Item Proliferation vs. Innovation
These are the drivers that reportedly will move the CPG retail industry into a brave new world that we can only imagine today. At the crux of this effort is new product development, because after all, new products are the lifeblood of the industry, right?
A recent forecasting benchmarking study from Schaumburg, Ill.-based Terra Technology offers a gentle reminder to retailers to make sure they can see the forest for the trees. You see, in the mad dash to introduce new products and line extensions ostensibly to grow sales, it seems that a critical cost in the new product development process is being overlooked. It's the supply chain.
At the crux of this effort is new product development, because after all, new products are the lifeblood of the industry, right?
CPG manufacturers aren't taking into consideration the pressure (from a cost and complexity standpoint) that new product introductions place on the value chain. When you look at the details, it becomes evident that there are packaging changes to factor in, process changes to facilitate the launch and a team responsible for managing it all.
Despite the emphasis on new products to grow sales, since 2010, the number of active items grew by 32 percent compared to a 4 percent increase in sales, according to the study. As a result, average sales per item has dropped 22 percent.
The success rate of new products is no secret. It's estimated that better than 80 percent of new products fail within their first year on the market. The Terra Technology report dives deeper: The number of new products offered for sale has nearly tripled the past five years, but 82 percent of these products have since been discontinued.
Retailers and manufacturers, if you aren't considering the cost that new products have on your existing infrastructure, it's time to take a better look.