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Top issues in 2022: Focus on core strengths to create value amid disruption

The consumer packaged goods (CPG) industry has experienced a series of peaks and valleys in its growth cycles over the past two decades or so. Because the industry’s fortunes are closely tied to the overall health of the economy, consistently strong performance remained elusive for CPG companies during these boom-and-bust cycles:

  • 2000-2009
    Top-line revenue growth, fueled by M&A and global expansion, was steady until the 2008 recession. During this decade, CPG companies did not focus on managing costs.
  • 2010-2016
    Activist investors drove torrid cost-cutting programs to deliver margin expansion, sometimes at the cost of revenue growth. With digital options ascendant, smaller players benefited from the erosion of traditional barriers to scale as well as increasingly bifurcated demand between high-end and value offerings.
  • 2017-2022
    On the path to more consistent performance, CPG companies began to reinvest in the core capabilities that differentiated them from the competition—while continuing to manage costs. Then, a global pandemic blew up the playbook.

At the onset of the pandemic, when restaurant closures led to more grocery store spending, CPG companies struggled to meet surging demand for basic consumer goods. In light of this sometimes explosive demand, they doubled down on their core products and accelerated supply chain agility. In fact, PwC analysis of Capital IQ and World Bank data estimates CPG revenue will likely grow by 4.8% between 2020 and 2022, the highest rate in 20 years.

To succeed beyond the reactive mode of the pandemic environment, CPG leaders need to focus on the next horizon—how to counter emerging challenges, including a global economy rife with inflationary pressures, while creating value over the long term.

Tackling today's CPG challenges: six areas of focus

Consumer packaged goods companies have faced daunting challenges in recent years to sustain consistently strong performance. Over the last several decades, the sector has swung between periods of M&A-driven growth and cost-cutting margin expansion.

To succeed in this ever-changing landscape, incumbents need to leverage the advantage of scale while incorporating lessons from nimble new players. Given the relentless pace of change, taming the onslaught of disruptive forces can seem daunting. Every CPG company needs a concrete strategy to help address six challenges that the pandemic has created or accelerated:

How to win: four imperatives to shape success

Over the next decade, you can expect significant disruptive forces to transform the future of the CPG sector, from environmental and technological advances to social and human capital developments. Rather than cede control to external economic forces, CPG companies are well-positioned to help steer the future of the industry.

From our work across all segments of the CPG industry, we’ve analyzed a variety of companies. The most successful are taking control of the future by planning ahead. Here are some of their key strategies for success:

1. Choose interlocking capabilities that play to your strengths

You don’t have to excel at everything. Rather, make well-thought-out choices about which five or six capabilities represent your particular strengths—those that set you apart from competitors—then reinforce those strengths to scale up.

Choose carefully to ensure that the capabilities you land on span commercial, supply chain and supporting functions. Working in concert, this capability system can represent your strategy in action. In some instances, forging alliances with other companies that offer complementary strengths can help accelerate development of a seamless ecosystem that best serves customers.

2. Deploy deals and divestitures to configure your portfolio

Assess your overall portfolio to uncover gaps and redundancies. With low interest rates powering a sustained M&A boom, a PwC analysis illustrates that opportunities abound for capability-enhancement deals that generate robust shareholder returns.

As you fill gaps in your overall portfolio with strategic acquisitions, continue assessing your overall portfolio for products—or participation in certain categories—that don’t support your core capabilities. These slow-growing or “misfit” offerings are ripe for divestiture, which will allow you to focus on a leaner, more cohesive growth portfolio.

Having assessed their portfolios and made the right deals to strengthen core capabilities, CPG companies are exploring new tech-savvy options to configure their portfolios and evolve their operating models. These new measures often require a CPG company to help modernize its approach to the market—for example, leverage its capabilities in a new or different way—to unlock new sources of competitive advantage and revenue, via models such as these:

  • Super distributor—Developed direct store distribution (DSD) capabilities to support its own business expanded to other CPG companies who lacked the scale for this level of distribution.
  • Lifestyle platform—Extended brand strength in specific categories such as cosmetics to adjacent categories such as beauty solutions that include both products and services, in response to consumer needs.
  • Consumer connector—Analyzed consumer data gathered from a broad portfolio to forecast behavior and trends that other CPG companies can purchase.
  • Meal solution provider—Created healthy, customized home-delivery meals by combining the best elements of meal kits, restaurant delivery and home-cooking.

