1. Optimize SKUs. Smart CPGs will get even more focused on the most profitable products and cut their non-performing SKUs. At the same time, consumers will get smart about price shopping between retailers. So, we likely will see fewer product options at each retailer, but greater packaging and unit diversification between retailers. As you optimize your SKU portfolio, we suggest (a) working with your co-packer team to increase co-packing batch sizes to reduce costs while (b) shifting packaging and unit volumes for each retailer served.
2. Bundle/multi-pack to create value buys for consumers and reduce transit costs. Since the cost to deliver a product or engage a customer is going up rapidly, you might as well spread the cost over multiple units via bundle-wrapping with polyethylene film. While a large value pack gives a consumer better pricing, it also gives the CPG a larger ring at the cash register or online checkout. Multi-packs keep the consumer from buying a competitor’s product that might be offered at a discounted price, and they lower your per unit transit cost. To accommodate, most co-packers will have shrink- or bundle-wrapping equipment and expertise on standby and will be able to bundle products together cost-effectively.
3. Utilize point of purchase (POP) displays to create impulsivity and compete with house brands. Consistent with other downturns, consumers are already shopping for the lowest cost product options. Unless a brand-name product is prominently positioned with compelling and distinctive messaging, it will actively be compared to the inferior option, based on price alone. If history is any indicator, the number of POP displays utilized will increase during an economic downturn, and smart CPGs will be angling now for strategic display positioning within select retailers.
4. Optimize packaging materials to reduce total landing cost to the consumer. The word optimize was chosen purposely – some brands opt simply to do everything to reduce packaging materials, without thinking through how the product needs to transit and/or transform from manufacturer to the consumer’s shopping basket. It’s important that a CPG manager understands how the packaging impacts labor and transit costs at each juncture of the supply chain, and only then works to optimize. An experienced co-packer can give value-add ideas on what is optimal to reduce costs and damages, and they can help a brand owner think through various tradeoffs up and down the supply chain.
5. Be ever-flexible with channels, shifting to club stores if possible. The old adage of following the shopper is so true in an economic downturn. Your product needs to get to consumers in the most cost-effective way, and if they are moving to discount/club stores then make sure your product is there as well. In this case, having a pallet program designed and implemented could lead to significant improvements in throughput and margins.
6. Reduce transit costs via multi-facility co-packaging. We’ve been working with CPGs over the last few years on co-packing identical products in two or more facilities strategically positioned in the US, largely to reduce their shipping costs to DCs and retailers. While multi-facility co-packing sounds simple in concept and the lower cost of transit can indeed be pretty significant, it does require tight team coordination and inventory visibility, as well as standard systems, processes and quality standards to actually pull it off.
7. Consider an Embed Approach – Most CPGs appreciate how a co-packer’s multi-customer facilities can handle sizable demand spikes and rapidly recover from supply chain issues. But in some situations the CPG’s demand for services and supply chain of product are relatively stable, leading them to just need outside expertise and focus of line set-ups, ongoing oversight and labor management in their own facility. In those cases – we currently manage eight – we embed our team in the CPG’s facility and handle all the co-packing operation onsite, letting the CPG focus on more core activities.
8. Certify – Yes, consumers are sensitive to price, but a growing number of consumers are also requiring transparency and certification of the suppliers who manufactured and packaged their products. It is helpful to justify to the Krogers, Targets, Amazons and WalMarts out there that your project deserves a premium price if it’s sourced at a premium.
9. Be careful of corner-cutting. For example, there is nothing worse than a recall, especially in markets with tight supply and a cost-conscious consumer. Unfortunately, only a select few vendors have the standard processes, systems and focus on quality that will help avoid recalls.
10. Accommodate the unexpected. Make sure your co-packing partner has the resiliency and the capacity to flex with you. Whether it’s recession, supply chain hiccups, natural disasters or something else, there’s always something else. But no matter what the unexpected challenge may be, your product has to be on the retail shelf in order for consumers to buy it. Having the right co-packing partner can give you that essential edge.