Mid-sized CPG companies face a unique set of challenges as they navigate the complexities of growth, supply chain management, consumer trends, and competition from larger and smaller brands.

Here are the top ten challenges faced by CPG companies, supported by statistics and real-world examples, along with actionable solutions tailored to this industry.

1. Talent Acquisition and Retention in CPG

Attracting and retaining talent is particularly challenging in the CPG industry due to high turnover in manufacturing, distribution, and sales roles, coupled with increased competition for digital talent needed for e-commerce and data-driven marketing.

A 2023 report by Deloitte found that 66% of CPG executives identify talent acquisition and retention as a key business challenge. Additionally, the turnover rate for manufacturing jobs in the U.S. stood at 29% in 2022, further exacerbating the issue.

The solution to this particular challenge is to build a strong employer brand and invest in workforce development.

To attract and retain the right talent, mid-sized CPG companies need to focus on building their employer brand while investing in continuous training programs. Here’s how:

1. Develop Your Employer Brand:
   • Promote your company’s purpose and values, particularly around sustainability and innovation, to attract younger talent interested in making a positive impact.
   • Utilize digital platforms like LinkedIn and Glassdoor to share success stories and showcase the culture.
2. Invest in Training and Upskilling:
   • Provide ongoing training programs for manufacturing and distribution workers to reduce turnover.
   • Create specialized programs for digital marketing, data analysis, and supply chain management to attract and retain skilled employees.
3. Leverage Flexible Work Models:
   • Offer hybrid or remote work options for roles that can be performed off-site, such as marketing, sales, and finance.

Prose, a personalized hair care CPG company, invested heavily in employee development and culture-building initiatives. By offering flexible work models and a focus on sustainability and inclusivity, they improved their employee retention by 20% in just two years.

2. Scalability and Growth in CPG companies

Mid-sized CPG companies face pressure to scale while managing complex supply chains, maintaining quality, and meeting consumer demand. Balancing these needs while optimizing for cost efficiency is particularly challenging in a highly competitive market.

According to McKinsey, 40% of mid-sized CPG companies struggle with scaling their operations while maintaining quality and efficiency. CPG companies that successfully scale operations typically see a 25% revenue increase within three years.

The solution is to adopt agile supply chain strategies and leverage technology.

To scale efficiently, mid-sized CPG companies must optimize their supply chains and leverage digital technologies to streamline operations.

1. Develop Agile Supply Chains:
   • Build flexibility into your supply chain by diversifying suppliers and using just-in-time inventory management systems to reduce overhead costs.
   • Invest in local manufacturing or co-packing partnerships to reduce transportation costs and speed up delivery times.
2. Leverage Technology:
   • Use advanced analytics and AI to predict consumer demand and optimize production schedules.
   • Implement warehouse automation and robotics to streamline operations and reduce labour costs.
3. Focus on Omnichannel Distribution:
   • Expand beyond traditional retail channels by developing strong e-commerce capabilities and direct-to-consumer (DTC) models.

Chobani implemented an omnichannel strategy by investing in digital infrastructure and local co-packing partnerships. Over five years, they expanded their product lines while maintaining quality, achieving double-digit revenue growth annually.

3. Financial Management in CPG

Mid-sized CPG companies face significant pressure in managing cash flow due to long lead times in production, high inventory costs, and reliance on large retailers for distribution.

A survey by The Consumer Goods Forum found that 55% of CPG companies struggle with managing cash flow due to the high costs associated with production and distribution cycles.

The solution to this challenge is to optimise inventory management and explore alternative financing.

Here are steps mid-sized CPG companies can take to improve financial management:

1. Use Predictive Inventory Management Tools:
   • Leverage AI and machine learning tools to predict demand more accurately, reducing overproduction and minimizing excess inventory.
   • Implement automated reorder systems to maintain optimal stock levels without tying up excessive cash in inventory.
2. Negotiate Favorable Payment Terms:
   • Work closely with retailers and suppliers to negotiate better payment terms, ensuring smoother cash flow.
   • Explore factoring services or supply chain financing options to improve liquidity during high-demand seasons.
3. Explore Alternative Financing:
   • Consider financing options such as revenue-based financing or asset-based lending to secure capital without diluting ownership.

RXBAR improved cash flow by negotiating better payment terms with its suppliers and investing in predictive inventory management software. Over 18 months, they reduced their working capital needs by 15% and freed up cash for expansion.

4. Technology Integration and Innovation in CPG companies

As consumers increasingly turn to digital platforms for shopping, mid-sized CPG companies must integrate technology across the supply chain, marketing, and sales functions to stay competitive.

Gartner’s 2022 report on CPG trends indicated that 71% of CPG companies were increasing their investment in digital transformation, but 50% struggled to integrate these technologies effectively into existing systems.

The solution to this challenge for CPG companies, no matter their size, is to prioritize E-commerce and omnichannel technologies.

