A recent report from the Willard Bishop retail consultancy highlights a major challenge for CPG brands—retailers are dramatically reducing the CPG sku assortment they stock on their shelves in order to reduce costs and maximize their own margins. According to the report, the reduction will be so great that CPG manufacturers will likely lose entire brand lines (coverage at MediaPost here).
This is shaping up to be a huge issue for CPG, and the rise of retailer private label goods means it is likely to get worse as retailers clear out more real estate for their own growing product lines. It appears to be a symptom of the increasingly dysfunctional relationship between CPG manufacturers and their retail channels.
Question: How will CPG manufacturers respond?
One potential option for manufacturers facing reduced distribution through traditional retail is to expand their online direct sales efforts. This is a major trend in non-CPG markets. For example, Internet Retailer recently announced that manufacturers selling direct to consumer is the fastest growing online retail category in its Top 500 Guide. Will CPG manufacturers follow this trend? It seems to be one viable means to gain some control over their distribution to consumers. Are there other options available? With billions of dollars at stake, this will be interesting to watch.