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Consumer Products - Soda, Snacks, Soap and More!

Industry Overview

Consumer products is one of those elastic phrases that can include any of the jars, boxes, cans, or tubes on your kitchen and bathroom shelves-or it can expand to include pretty much everything you charged on your Visa card last year. This industry manufactures and, perhaps more importantly, markets everything from food and beverages to toiletries and small appliances. (We do not include industries sometimes put in this category but covered in other profiles: autos, apparel, entertainment products, and consumer durables, which are large appliances and other products expected to last more than three years).

The consumer products industry can be divided into four groups: beverages, food, toiletries and cosmetics, and small appliances. Most firms offer products that fit primarily into only one of these groups, although a firm may have a smattering of brands that cross the lines. Virtually all companies are similar in organizational structure, emphasis on brand management, and approach to business.

Consumer products are the foundation of the modern, consumer economy. The industry itself not only generates an enormous portion of the gross domestic product, it also pumps huge amounts of money into other industries, notably advertising and retail. Individual consumers make up the majority of this industry's customers; sales are concentrated in the United States, Japan, and Western Europe, though other parts of the world are working hard for the privileges of wearing clothing emblazoned with company logos, eating processed food, and chopping vegetables with an electric motor instead of a traditional utensil. Success in consumer products is all about marketing an individual product, often by promoting a brand name. The competition is ferocious for shelf space, so package design, marketing, and customer satisfaction are key elements.

The majority of companies that sell consumer packaged goods are conglomerates consisting of many diverse subsidiaries selling brands that consumers recognize. Nabisco sells Milk-Bone pet snacks and Chips Ahoy! Cookies. Sara Lee Corporation produces products from Ball Park franks and Pickwick tea to Hanes underwear and Endust furniture polish. Unilever, an industry giant based in England, sells teas and soups, pasta and pizza sauces, ice cream, bath soaps, shampoo, salad dressing, margarine, laundry detergent, toothpaste, cosmetics, frozen foods, and perfumes. Clorox makes bleach, charcoal, Combat roach killer, and Hidden Valley salad dressing. Other big players in the industry include Keebler Foods and Nestle.

Size Matters
A spate of mergers and acquisitions in recent years has resulted in a smaller group of larger giants-this is not an industry with a lot of boutique enterprises and garage entrepreneurs. (Recent industry acquisitions include PepsiCo's purchase of Quaker Oats, Kraft's purchase of Nabisco, and General Mills's purchase of Pillsbury.) There's no doubt about it: The conglomerates hold the power positions in this industry. Size gives them economies of scale, and a diversity of products gives them protection against down cycles. Which is not to say that cute little mail-order pickle-and-jam companies don't crop up every now and then and make a serious go of it. They do. These places aren't where the majority of the jobs are, however-at least not until Unilever or Nestle or Nabisco takes them over.

Name Brands and Global Brands
Branding has become the religion of consumer marketing. Positive associations with a brand name make the difference between hot-selling products and stay-on-the-shelf losers. To increase margins, companies are investing in brands with worldwide appeal and eliminating those of marginal value. Unilever, for example, announced in late 1999 that it would eliminate more than 1,000 of its 1,600 or so brands, putting most of its resources behind about 400 so-called power brands, which are recognized internationally. And discount retailers are building more lucrative businesses by becoming exclusive providers of product lines with recognizable brand names; for instance, Kmart has Martha Stewart, and Target has Mossimo.

Private-Label and Store Brands
Meanwhile, many full-price retailers are introducing private-label brands (a.k.a. store brands),
with a goal of pumping up sales by offering products for less than they'd cost if premium-branded. The concept is simple: Put the store's label on a less-expensive alternative to the national brand. The product is the same, or close to the same; the brand name, and usually the price, is not. This trend has become particularly noticeable in the grocery business, where stores have invested in major advertising campaigns to build consumer confidence in their products. It's also noticeable in apparel; for instance, private-label products accounted for 16 percent of Federated's department-store revenue in 2001.

Overseas Production
In its hunger for better margins, Levi's has moved nearly all of its manufacturing overseas. Despite the PR risks involved (just ask Nike), the lower costs resulting from cheap labor and less-stringent environmental regulations are increasingly causing profit-hungry consumer-products companies to consider overseas production facilities.

Beverages
Intensely competitive and hugely reliant on advertising, this is a mature industry. Different segments of the beverage world include beer (Adolph Coors, Anheuser-Busch, Phillip Morris, Miller, Stroh's), soft drinks (Coca-Cola, PepsiCo, Cadbury-Schweppes, National Beverage), and juices (Tropicana is owned by Seagram, Minute Maid by Coca-Cola).

Foods
There may be a little less consolidation in the food industry than in beverages, but this is also a mature and competitive industry with single-digit growth. Most of the packaged goods that fill our pantries, cupboards, and refrigerators come from a handful of big-league corporate players. Some are household names; Bestfoods, Campbell Soup, Dole, General Mills, H.J. Heinz, and Kellogg have spent enormous sums of money to tattoo their names onto your brain. Other big players, such as Phillip Morris (Kraft) and ConAgra (Hunt's, Healthy Choice, and Wesson) are better known for brands they own.

Toiletries, Cosmetics, and Cleaning Products
Baby boomers aren't getting any younger, and vanity will outlast us all. So will household dirt. So this is a solid category for the foreseeable future. At three-and-one-half times the size of its nearest competitor, Procter & Gamble is the Godzilla of this group-and indeed the consumer products world in general. Other players include Avon Products, Clorox, Colgate-Palmolive, Revlon, Gillette, Kimberly-Clark (Huggies, Kotex, and Kleenex), Unilever, Johnson & Johnson, and SC Johnson (Pledge, Glade, Windex, Raid, OFF!, Edge, Ziploc, Shout, and Drano.)

Small Appliances
This is an amalgam of companies in various industries. More people are building and buying homes, and forecasters don't expect the trend to slow. So tools, kitchen gadgets, air-conditioners, chain saws, and anything else Saturday shoppers enjoy pausing over in the hardware store are selling well, and the future looks rosy for this segment of the industry. Nevertheless, this is also a relatively mature industry, and the brand system is not as strong as it is in the other categories mentioned above. Players here include Black & Decker, Sunbeam, Sears, and Snap-On.

Even in these difficult economic times (which have seen layoffs and slowed hiring in the consumer products industry), there are a lot of people dedicated to loading our shopping carts with Cheerios, Charmin, Drano, Coca-Cola, and thousands of other products. Not surprisingly, professional job opportunities in this industry are largely in brand management, sales and customer service, and market research and development. And constantly emerging new products, diminishing brand loyalty, and consolidation promise to provide positions for brand managers and marketers from now until the end of time.

The mammoth consumer products companies often recruit on campus and boast strong training programs for recent college grads, but they're also known to pull experienced people from other firms in the consumer products industry. If you choose to remain in the industry for a long time-and many people do-you can spend time overseas, try out new products and categories, and ultimately move into general management. Although you'll probably lead a less glamorous life than any of your pals in banking or consulting, this is an industry in which you can have real profit-and-loss responsibility, earn a very comfortable salary, and get home from the office while there's still daylight, at least during summer.

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