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:
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.
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:
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:
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.
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:
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.
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:
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.
This self-diagnostic checklist can help assess your organization’s preparedness for the next industry cycle:
1. Capabilities
2. Configuration
3. Cloud, data analytics and technology
4. Culture
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.