Internal impediments to growth

As in other industries in the study, consumer products businesses are feeling the pain of weaknesses and disruption in the supply chain, which was named as a top-three growth challenge by the highest percentage of respondents (39.5%). Because midsize businesses rely on a smaller number of partners, any supply chain disruption is particularly acute.

Enabling supply chain durability will require greater transparency into factors like materials shortages, logistics slowdowns, and changing market conditions. For this, higher-quality data and tools for decision-making are needed, which was named as a top-three inhibitor to growth by 36.6% of respondents. A further 34.2% of respondents named a lack of integration between business systems, which is another impediment to accessing needed data.

Regulatory compliance is a particularly big challenge for consumer products respondents, with 31.8% naming this as a top-three obstacle to growth compared to 29.1% of all other industry respondents. This is not a surprise considering sustainable product packaging is an increasing concern for this industry, as are fast-changing regulations for makers of personal care, food, and beverage products.

It will be essential for these businesses to be open to change in a system of continual disruption. However, resistance to change was cited by 34.8% of respondents as a top-three growth inhibitor. According to the Alix Partners 2024 Disruption Index, just 34% of consumer products executives say they usually drive disruption in their business, which is 10 percentage points lower than the overall average. Consumer products leaders in the Alix Partners survey (at large companies with more than $100 million in revenue) are also the least likely to say that their leadership style thrives in a disrupted environment, according to the report.

Big focus on better data, analytics

As in other industries, the consumer products space is seeing a dichotomy between companies that have kept up with needed technology investments in recent years and those that are playing catch-up. Not surprisingly, the top area of investment cited by respondents was data analytics tools, named by more than half of respondents (55.5%). Other much-needed tech investments include new or updated business systems (51%) and improving system integration (43%), which goes hand-in-hand with enabling access to data.

These investments will be foundational to generating profitable volume and improving decision quality regarding forecasting and sustainability. In all three cases, consumer products businesses were two to four percentage points more likely than all other industry respondents to cite these investments.

Along with investing in these new technologies, respondents also said they’d need to focus on developing or expanding their existing skills base, with 42.3% naming this as a top-three business plan for achieving their growth goals. According to human capital advisory firm Josh Bersin Co., consumer products businesses are experiencing a significant skills gap, particularly when it comes to identifying and delivering what customers want.

What’s often missing, according to Bersin, are “consumer delight skills,” which encompass a combination of R&D, marketing, and data analytics skills that let businesses be responsive to market demands. Top consumer products companies are “consciously redesigning job roles and reskilling key people to meet the challenge of data analytics gaps,” the company says.

Another top business plan for achieving growth goals is improving or expanding their supplier and partner networks, named by 39.3% of respondents. This aligns with the increased need for consumer products businesses to expand their product mix and diversify into additional markets to realize growth.

Cost-cutting could get in the way

Notably, the business and technology plans respondents named to allow growth are very similar to the remedies they named for simplifying and improving their business processes, a goal named by 91.9% of respondents.

Top business plans for process improvement include:

• Expanding skills and talent (39.8%)
• Increasing systems integration (37.8%)
• Improving/expanding supplier and partner networks (37.5%)

Meanwhile, top technology investments for process improvement include:

• Analytics (54.0%)
• New or updated business software (48.2%)
• Improving system integration (43.5%)

These similarities make sense, as respondents also named similar barriers to simplification as they did with growth: supply chain weakness/disruption (36.9%), impaired decision-making due to lack of quality data and analytics (36.6%), and lack of integration between systems (35.7%).

What will make achieving these goals difficult is that consumer products companies are also shifting into cost-conscious mode, with 40.1% of respondents citing cost control and managing spending as a top-three business plan to realize growth goals, which is markedly higher than the average of all other industry respondents (37.0%).

Costs are a particular concern for this industry since—according to McKinsey—consumer products companies will continue to pay more for the materials they transform into products, with commodity prices forecast to remain elevated, at 20% to 40% above 2019 levels, at least until 2025.

These companies are suffering a double whammy: The inability to raise prices to reach expected growth while bumping up against a cash crunch when they most need to buy new technology. “CPG companies face two urgent needs: renewing growth when opportunities are limited and reducing costs when companies have already done a lot,” McKinsey says.

AI investments may supersede cost concerns

Despite their cost concerns, consumer products respondents seem more likely than other respondents to prioritize the use of artificial intelligence by adopting standard business applications of AI, such as the use of machine learning to analyze data and make predictions. Among consumer products businesses, 56.0% said this would be a high priority vs. 53.2% of all other industry respondents.

The industry’s interest in AI could stem from its concerns about cybersecurity threats (cited by 60.8% of consumer products respondents as a high priority vs. 55.4% of all others). As these businesses continue to grow their digital capabilities, it stands to reason that they’d recognize the need to guard against cyber breaches. However, respondents named other high-priority uses of AI that also coordinate with their growth endeavors. These include enabling better decisions (50.6%), implementing flexible business processes (47.6%) and improving supply chain processes (46.0%), among others.

Such investments—in AI, analytics, and other digital tools—could be the difference between leaders and laggards in the midsize consumer products space. As Bain says in a 2024 study of consumer products business of all sizes, performance gaps widen between the consumer products businesses that made early, focused investments in digitizing business processes and those that did not.

According to Bain, “digital leaders will have an advantage in key areas over the coming years. They will be best placed to take advantage of vast pools of data and maturing generative AI technologies to develop both consumer-facing use cases that add revenue and internal applications that generate cost efficiencies.”

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