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Business Insights From Conway MacKenzie
April 25, 2017

Transparency: The New Cost Reality for CPG Brands

The following post was written by Managing Director Michael Musso, Practice Group Leader – Consumer Packaged Goods.

In today’s marketplace, it is clear that the back of the product label has become as important as the front. Consumers —who are more aware than ever of ingredients and have a clear and defined perception of those ingredients — are increasingly demanding transparency. That level of awareness and demand has huge implications for consumer packaged goods (CPG) companies in particular, including new cost realities.

The challenge for many CPG brands is multifaceted. Their products have multiple ingredients, not to mention many layers of film and packaging. Given that many of these ingredients come from around the globe, confirming origin and safety is of utmost importance. CPG manufacturers must maintain constant vigilance about and control of ingredients, from sourcing to transportation to ongoing inspections. As brands promote organic, natural and non-GMO ingredients, the stakes get even higher. Tracking ingredients to specific growers is a complex and expensive process.

Given the extreme margin pressure on brands today, adding layers of cost hurts product margins and, in many cases, raises prices for the consumers they are trying to satisfy. The solutions are complicated, and both consultants and technology will play vital roles in the validation and maintenance of this complex new world of supply chain management. Digital-image tracking of the product journey is one way manufacturers are beginning to address these new challenges. As the related data ledgers are built, an easy-to-understand digital label can be affixed to a package and, with a simple bar code reader, consumers can get quick access to information about the ingredients and their origin.

In an already challenging retail world where brick-and-mortar stores are crumbling and e-commerce is the future, even in grocery, CPG brands — and the suppliers that service them — must be prepared for the new cost reality of transparency.