Innovation - March 2016

Some insights from a recent McKinsey&Company report “The consumer sector in 2030: trends and questions to consider”

 

What can happen in 15 years? 

A look back at 2000 shows how much the world can change in just a decade and a half. Back then, about 30 percent of people in developing countries lived in extreme poverty, compared with less than 15 percent today. Only 12 percent of people owned a mobile phone; now, more than 60 percent do. Facebook, which today has almost 1.5 billion users, hadn’t launched yet. These and other developments have changed how consumers live, think, and shop, and the changes are only going to accelerate. What’s going on in the world economy is “no ordinary disruption”.

The next 15 years, too, will bring their share of industry upheavals. McKinsey believes companies that want to be on top in 2030 must study emerging trends and begin preparing for them now. Certain trends will follow a pattern of predictable growth; others may take more surprising paths. In this article, McKinsey cites examples of both types of trends and some of their high-level implications for the consumer sector and recommends a set of actions that retail and CPG (Consumer Packaged Goods) executives can take now to position themselves for success in the next decade and beyond.

Dominant forces and global trends

McKinsey explores the demographic, political, behavioral, structural and technological changes on the horizon as well as the expected resultant trends for those factors.

Demographic wise, the middle class will increase significantly, almost tripling by 2030 (as emerging-market growth more than offsets stagnation in developed markets). The level of women participation is projected to increase, while 65 million more people per year will be living in cities. The rich, leveraging their wealth, will become still ever richer.

Geopolitical dynamics too are expected to change, with economic power shifts as the Asian economies catch up to that of the developed world, while globalization will remain in power. Rising cost of labor and commodities are projected, as well as climate change effects. For consumers, a range of behavioral changes are expected, including shifts in discretionary spending, demand in personalization, as well as a further expanded sharing economy. Technology is also expected to play a significant role in the coming decade, with mobile penetration hitting 75% by 2030.

Trends impacting consumer industry

Placing these trends in a matrix divided into quadrants of predictability and impact, the report ventures to give a picture of the consumer 15 years from now.

High impact hard to predict technological developments include 3D printing, advanced robotics and virtual reality, as well as the internet of things. Technologies such as analytics for marketing, mobile proliferation and social media consumption are more likely high impact events. Consumer demographic changes that are high impact and relatively easy to predict include the middle-class boom, an aging population, urbanization, the rich getting richer and women in the work place. Low impact easy to predict changes include millennials taking over and the shrinking household size.

A behavioral change likely to have high impact and is easily predicted is the continued focus on convenience. Lower predictability, but high impact changes, include rising commodity and labor costs, the sharing economy, demand for personalization and shifts in discretionary spending. Climate change, economic interconnectedness and economic power shifts are unlikely to majorly affect the consumer industry and also remain hard to predict.

The report’s authors also raise five questions they believe companies need to think about.

What makes us distinctive?

Challenge everything. Evaluate and rethink your business from top to bottom. Find out what makes you different. What is your competitive advantage? Examples of companies already doing this are Coca-Cola and P&G. “The Coca-Cola Company has been divesting its US distribution assets over the past two years, and P&G has shed more than 100 brands so that it could focus on approximately 70 core brands,” it says. A competitive advantage is not enough; cost reduction is needed. It’s likely that ambitious cost-cutting  programmes such as those recently undertaken by Best Buy and Levi Strauss & Co will become much more common.

Implications for Comexposium : importance of defining and selling our competitive advantages / building strong brand platforms

How can we engage consumers in an ongoing dialogue?

The insights gained through understanding what consumers want and are willing to pay for must inform the products and brands of the company and their evolution. Here the report specifically addresses social media. Recent research proves yet again that social media has a strong influence on purchase decisions: “Across product categories, 26% of purchases on average were spurred by recommendations on social media.” As more people get smartphones and social networks become more sophisticated, more and more consumers will share their opinions on social media. These conversations cannot be ignored by brands.

Implications for Comexposium : initiate co-creation/co-development sessions with our clients (visitors/exhibitors/partners) / identify key touchpoints in our customers journeys and act on them

Are we set up to reallocate resources swiftly and at scale?

Moving capital, talent and leadership to where it is needed, be it geographical or a consumer segment, will have to take place nimbly. Companies that have operated in developed markets and are moving into developing markets will have to pay attention to the different skills needed. “Research suggests that companies that more actively reallocate investments deliver, on average, 30% higher total returns to shareholders annually than companies with more static budgets. Yet agility in resource allocation is still rare. At most organizations, the current year’s allocation serves as the basis for the next year’s, with only marginal changes.”

Implications for Comexposium : build solid and bold action plans in our Business Plans / develop and look for new skills in our teams

What strategic relationships should we seek out and nurture?

Partnerships and acquisitions are critical in an uncertain and rapidly changing world and can assist in managing a company’s supply chain as well as coming up with new ideas. Some companies are integrating up and others down the chain. “Mexican bottling company Arca Continental, for instance, already has a stake in a sugar mill and is looking to expand its position.” The report says the “most innovative companies regularly tap into external sources of skills and expertise, particularly in areas outside their core competencies.”

Implications for Comexposium : think about possible project developments and integrations (vertical or horizontal) in the value chain that our events are serving  

How can we use technology to differentiate, not just enable?

The report states that the leading consumer companies of the future will also be technology leaders. Therefore, companies need to look at how they can digitize their internal operations and their consumer-facing functions. “By 2030, we expect retailers will be able to create new retail ‘worlds’ — virtual stores that use augmented reality to give customers the experience of walking down a store aisle, for instance, or personalization engines that link to real-time biometric data to recommend meals with optimal nutritional content.”

Implications for Comexposium : further digitalization of our events / mobile-first approach / analytics everywhere

In conclusion, the report states that “the future of the consumer industry is neither as unknowable nor as predictable as some suggest. The smartest companies will study and act on the known factors, while responding to the unexpected in a nimble fashion.”

The consumer sector in 2030, by McKinsey, complete study here:

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