Consumer & Packaged Goods Market Report 2009-2014

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This applications market sizing report examines the 2009 performance of the top 10 applications vendors in the Consumer & Packaged Goods(CPG) vertical, which is expected to rebound as consumer spending begins to recover. Segments such as apparel, shoes as well as consumer staples will start to see signs of increased applications spending as CPG companies aim to accelerate their product lifecycle and replenish their inventory through team collaboration and process improvement, while using the latest software technologies to reduce expenses.

The unstoppable globalization trend, which has become more apparent than ever with improved standard of living in developing countries, will also spur applications spending as CPG firms seek to enhance visibility into their worldwide operations.

Top Line and Bottom Line

On the top line, the CPG vertical is highly fragmented because of varying product life spans of consumer products from durables such as small appliances to perishable and fast-moving items like frozen seafood and fashion accessories.

Regardless of the type of consumer products, branding, consumer safety and product lifecycle management requirements have become more pressing than ever. CPG companies are under enormous pressure to innovate, while striving to scale their operations through process standardization and supplier collaboration. With the advent of globalization, barriers to entry have been lowered considerably for anyone entering the market by taking advantage of strategic sourcing, offshore manufacturing, fast fashion or any short cut to fast track product development and introduction.

Some attempt to inject continuous innovation into their products, while others thrive on the latest fad by replicating the incumbents with similar goods at the lowest price point possible. The result is a proliferation of product and customer information as well as massive amounts of business data that need to be shared among CPG companies and their partners. Robust ERP, supply chain and PLM systems are becoming the prerequisites for these CPG companies to grow and prosper.

The bottom line is that the CPG vertical is becoming more global in nature as fast-growing consumer goods companies in China, India and elsewhere start adopting best practices commonly used among their counterparts in the West.

The winners are likely to be those that harness the latest applications to help them build quality products at optimal price points for their target audience, while ensuring availability that is backed by proven supply and demand chain management data and execution.

Market Overview

The market for applications for the CPG vertical slipped 3% in 2009 as the lingering effects of the recession made it difficult for consumer goods companies to invest without long deliberation. Most applications vendors posted either flat or disappointing results in 2009 as their customers continued to retrench.

The good news is that companies are beginning to move back into the expansion mode. The bad news is that many applications vendors have seen their product sales tumble last year and any near-term growth is not likely to offset their 2009 declines until the market fully stabilizes in 2011.

Still big deals were being completed. At the end of 2008 Procter and Gamble signed on to become a Global Enterprise Agreement(GEA) account with SAP, triggering a wave of applications spending that could be worth hundreds of millions of dollars over the next few years for the ERP vendor.

Other vendors focused on beefing up their offerings for the CPG vertical. Siemens PLM, for example, released Teamcenter 8 designed for CPG companies to improve their packaging and artwork, global specifications, brand management, and initiative management.

PLM applications vendors took advantage of the migration to 3D from 2D product development by enhancing their visualization and design capabilities. Dassault Systèmes made its foray into the search marketplace by recently acquiring Exalead for its applications that ease information search, access and reporting for a variety of industries including consumer services.

Dassault’s biggest move was the 2009 acquisition of the IBM PLM sales and client support operations, solidifying Dassault’s dominance in many of the markets it serves. With the completion of the purchase of the IBM PLM sales and client support operations, Dassault is adding hundreds of professionals with years of Big Blue experience as employees responsible for helping the vendor make further inroads into major CPG accounts such as Panasonic.

What these moves underscore is that the applications market for CPG vertical will become a bifurcated one with the top accounts standardizing their apps environment around a few platform providers such as SAP and Dassault for their global support capabilities, while the small and midsized customers will be targeted by a smattering of apps vendors that primarily compete on price, ease of implementation and best-of-breed features from visualization to warehouse management.

Implications Of The Great Recession of 2008-2009

Just when software product revenues appear to be strengthening among applications vendors that target the CPG vertical, new signs of trouble begin to erupt.

