As inflation in the U.S. rose to its highest rate in 40 years in 2022, the impacts were felt across multiple industries, including food and beverage. And we’re still seeing those impacts as we move deeper into 2023 with the cost of goods remaining high, and in some cases, still increasing. Many food and beverage companies are getting hit with higher manufacturing costs, which they are then passing along to consumers. Consumers in turn are altering their behavior at the store, making more cost-conscious purchases. What can companies in the CPG space do to ease the impact that inflation has on their bottom line without driving away customers through price hikes?
Reduce Packaging Waste
It’s important for CPG companies to reduce their packaging as much as possible in order to reduce cost. Packaging choices impact overall cost in many ways – of course it contributes to the cost of packaging material itself, but also freight and storage costs. “Skinny design” is a concept that could benefit CPG companies, helping them to reduce their packaging size and increase their sustainability while reducing overall cost. According to Forbes, the majority of CPG products are targeted toward 2-4 people, so “there is a huge opportunity to reduce sizing and target individual shoppers.” When the product fits snugly in their packaging, it increases the number of packages that can fit on a truck and in a warehouse. According to Forbes, a skinny design approach can bring down transportation costs by 10% and cost of materials by as much as 20%.
Technology can help CPG companies cut costs across the board – from automation in manufacturing to extending the life of market segmentation or scaling up ecommerce presence. Many CPG brands rely heavily on insights from market segmentation – showing them where to play and how consumers are responding to their products in the market – but with rising inflation it’s important for brands to cut costs and one way that they can do that is to rely more on dynamic segmentations, refreshing data using a combination of social media insights and AI – generated data, instead of commissioning brand new reports.
Simplify Ingredient Sourcing and Supply Chain
Many beverage companies source ingredients for a single SKU from multiple vendors. This can lead to increased costs for the company and disruptions in sourcing ingredients. However, formulators such as Archer Daniels Midland (ADM), have the ability to help beverage brands simplify their supply chain. They do this by both creating the beverage formula and also sourcing most of the ingredients needed for that formula. They then consolidate the majority of the ingredients into a single blend, which is sent to the co-packer. This process not only safeguards the beverage brand’s IP but also reduces co-packer errors and extra costs. This simplification in the supply chain and ingredient sourcing reduces overall product costs and allows beverage companies to see higher profit margins, without having to pass on any costs to the consumer.
If you’re a beverage company looking to optimize your formulation without sacrificing flavor, reach out to our team to learn more about our partnership with ADM. Our end-to-end beverage creation studio allows brands to launch and scale their products quickly and efficiently.