CDC Factory

Industry Blog 

(Mark Sutcliffe, CDC Factory President)

Cheap is the New Cool – "Back to Basics" is Back in Fashion!


(March 16, 2009)

Are we buying a brand experience? A lifestyle? Are we conscious of what a chosen brand communicates to others about our personal or family status? No, we are buying the cheap one!

In a mass, collective tipping point, it is no longer a sign of sophistication to pay extra for premium brands, it's not just a sign of "excess" but of "excessive stupidity." For instance, at dinner parties, friends trade stories of cancelling unnecessary magazine and membership subscriptions or, moving their phone service to cheaper options. Tips on consumption avoidance are now the new badge of a sophisticated citizen. The goal is now to acquire the quality brand at "recession-busting" prices or to purchase value brands. The wife of a friend recently shared the news that store brand chips were just as tasty as premium label.

The social acceptability of consumer attitude change such as this is a brand managers' worst nightmare, and it is happening. This is not in the marketing handbook, but then banks are not supposed to fail either. Private Label is now "all the rage".

Change is upon us. Consumers in the middle class are changing their buying behavior at a breathtaking pace. Consumer Packaged Goods (CPG) companies have a once in a lifetime opportunity to recast the competitive landscape and encourage brand-switching to the masses, provided they recognize this business trend: It is going to be about price, with quality as a "given" product attribute.

Demand is up for branded staples and private label products so business can be brisk, but margins will be necessarily tight and will get tighter unless the cost per case is lowered at the plant.

What are many doing about it? Getting with the program, acting like the consumer and getting back to basics: Capital is scarce, and for most companies, any investments made must now come from cash flows not debt. That means some stuff has to be cut in favor of activities that impact operating margins.

Projects with uncertain ROI and a broad categorization of "strategic" are largely speaking "out" and getting back to basics, conducting value analysis and micro-managing and improving the profitability and operating cost of what really matters, (the stuff that is left), in the factory is back "in."

The Japanese call it "Gemba: Go to the place." Get back to basics. See what's going on in the plants and where the profit is lost today on each production run. Companies are tightening their operating practices – from the senior vice president to the shop floor worker – driven by operational measures focused on waste at a line-level and lost uptime. This is all being done right now and no longer planned for future improvement initiatives. .The recent study referenced in my last entry indicated a nearly 10 percent of over-reporting of efficiencies by CPG plants. This translates into real currency being left on the table. The same research showed that the many corporate projects for data capture at plants were not impacting profitability because they did not involve operators and supervisors. These findings show that decisive action, in the form of fast, proven and cost-efficient workforce-led measures and action, need to be taken. That will allow manufacturers to take that hypothetical cash left on the table. And in today's economy, that cash just may come in handy!