CPG companies must integrate digital tools across operations and focus on creating a seamless omnichannel experience. Here’s how:

1. Invest in E-commerce Platforms:
   • Build or improve DTC e-commerce platforms to increase margins and capture consumer data directly.
   • Integrate your e-commerce with CRM tools to personalize marketing and customer interactions.
2. Implement Digital Supply Chain Tools:
   • Use digital supply chain management tools to track and optimize inventory, shipping, and delivery times in real time.
   • Leverage blockchain technology for greater transparency in sourcing and sustainability claims.
3. Enhance Data Analytics Capabilities:
   • Use data analytics tools to understand consumer behaviour, predict trends, and optimize product assortments across different channels.

KIND Snacks invested in e-commerce and advanced data analytics tools, allowing them to optimize their product offerings and marketing strategies. In three years, their DTC sales grew by 25%, contributing to their rapid expansion.

5. Competition from Larger and Smaller Firms in CPG

Mid-sized CPG companies often face stiff competition from larger conglomerates with more resources, as well as niche startups that are more agile and able to capitalize on trends like sustainability and personalization.

A Nielsen study revealed that in 2022, 43% of consumers preferred to buy from smaller, purpose-driven brands, while large CPG brands still held 55% of the overall market share .

The solution to competition is to differentiate with purpose-driven branding and innovation

To compete effectively, mid-sized CPG companies must differentiate themselves by focusing on their brand purpose and innovation.

1. Emphasize Sustainability and Ethics:
   • Highlight your commitment to sustainable practices, such as reducing plastic waste, using eco-friendly packaging, or supporting fair trade.
   • Share your brand’s story and values to resonate with consumers who prioritize purpose-driven purchasing.
2. Focus on Innovation:
   • Innovate with new product lines that cater to specific dietary trends, such as plant-based, gluten-free, or organic options.
   • Use limited-edition products or seasonal offerings to generate buzz and attract new customers.
3. Leverage Influencer and Community Marketing:
   • Partner with influencers and build strong community engagement through social media to create brand loyalty.
   • Foster user-generated content to create authentic connections with consumers.

Beyond Meat focused on differentiating through purpose-driven branding around sustainability and innovation in plant-based foods. Over five years, they grew to be a leading player in the alternative protein space, achieving significant market penetration.

6. Customer Retention and Acquisition in CPG companies

In the competitive CPG industry, where consumer preferences shift rapidly, retaining loyal customers and acquiring new ones can be difficult, especially with the rise of private labels and niche brands.

A McKinsey report found that 46% of CPG customers switched brands during the pandemic, with 20% trying new private-label products.

One solution to improve customer loyalty is to invest in loyalty programs and direct consumer engagement

To acquire and retain customers more effectively, CPG companies must prioritize customer engagement and loyalty.

1. Create Engaging Loyalty Programs:
   • Offer rewards-based loyalty programs that incentivize repeat purchases and foster brand loyalty.
   • Use customer data to personalize loyalty program offers, such as exclusive discounts or early access to new products.
2. Prioritize Direct Consumer Engagement:
   • Engage consumers directly through social media platforms, email marketing, and content marketing that resonates with their values and interests.
   • Leverage SMS marketing to deliver timely, personalized offers and updates.
3. Enhance the In-Store Experience:
   • Partner with retailers to create engaging in-store displays and promotions that highlight your brand’s unique value propositions.
   • Use in-store sampling events to encourage trial and conversion.

Pepisico’s Gatorade launched personalized hydration recommendations via its Gx app and custom bottle system. Over two years, this initiative helped boost brand loyalty and increased consumer engagement, leading to a rise in repeat purchases.

7. Regulatory Compliance and Legal Challenges in CPG

CPG companies must navigate complex regulations related to product safety, labelling, and environmental sustainability, which can be overwhelming for mid-sized companies with limited legal and compliance resources.

The Consumer Brands Association reports that CPG companies face over 100,000 new regulations annually, with food safety and labelling is the most challenging areas of compliance.

One solution that works well for all CPG companies, is to invest in compliance tools and legal expertise.

To navigate regulatory challenges effectively, mid-sized CPG companies should focus on building robust compliance programs.

1. Implement Compliance Management Software:
   • Use specialized software to track regulatory changes and ensure that labelling, safety, and environmental standards are consistently met.
   • Automate reporting and documentation to ensure transparency and reduce the risk of fines or recalls.
2. Engage Legal and Regulatory Experts:
   • Invest in in-house compliance teams or legal consultants who specialize in CPG regulations, especially in areas like food safety and environmental impact.
   • Regularly audit supply chains and manufacturing processes to ensure they meet industry standards.
3. Stay Ahead of Sustainability Regulations:
   • Proactively adopt sustainable practices that exceed current regulations to future-proof the business against new environmental rules.
   • Market your sustainability initiatives to consumers, aligning with their growing preference for eco-friendly brands.

