Top CPG Performers Satisfy Both Nutrition & Indulgence

CHICAGO — In an otherwise lackluster year for U.S. sales of consumer packaged goods (CPG), some top performers in the industry generated growth by satisfying both nutrition and indulgence, according to research findings by The Boston Consulting Group (BCG) and IRI.

Among companies that promoted nutrition successfully in 2016 included Blue Diamond, BodyArmor, Califia Farms, Bragg and The Wonderful Co. On the sweeter side, the best industry performers for indulgence were Mars Inc., The Hershey Co., PepsiCo, Hostess Brands and Constellation Brands.

According to findings, sales of ice cream, spirits, wines and salty snacks all grew by 4 percent to 5 percent — a rate three times faster than retail sales in the CPG industry overall.

Other CPG companies that performed well were large to midsized-companies, like Johnson & Johnson and Unilever, which acquired small makers of health-minded foods and beverages, as well as personal care products containing natural ingredients.

"Our research shows that the growing popularity of convenient nutrition and wellness remains one of the most powerful trends in the U.S. consumer packaged goods industry," said Jim Brennan, a BCG partner and coauthor of the study. "But this does not mean that American consumers' craving for indulgences has diminished." 

IRI Strategic Analytics President Krishnakumar Davey added, "Sales growth in these product categories is projected to remain strong. As long as the products are used for human consumption, we expect these bifurcated trends — demand for health and wellness products as well as for indulgence products — to continue, irrespective of whether they are bought in traditional stores or via an intelligent personal digital assistant like Alexa on Amazon."

"Functional beverages" — known as nonalcoholic drinks promoted as having a purpose, such as improving health, boosting energy or maintaining weight — was among the hottest categories of 2016. The best performer among small CPG companies was BodyArmor, a premium sports drink brand in which basketball legend Kobe Bryant is a major shareholder. Plant-based food and beverage brands also are well represented on the lists of growth leaders. Califia Farms, for example, markets beverages with ingredients such as almond and macadamia milk, ginger, turmeric, and Central American coffee sourced by direct trade.

One important trend in 2016 was that large and midsize companies acquired personal care and food and beverage brands with wellness themes. Unilever, for example, bought Seventh Generation, a brand of eco-friendly cleaning and personal care products, while Johnson & Johnson bought OGX, whose line of personal care products includes ingredients such as coconut oil, bamboo fiber and tsubaki blossom. Dr Pepper Snapple Group recently completed the acquisition of Bai Brands, whose line includes enhanced water, carbonated flavored water, coconut water, and premium ready-to-drink teas.

A desire for wellness sparked a growing trend in personal care and household products in 2016. Aveeno Active Naturals skin and hair products helped Johnson & Johnson grow, while Huggies Natural Care diapers contributed to the strong performance from Kimberly-Clark. Personal care and household products with whole, natural ingredients are projected to continue growing at a compound annual rate of 7 to 9 percent through 2020 — roughly double the expected growth rate for personal care products overall, research found.

The research revealed that CPG retail sales in measured channels rose by only 1.4 percent to $681 billion, compared to 3 percent in 2015. The sluggish sales were due primarily to price deflation opposed to lower unit sales. Price growth dropped to 0.8 percent in 2016, largely because of shifts in prices for commodities, such as milk and eggs, after rising to 2.3 percent on average in the previous four years. Rising online purchases also contributed to slower CPG sales growth in conventional retail stores. Growth leaders boosted their revenue with higher unit sales, in addition to pricing strategies and managing their product mix. Alternatively, the rest of the CPG industry had a decline in unit sales.

Reynolds American tops the CPG growth leader list of large companies for the second consecutive year, followed by Johnson & Johnson, Tyson Foods, Grupo Bimbo, and Mars. Midsize company leaders were Chobani, Hostess, Energizer Holdings, Constellation Brands, and Starbucks. Rounding out the list is small companies, including BodyArmor, Idahoan Foods, Bragg, Bai Brands, and Daisy. 

Companies with sales of less than $1 billion boosted their share of the CPG market from 25.0 percent in 2015 to 25.6 percent in 2016, according to the report. Over the past five years, large companies have ceded over three percentage points in share — or around $20 billion in industry sales — to small ones.

"Even in a sluggish market, the CPG growth leaders show that opportunities abound for companies that understand evolving consumer preferences and build a strategy to capture the opportunities," said Peri Edelstein, a BCG partner and a coauthor of the study. "The key to sustained success in this rapidly evolving market is to follow consumers around the clock and compete in the marketplace with the mentality of a startup." 

The findings are based on the fifth annual analysis by BCG and IRI of the growth performance of more than 400 CPG companies with annual U.S. retail sales of more than $100 million in measured retail channels, including grocery, drug, mass-merchandise and convenience stores. The study includes both public and private CPG companies and focuses on what consumers actually bought in measured channels, as opposed to what factories shipped.

Companies are ranked on a combination of three metrics: dollar sales growth, volume sales growth, and market share gains. The study also analyzes the trends driving performance in the sector. IRI and BCG generated three lists of growth leaders: small companies ($100 million to $1 billion in IRI-measured retail sales), midsize companies ($1 billion to $5.5 billion), and large companies (more than $5.5 billion).