Vendors such as Dassault, PTC and Siemens PLM cited renewed spending among their CPG customers as the contributing factor behind their strong growth in the first half of 2010. On the other hand, Procter and Gamble, which is considered the barometer of the CPG vertical, posted disappointing results for its latest quarter ended June 30, 2010 with a 12% drop in earnings due to higher commodity costs even with a 3% rise in sales. While developing regions continued to grow at a double-digit rate, mature markets showed lackluster results because of weak consumer spending, zapping P&G’s momentum.

P&G’s latest results could be considered a harbinger for things to come underlining the fact that the CPG vertical is still under considerable pressure from the heavy debt loads of the consumers, as well as high unemployment in developed countries, which remain the biggest market for many consumer goods companies.

Until that improves, a sustainable recovery in the CPG vertical is not likely to happen for applications vendors, whose messaging may have to focus more on the benefits of using technologies to reduce costs, rather than boosting product development and speeding up innovation.

Customers

Much of the growth in the applications market for the CPG vertical will come from developing countries in Latin America and Asia where young and fast-growing consumer products companies are flexing their muscle.

Li Ning, the sporting goods juggernaut in China, is a good example how the apps market is blossoming in the region and benefiting vendors such as PTC. Li Ning, which has almost doubled its sales to $1.2 billion since 2007, will standardize on PTC FlexPLM as its collaborative product lifecycle management applications to replace manual processes for line planning, product design, specification development, material development, sample management, calendar management, and other operational systems struggling to support its explosive growth.

Similarly apps vendors are reporting similar patterns from their CPG customers in Argentina, Brazil and Venezuela where growth in consumer spending is outpacing that of the developed world.

Top 10 Applications Vendors In Vertical

The following table lists the 2009 shares of the top 10 applications vendors in the CPG vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.

Vendor2009 Share(%)2009 Applications Revenues From  Communications($M)2008 Applications Revenues From Communications ($M)
SAP19.2%950925
Oracle6.8%339320
Siemens1.7%86101
Dassault1.7%8286
Infor1.5%7685
Lawson1.0%5250
JDA1.0%5048
PTC0.9%4350
Manhattan Associates0.7%36.845
RedPrairie0.6%3235
Subtotal35.2%1746.81745
Other64.8%3211.23377
Total100.0%49585122

Vendors To Watch

CDC is on a buying spree following an infusion of $30 million in new financing earlier this year. It proceeded with the acquisitions of Tradebeam for global trade management, MarketBright for marketing automation, and eBizNET Solutions for supply chain execution. It is also finalizing deal to acquire a cloud-based transportation management applications vendor.

In addition to its ERP and CRM applications, CDC has been selling a range of back-office and ecommerce solutions for a variety of industries including CPG. Its reference wins in CPG include Acushnet, Avon.com, Canon Svenska, Coca-Cola, Dial Corp., Fuji Film, Kodak, Mary Kay, Mattel, SC Johnson, and Unilever Belgium.

After years of spreading itself over different apps market segments, CDC appears to be positioning itself as the major apps provider for a growing number of CPG companies that are poised to expand their operations in China and other fast-growing regions. Because of CDC’s entrenched presence among many enterprises in China, it could stand to benefit the most from the trend.

The proliferation of product SKUs and brands and the associated data management requirements will bolster such vendors as DemandTec, Revionics and Pros Holdings, all of which are addressing the margin erosion and pricing pain points of their customers with best of breed profitability management applications.

Outlook

On the upside, the CPG vertical is beginning to turn around on the heels of improved consumer spending especially in fast-growing regions like Latin America and Asia. The recent rebound in software revenues of PLM apps vendors suggested that pent-up demand for their products appears to become more pronounced than ever.

On the downside, the question is whether the rapid growth in Asia and Latin America will fan inflation worries by jacking up commodity prices. That in turn could undermine any growth potential in the West as consumer spending has already been held back by high unemployment and a weak housing market.

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Consumer & Packaged Goods Market Report 2009-2014

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