Seventh Generation, a cleaning products brand, invested heavily in sustainability and regulatory compliance, positioning itself as a leader in eco-friendly products. Over three years, their compliance-first approach helped them avoid costly fines and strengthened their market position.

8. Leadership and Succession Planning in mid-sized CPG companies

Mid-sized CPG companies often lack the formal leadership development and succession planning processes needed to ensure stability during periods of growth or executive transitions.

A Korn Ferry study found that 58% of mid-sized CPG companies lack a formalized succession plan, which can lead to disruptions during leadership changes.

The solution is to create formal leadership development and succession planning programs.

Here’s how mid-sized CPG companies can better prepare for leadership transitions:

1. Identify Emerging Leaders Early:
   • Create a leadership pipeline by identifying high-potential employees and providing them with mentorship and cross-functional experiences.
2. Develop a Succession Plan:
   • Regularly update a formal succession plan for key leadership positions, ensuring that potential successors are well-prepared.
   • Implement contingency plans for unexpected leadership changes to avoid operational disruptions.
3. Invest in Leadership Development:
   • Provide leadership training and development programs that prepare employees for senior roles.
   • Encourage rotational assignments that expose leaders to different functions within the organization, such as marketing, supply chain, and product development.

Clif Bar invested in leadership development and succession planning to ensure that their mission-driven culture would continue after leadership transitions. Over five years, they successfully transitioned key executives while maintaining strong company performance.

9. Operational Efficiency in CPG

CPG companies face operational inefficiencies related to supply chain disruptions, production delays, and increased costs, particularly during periods of rapid growth.

According to a PwC survey, 41% of CPG companies cited supply chain disruptions and inefficiencies as their biggest operational challenges in 2022.

Implementing lean manufacturing and optimising the supply chain will help solve this challenge for mid-sized CPG companies.

To improve operational efficiency, CPG companies must focus on streamlining processes and reducing waste:

1. Adopt Lean Manufacturing Principles:
   • Use lean manufacturing techniques to eliminate waste, reduce production cycle times, and improve product quality.
   • Implement continuous improvement initiatives (e.g., Six Sigma) to enhance operational performance.
2. Optimize the Supply Chain:
   • Use supply chain management software to track real-time data and improve decision-making regarding production schedules, inventory levels, and logistics.
   • Diversify suppliers to reduce the risk of disruptions, and explore near-shoring options to reduce lead times.
3. Enhance Collaboration with Retailers:
   • Work closely with retail partners to streamline product replenishment, reduce stockouts, and optimize shelf space.

Mondelez International although not strictly a mid-sized company is a great example of how to solve this challenge. It adopted lean manufacturing practices across its global operations. In three years, it reduced waste by 15% and improved production cycle times, leading to significant cost savings and improved margins.

10. Strategic Planning and Adaptability in CPG companies

Mid-sized CPG companies must balance long-term strategic planning with the ability to pivot quickly in response to changing consumer preferences, market conditions, and regulatory environments.

A Bain & Company study found that CPG companies that effectively balance long-term planning with adaptability see a 35% higher chance of outperforming their peers in revenue growth.

The solution to this challenge is to build strategic flexibility and encourage innovation.

To stay competitive in a rapidly changing industry, mid-sized CPG companies should focus on creating adaptable strategies that allow for quick pivots while maintaining long-term growth goals.

1. Develop Flexible Strategic Plans:
   • Build flexibility into strategic plans by setting short-term goals that can be adjusted as market conditions change.
   • Include scenario planning to prepare for different market conditions and consumer trends.
2. Foster a Culture of Innovation:
   • Encourage employees at all levels to contribute ideas for new products, processes, and marketing strategies.
   • Allocate resources for research and development, focusing on product innovations that align with emerging trends like health and wellness, sustainability, and convenience.
3. Invest in Data and Market Research:
   • Use data analytics to monitor market trends and consumer preferences in real time, enabling quick responses to shifts in demand.
   • Regularly conduct market research to stay ahead of competitors and identify new growth opportunities.

Again not an example from a mid-sized company but Nestle showed that implementing a flexible strategic planning approach, allows a company to quickly pivot, in their case towards health and wellness trends. Over five years, they introduced a range of healthier products and saw a significant boost in revenue, particularly in emerging markets.

Conclusion

Mid-sized CPG companies face unique challenges, but with the right strategies, they can overcome these obstacles and thrive. By focusing on talent management, operational efficiency, innovation, and strategic adaptability, CPG companies can position themselves for long-term success.

The case studies demonstrated that with careful planning and execution, it is possible to navigate these challenges and achieve impressive results within 18 months to five years, depending on the issue.

CPG business owners and executives who apply these strategies will be better equipped to overcome the common challenges they face and position their companies for sustainable growth and long-term success.

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