How can CPG companies redefine growth? Consider these 8 steps

Successful companies balance core category focus against mercurial consumer preferences and ever-changing market dynamics. Delivering growth requires driving profitability to fuel investment.

While near-term productivity matters, the goal is long-term success that drives topline growth into the future. That was the consensus from industry leaders at the 2023 annual conference of the Consumer Analyst Group of New York (CAGNY).

Consumer packaged goods (CPG) companies should also enhance their capabilities around critical areas like revenue growth management (RGM), innovation, supply chain, brand and more. Here are eight essential actions to consider.

1. Double down on core strengths

Use innovation to counter customers’ willingness to trade down. For example, McCormick & Company offered an entry-level price point to trade up from private label. Meanwhile, Church & Dwight adopted a multitiered strategy to retain consumers within brand families.

Focus on markets where you likely have a better-than-even chance of consistent success. Invest in your iconic brands and core differentiators. Mondelez International netted 90% of its revenue from core categories after reshaping its portfolio in 2022.

2. Expand into new markets, categories

Go beyond the familiar. The Coca-Cola Company is increasing capital expenditure in emerging markets where it sees significant room for growth.

Expand into new and adjacent product categories to align with consumers’ shopping habits and channel preferences. Constellation Brands is extending its brand with non-alcoholic beer. PepsiCo is investing in offerings that reduce waste, such as powders and tablets.

3. Improve RGM, pricing and trade promotion

Facing inflationary pressures and higher input costs, CPG companies are turning to revenue growth management (RGM) to improve near-term performance and impose rigor while pursuing more targeted opportunities across products and markets. A critical lever for growing operating profit, RGM can help you respond to changes in consumer behavior while helping to deliver long-term growth.

Pricing continues to be an important measure for CPG companies in countering cost inflation. Ongoing collaboration with retailers remains essential.

As promotional activities return to pre-pandemic levels, increasing trade spend will likely again take priority. Kraft Heinz is exploring ways to redeploy promotional dollars to drive growth while also leveraging digital tools to increase returns on trade investment.

4. Focus on margin expansion

Drive strong topline performance by increasing margins for the core portfolio. In the year ahead, leading companies aim to double performance on internal productivity initiatives to offset cost pressures.

Shift portfolio mixes and exit low-growth businesses to focus on higher margin categories that support your overall portfolio. The JM Smucker Company took action by divesting the lower-margin portion of its business comprising several pet food brands.

Continuous improvement initiatives — that mitigate inflation impact and drive margin expansion — are taking precedence over one-and-done measures. Diageo and Coca-Cola have implemented programs that drive productivity, particularly looking at cross-functional processes.

5. Cement trust by meeting customers where they are

Targeting consumer preferences for transparency and sustainability, Procter & Gamble is developing products that don’t require a trade-off between performance and sustainability.

Clorox is promoting sustainable innovation with products that combat waste by using fewer materials and refillable packaging. Nomad Foods expects to adopt sustainable fishing and farming practices for all its fish, seafood, vegetables and potatoes by 2025 — as well as 100% recyclable packaging by the end of 2023.

Stickier, more strategic platforms — combined with hyper-personalized precision marketing — can drive product innovation to meet consumers where they are.

Occasion- and needs-based innovation can fuel growth, for example, gluten-free snacks from Mondelez. Companies are also making portfolio enhancements by adding premium brand extensions.

6. Digitize your supply chain

Investing in additional automation and other resilience-boosting technologies can control costs and alleviate margin pressures from inflation. By further digitizing your supply chain, you can gain access to the robust monitoring tools that help drive capital efficiency, logistics and demand planning. Predictive tools that deliver inventory synergies can improve customer service.

Grappling with supply chain challenges, some companies are building digital situation rooms in which cross-functional teams can interact with a common set of data, workflow and communication methods to collaborate on system challenges.

Companies that faced considerable production volatility are now carrying less inventory, while companies that experienced historic demand are now using capacity planning to drive topline growth and keep up with production requirements.

7. Generate value from data

Successful CPGs have deciphered how to monetize their data effectively. By gathering and analyzing internal and external data for audience management, personalization and real-time decision-making, you can pivot with agility in response to changes in the economic landscape.

General Mills’ business partnership with Fetch aims to bolster its digital capabilities to increase personalization, while Kraft Heinz’s use of demand forecasting AI technology has significantly boosted the accuracy of its distribution forecast.

CPGs also remain laser-focused on unlocking the power of robust cloud-powered technology ecosystems. By combining the synergies of cloud transformation with advanced analytics and AI, they can expand omnichannel reach and nurture brand loyalty.

8. Leverage M&A for transformation and growth

More than half of CPG companies see M&A as essential to their capital allocation strategy for the year ahead, despite the challenging deals environment. However, with interest rates on the rise, it’s likely only creative deals will cross the finish line.

Shed non-core assets while doubling down on key categories. Your integration strategy should leverage recent investments in digital, data, marketing and supply chain capabilities.

Corporate buyers — with their combination of balance sheet strength, access to synergies and less debt — have the advantage over financial buyers. Serial acquirers such as Church & Dwight remain open to opportunities.

In the current risk-averse environment, lower-risk options — such as business partnerships and alliances — might work better to access capabilities and segments. They could also provide access to emerging markets and brands to future-proof portfolios and bolster top-line growth.

Bold actions deliver growth into the future

Despite lingering economic uncertainty, CPG prospects for growth are strong. As outlined above, doubling down on core capabilities while cementing omnichannel brand loyalty and bolstering operational prowess can improve margins — despite the inflation-driven decline in purchasing power.

Contact us

Barbra Bukovac

Vice Chair, Consumer Markets, PwC US

Email

Samrat Sharma

Marketing Transformation Leader, PwC US

Email

Steven Treppo

Partner, Strategy& US

Email

Edward Landry

Principal, Global Customer Strategy Leader, PwC US

Email

Follow us