CPG Industry Business Strategy Analysis

How would you describe the industry you're in?
The consumer products industry is generally stable and consistent. However, the
pandemic revealed supply chain shortages that disrupted the industry. Additionally,
labor shortages make skilled technicians for production in short supply, leading to
productivity loss. However, moving into 2023, 40% of consumers feel like their finances
have worsened and only 43% have money in their paycheck left over after expenses.1
In general, it can be difficult for new entrants to enter, especially depending on the
market saturation of the particular industry. Furthermore, production facilities and lines
can be expensive, however when entering the market, products can also be purchased
from a 3rd party to reduce initial costs. Depending on the industry, slow industry growth
can make it difficult to take market share from established companies.
In consumer goods, generally the customers are box stores who sell to consumers or
DTC methods. Larger, more established brands have more leverage working with big
box stores (Walmart, Target, pharmacies, dollar stores, and grocery store chains)
compared to newer companies. Looking at consumers of the product, switching costs
are generally low unless a company delivers a specific package. As far as costs are
concerned, consumers may opt to choose lower-cost store brands compared to name-
brands for much lower cost for lower performance.
For the consumers of the products, switches costs are generally low, but some
consumer products have created complementary products that discourage switching.
Which of Porter's Five Forces poses the greatest threat to P&G?
The greatest threat to P&G lies in the power of suppliers (labor and material sourcing)
and rivalry amongst competitors (esp. store brands, and natural brands). P&G has
found it difficult finding skilled technicians to run production, and more experienced
operators have left the company. This leaves the company with green operators who
might produce lower quality products or have more stops in production. Furthermore,
during the pandemic, it was made obvious that material shortages required quick
turnarounds to qualify new materials for the lines. For example, with the droughts for
organic cotton, this year cotton is both expensive and will not meet the needs. P&G also
competes with rivals, especially ones with diverse approaches.
With the shift indicated by Deloitte’s 2023 outlook (1) with inflation and reduced
spending power, P&G’s focus on quality products may be overshadowed with lower cost
store brands. P&G’s focus has been on effective high-quality products. However, P&G
products use a lot of single use plastic, and the small sector of natural brands may be
substitutes for conventional consumer goods.
Which of Porter's Five Forces poses the greatest opportunity to P&G?
P&G is winning in “Threat of New Entrants into an Industry” based on the high amount
of market share, unequal access to shelf space for big customers, strong marketing,
and high quality products.2
How might P&G respond to the threat and the opportunity?
P&G can fight against material, labor costs, and rivalry with other brands. I recommend
that P&G moves away from proprietary materials developed just for P&G and into more
generic materials that could be provided by multiple brands. This also means
proactively looking for other suppliers and pre-qualifying materials to easily use during
shortages from a single supplier. For the labor shortages, P&G can increase the wages
and recruit from local community colleges and technical schools.
To protect against rivalry, P&G can continue with their superior product quality,
packaging to communicate a superior quality product, and communication around
products. They can also continue to focus on research and development to push into
complementary products and create new markets with innovation.
1. Deloitte “2023 consumer products industry outlook”

https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-
products-industry-outlook.html
2. P&G. “Company Strategy”
https://www.pginvestor.com/company-strategy/default.aspx

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How would you describe the industry you're in?

1. Deloitte “2023 consumer products industry outlook”

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