3. Unleash the power of cloud and data analytics within a robust technology ecosystem

The possibilities inherent in a robust technology ecosystem powered by cloud and data analytics are substantial: CPG companies can better combine the synergies of cloud transformation with advanced data analytics and AI to expand their reach into direct-to-consumer e-commerce channels as well as to generate new brand loyalty.

They can gather and analyze internal and external data sources for audience management, personalization and real-time decision-making, allowing them to pivot in response to changes in the economic landscape. More holistically, cloud technology—within a robust technology ecosystem that encompasses data analytics—can transform operational and business initiatives to drive consistent innovation and bottom-line growth.

So why isn’t this happening? A PwC analysis finds that the top two reported barriers are a lack of alignment and clarity on roles and responsibilities within the organization, as well as a lack of tech talent. Other obstacles include governance, value measurement and stakeholder engagement.

Ultimately, this transformation starts with a unified executive team supported by new metrics, governance and organizational structures. Done well, these measures can engage and align executives, attract tech talent and help the business choose solutions that truly support revenue growth.

4. Infuse your culture with a sense of purpose

PwC analysis over the past decade has found that companies with a distinctive corporate culture engendering a sense of purpose are twice as likely to outperform industry peers on revenue and profitability. Dedication to a common cause can energize the workforce.

Procter & Gamble has reinvigorated its 180-year-old company culture by adopting a start-up mindset that prioritizes research and innovation, funded with an annual R&D budget of $2 billion. This mindset has helped P&G maintain competitive advantage while researching ways to mitigate environmental impact and enhance sustainability. More than 150 small, cross-functional R&D teams work in fast cycles on innovative ideas to increase the chances of success.

Looking ahead, leading companies will likely continue future-proofing their cultures for tomorrow’s workforce. Here are five keys to help getting it done:

  • Embrace new ways of working
    Learn from cultural changes that emerged during the pandemic, ranging from a more connected organization to new communication channels.
  • Accelerate your digital journey
    Scale innovation enterprise-wide by doubling down on automation and accelerating investment in upskilling.
  • Cultivate operational agility
    Capitalize on pandemic-enforced flexibility to devise workforce strategies that better align product portfolios with consumer needs.
  • Inspire commitment
    Center policies on empathy to inspire commitment. Maintain open channels of communication that link employees to top management.
  • Reimagine the physical space
    Harness remote work options for a reduced physical footprint that promotes scalable growth and long-term cost savings.

Spotlight on tax

From a new corporate profits minimum tax based on book income to a surcharge on certain stock buybacks to sweeping reforms in international taxation, US and global lawmakers and standard-setters are proposing a wide array of tax changes that could have far-reaching impacts for consumer-facing companies.

As companies in the consumer markets industry determine how best to prepare for these tax changes, they should consider potential actions in the context of broader business challenges. These include supply-chain disruptions, corporate responsibility and sustainability expectations — encompassing environmental, social and governance (ESG) considerations — and global operating model inefficiencies.

Consumer markets companies choosing to re-evaluate core business strategies related to supply chains, ESG initiatives and operating models in the context of an evolving tax and business landscape will be best positioned for future success. Using a data-driven approach — supported by technology — they can harness the insights necessary to make sound decisions, despite uncertainty and complexity.

Are you ready for the challenge?

This self-diagnostic checklist can help assess your organization’s preparedness for the next industry cycle:

1. Capabilities

  • Can we prioritize five or six capabilities that play to our differentiated strengths in our segment?
  • Taken together, can these capabilities represent our corporate strategy in action?

2. Configuration

  • Are our businesses and brands aligned with our strategy and differentiating capabilities?
  • What kinds of deals and divestitures could strengthen our portfolio?

3. Cloud, data analytics and technology

  • How will technology investments enable us to achieve clear, differentiated outcomes, such as customer acquisition and retention?
  • What metrics, governance and organizational structures do we need to put in place to gain the most value from our cloud architecture?

4. Culture

  • Do our culture and purpose inspire commitment from our workforce?
  • How do we measure and communicate our ESG principles in action?

Once you assess your current state, you can use these four dimensions to help reposition your business for lasting growth. It’s time to take charge of your own agenda. Regardless of unforeseen disruptions, you can succeed in the next industry cycle if you configure the right alchemy of capabilities for a cloud-enabled digital ecosystem, powered by a culture that inspires your workforce to commit to your purpose.

Contact us

Barbra Bukovac

Barbra Bukovac

Vice Chair, Consumer Markets, PwC US

Edward Landry

Edward Landry

Principal, Global Customer Strategy Leader, PwC US

Samrat Sharma

Samrat Sharma

Marketing Transformation Leader, PwC US

Emre Sucu

Emre Sucu

Partner, PwC US

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