What are 'Consumer Packaged Goods - CPG'
Consumer packaged goods (CPG) are a type of goods consumed every day by the average consumer. The goods that comprise this category are ones that need to be replaced frequently, compared to those that are usable for extended periods of time. While CPGs represent a market that will always have consumers, it is highly competitive due to high market saturation and low consumer switching costs.
The CPG industry is one of the largest in North America, valued at approximately $2 trillion. Although growth has slowed in this industry, companies that provide CPGs still benefit from large margins and strong balance sheets.
Some basic examples of CPGs are food and beverages, clothing, tobacco, and household products.
BREAKING DOWN 'Consumer Packaged Goods - CPG'
Companies that sell CPGs often face stiff competition. Shelf placement, brand recognition and mass advertising can greatly influence sales of CPGs. Some of the best-known CPG companies include Coca-Cola, Procter & Gamble and L'Oréal.
Consumer Packaged Goods vs. Durable Goods
CPGs generally have a short lifespan. They are intended to be used quickly and are often sold at a relatively low cost. As the name implies, they usually come in some form of packaging that can be displayed on the shelves of retail businesses.
Cosmetics are one type of CPGs. Like most CPGs, they typically have a limited shelf life; the product deteriorates over time or if exposed to extreme temperature fluctuations. Sold in individual packages at fairly low prices, consumers use products such as lipsticks, foundation, blush and eyeshadow on a daily basis, requiring frequent replenishment. After using the product, the consumer either discards or recycles the packaging.
Frozen dinners offer another example of CPG. These perishable items are often purchased every few days for immediate use. The purchase requires little deliberation on the part of the consumer. Sold at retailers across the globe, they have high volume sales.
Durable goods, on the other hand, are intended to last for several years. In contrast to some kinds of CPGs, durable goods do not deteriorate quickly and are expected to remain in relatively good condition while being used over an extended period of time.
An automobile is an example of a durable good. The purchase typically requires considerable thought and comparison shopping, since it represents a significant financial investment. The buyer of a new car usually expects to drive his vehicle for several years with few maintenance problems.
Economic slumps are often accompanied by flagging sales in durable goods industries. When the financial future is uncertain, consumers are reluctant to spend large sums of money on durable goods, especially if they already own an older version of the product. A family might, for example, decide to hold on to an outmoded washing machine instead of upgrading to a newer model in times of economic stress. In contrast, CPG companies that sell staples such as bread or other basic food products are less affected by market fluctuations.