These are very complicated times for the consumer goods sector: KPMG consumer markets

Since the COVID pandemic rattled lives across the globe in early-2020, a lot of water has flown under the bridge. From disruptions in supply chain for consumer staples and discretionary items to high levels of inflation and a war that has potential to alter the geo-political set up for years to come, impacts have been far greater and long-standing. The recent events are also re-shaping the consumer market globally – for large corporations and consumers alike. Isabelle Allen, Global Head of Consumer Markets for KPMG International, shares her thoughts and learnings with Business Today’s Arnab Dutta during a candid chat. Edited excerpts:

BT: After over two years of disruptions due to COVID and, now the war, how the consumer market is changing? And what are their impacts on the consumer companies?

Isabelle Allen: I think, it’s a very complicated time for the (consumer goods) sector. A lot of the transformations that the sector was undergoing before COVID have got accelerated. The consumer is now focused on their healthy in a very different way, while consumer and retail companies are trying to serve the consumer in a better way. And the  use of technologies have become a priority. 

The COVID, followed by the change in geo-political system has made it very difficult for the large corporations to do business globally. Big companies with big brands expect free movement of goods, intellectual properties, data and people. But that doesn’t exists anymore. So, for them to try and figure out the best business model precisely, while remaining profitable with economies of scale, has become a difficult balance to find. It’s like being torn between specificity and at the same time being very large. I think, these tensions are keeping many leaders of the industry awake. 

Currently, it (the consumer market) is a very disruptive place. But it is also a very interesting place because a lot of innovations would be required, which may lead to newer trends. I think, there is massive scope for sector convergence. For instance, the traditional batteries of consumers goods firms, retail and media with insurance companies or retail banking, who also understands the consumer well. It would be imperative to understand and serve the consumer as a whole and not just targeting them for individual products and services.

BT: Since COVID disrupted economies globally, the recovery thus far have been K-shaped. While the affluent class gained more, the ‘have nots’ have suffered. Is it forcing consumer companies to redraw their business strategies?

IA: I agree, the recovery is not uniform. Today, the companies that are successfully emerging out the crises bigger and stronger are the ones that figured out the right sections of the target customers early and the segments that we want to serve. At the moment, it is very very difficult to be a generalist – serving all sections (socio-economic classes) of consumers at the same time. Because that is quite confusing on what the company or the brand stands for. It is now very important to be clear about the target customer so that one can device its communication. 

BT: In India, while leading consumer goods companies are growing their top-line by double digits their volumes have faltered – reflecting consumers’ inability to cope up with the high levels of inflation. How do the companies deal with this new trend?

IA: Yes, absolutely correct. For instances, the cost of living crisis is impacting European countries like the UK and France. There is no historical model available on how the consumers are going to do the arbitrage between their household items, invest for their future, spend on OTT (over-the-top) subscriptions and data or purchase insurance. The last time such inflations were recorded was in 2008 but then a lot these cost avenues were not present. Thus, a lot of family-owned enterprises and medium and small companies do not have any data to refer to. And that is where the cross-sector convergence could be useful. Now the key is to serve the consumer holistically.

BT: With income levels going down or stagnating since COVID for the mass segment of the population in India, due to job losses and salary cuts, what could be the impact on consumer goods companies?

IA: There is no crystal ball available. Everybody is trying to solve this puzzle. In my view, the branded versus the unbranded business is probably going to be redefined. Post-COVID consumers have become more aware of the importance of quality and of the fact that branded products offer an assurance of safety. So, now the key question is can a branded player serve the mass consumer at a low enough cost to sustain or is there going to be a new set of companies that can serve the lower strata of consumers? Frankly, we don’t know the answer yet!