ST. LOUIS — Consumer packaged goods (CPGs) manufacturers are honing their value proposition via a blend of pricing and innovation, yet their strategies don’t always align with those of retailers, according to Advantage Solutions’ Manufacturer & Retailer Outlook Q3 2024 report.

Over the next six months, 13% of CPG companies plan to lower prices for select and/or non-core items, compared with 24% raising prices for select/non-core items, 6% increasing prices for all or major items, and 57% not taking any pricing action, the study said. Among food companies, 11% expect to reduce prices on select/non-core products in that time frame, while 22% plan to increase prices on select/non-core items, 3% aim to raise prices on all/major items and 65% don’t anticipate taking any pricing action.

Retailers indicated a more aggressive pricing approach over the next six months. Twenty-eight percent plan to lower prices on many products, including 20% doing so on a sizable number of products and/or categories and 8% aiming to reduce pricing “to a great extent,” Advantage reported. Fifty-seven percent expect to bring down pricing on a few products/categories, and just 15% of retailers don’t plan to make any pricing moves.

The findings from Advantage Solutions, a St. Louis-based CPG and retail sales, marketing and intelligence firm, are based on a survey of senior-level executives at nearly 100 CPG companies (food and non-food) and retailers nationwide.

Investing in price

When asked about managing price investment requests from retailers, more than 1 in 10 manufacturers said they will be “proactively taking down” everyday pricing themselves, with 9% of respondents reporting they’ll be sharing the cost with some retailers and 4% fully funding select retailers.

A majority of food manufacturers are focusing on line extensions during the next 12 months. 
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Sixty-two percent of CPG companies will fund their current trade budget with select retailers, and 13% don’t plan to fund any retailers.

Seventy-two percent of food companies aim to continue their current trade budget with select retailers. Conversely, smaller percentages of food manufacturers plan to proactively lower everyday prices themselves (8%), share the cost with select retailers (8%), fully fund select retailers (3%) or not fund any retailers (8%).

On the retailer side, 51% of those surveyed plan to cover 1% to 20% of the investment in lowering promotional or everyday pricing, compared with 15% covering 21% to 50% of the investment and 10% covering 51% to 81% of the investment, according to the study.

“Given how far inflation has gone over the last few years, it has really challenged manufacturers and retailers to take more innovative approaches in the value propositions that they’re presenting to shoppers,” said Mona Szumlas, executive vice president of client services at Advantage Solutions.

Alignment on marketing and innovation

To appeal to more price-conscious consumers, many CPG companies have rolled out new stock-keeping units (SKUs) with lower price points.

Advantage’s study found that 29% of manufacturers have introduced or plan to introduce (over the next 6 to 12 months) SKUs targeting national-brand opening price points. That includes 15% of companies introducing new items at opening price points and 6% planning to do so, as well as 6% bringing back an old SKU aimed at opening price points and 2% expecting to do so. Another 23% of manufacturers said they’re still considering whether to introduce items at starting price points.

“Once a brand wins a customer’s loyalty at that entry price, it becomes easier to introduce them to products in higher price tiers,” Szumlas said. “This approach can effectively attract price-sensitive shoppers, build trial and encourage increased foot traffic to retailers. It’s a strategic move to create both consumer engagement and sales opportunities.”

Most CPG companies are looking to drive innovation by building on current offerings, Advantage’s research revealed. Fifty-seven percent of those surveyed plan line extensions over the next 12 months, 22% aim to enter new product categories, and 22% expect to launch new brands in their current categories.

Similarly, 62% of food manufacturers said the innovations will target mainstream price tiers, while 35% are aiming innovations at premium pricing levels. Only 3% of food companies are targeting innovations at value price tiers.

“Even if manufacturers aren’t introducing innovations at a value price point, they can still seize opportunities by refining their value proposition for entry-level products while offering innovations at mainstream and premium price points,” Szumlas said. “This approach allows manufacturers to meet their objectives while effectively delivering products that meet retailer and consumer needs as well.”

Retailers, however, are seeking more value-priced innovations from national brands, according to Advantage. Eighteen percent of retailers expect national-brand innovations to target value price tiers over the next 12 months, compared with 60% targeting mainstream pricing and 23% aimed at premium pricing.

Overall, a significant amount of innovation is coming up from CPG companies over the next 12 months. Thirty-two percent of food manufacturers plan more product launches than usual, while 49% expect to maintain their usual launch levels. Nineteen percent of food manufacturers plan fewer launches than usual.

Retailers have bigger plans for private labels, with 28% looking to launch more innovation in store brands than usual in the next 12 months versus 13% expecting to do so for national brands. Sixty-eight percent plan to uphold their usual launch levels for private brands, compared with 83% doing so for national brands. Only 3% of retailers plan fewer private label launches versus 5% doing so for national brands.

Twenty-eight percent of retailers plan to launch more innovation in store brands than usual in the next 12 months. 
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“It’s critical for manufacturers and retailers to align on innovation evaluation criteria before new items hit the shelf,” Szumlas noted. “A successful innovation launch plan should include predefined success criteria and contingency plans through the first full year on shelf, and even an exit plan if the new item doesn’t meet expectations.”

Pricing investment heads retailers’ list of priorities in terms of assistance from manufacturers. When asked to name the top three areas where suppliers could provide the most help over the next 12 months, retailers cited trade dollars (84%), everyday pricing (55%), promotion optimization (45%), innovation (39%) and consumer insights (34%). Retailers also named assistance with the supply chain (16%), value-priced products (16%), meal solution ideas (5%) and retail merchandising (3%).