The past couple of years have been tough for CPGs, as consumers move toward fresher and healthier items and ecommerce disrupts the way goods are sold.
The Q1 earnings season has only reinforced the trend. At Kellogg’s and Kraft-Heinz, net sales fell about 3% year over year in Q1 2017. Mondelez grew organically a meager 0.6% and Procter & Gamble grew 1%.
And the agencies that service CPGs are feeling the pinch.
“Unilever intends to cut down 30% of the work they’re making,” said Greg Paull, principal and co-founder of marketer consultancy R3. “Others will be along similar lines.”
Zero-based budgeting has been a popular cost-cutting method, with companies setting yearly budgets from a base of zero rather than historical benchmarks. According to a January study by Deloitte, 22% of CPGs, including Unilever, Kraft-Heinz, Mondelez and Kellogg’s, have adopted zero-based budgeting models.
As a result, agencies servicing those companies must increase efficiencies and produce measurable outcomes. That means less high-cost creative production and more performance-based campaigns and business transformation initiatives so CPGs can adapt to an ecommerce-first world.
“CPGs are trying to optimize the working to nonworking ratio,” Paull said. “Media will be one of the last things to get cut, but the nonworking part of it, which is the agency fees and production, will definitely be impacted.”
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