In a nutshell: Consumer markets companies are focused on risk management and investing in related technology to bolster the effectiveness and timeliness of their response to increasing and ever-evolving risks.
Consumer markets companies are accelerating advances in digitisation and customer engagements in the wake of global disruptions caused by the COVID-19 pandemic, which forced many businesses to revamp their operations practically overnight. They are also adding new areas of priority focus and strengthening new risk management capabilities.
Some companies in the sector, which encompasses retail and consumer packaged goods, have attempted to “future-proof” operations by doubling down on core products and enhancing supply chain agility. They have also diversified suppliers and manufacturers across geographies to help improve inventory management, end-to-end visibility and data use — as well as create a connected, autonomous supply chain
“COVID-19 probably drove 20 years of change in six weeks. We made a virtue of the fact that we had to move faster and in a different direction.”
When the pandemic forced closure of many retail outlets, one British chocolatier quickly took its operations online, a rapid transformation that the company had planned to implement over an extended time frame. “COVID-19 probably drove 20 years of change in six weeks,” says Matt Margereson, COO of Hotel Chocolat. “We made a virtue of the fact that we had to move faster and in a different direction.”
Industry leaders are focused on navigating emerging challenges such as global inflationary pressures while creating long-term value. Another priority is environmental, social and governance (ESG) issues. Increasingly, customers, investors, regulators and employees want to see businesses take meaningful action on ESG. Business success may hinge on using the advantage of scale while absorbing lessons from agile new players in the industry.
The benefit? Businesses that adapt quickly like Hotel Chocolat can expect an uptick in near-term revenues. In fact, 23% of consumer goods companies project a 6% to 10% jump in revenues, while 11% forecast increases of between 11% and 15%, according to PwC’s 2022 Global Risk Survey. On the retail side, 27% of respondents anticipate an increase of 6% to 10%, while 13% expect increases ranging from 11% to 15%.
These gains are likely to help realize the benefits of risk management by supporting panoramic and integrated governance (22%), first-line risk management processes and tools (20%), increased collaboration among the three lines (19%) and assessments of risk exposure and appetite (19%).
Consumer markets companies, particularly those designated as essential services, demonstrated great resilience during the pandemic. Pile-on disruptions over the past two years convinced company leaders that risk management must be more proactive.
The top individual risks for consumer goods companies are geopolitical and market risks, followed by risks associated with external change, third parties and cyber. Retail businesses say cyber and info management is the top individual risk, followed by risks around products, external change, business and operational models, and clients.
“We’re operating in a heightened risk environment with the pandemic, a more challenging labor environment, geopolitical tensions, and rising inflation,” says James Turoff, Senior Vice President, General Counsel and Secretary for Hershey. “And new risks are taking center stage.”
Many multinationals have ended or revamped their business relationships with Russian companies. One major coffee-house chain closed all of its Russian locations, while a shoe-retail giant halted online and brick-and-mortar sales. Others have shut down all investments in the country.
Also in the offing is a continued global push toward decarbonisation regulations. Recent developments such as the creation of the International Sustainability Standards Board may signal a more policy-driven ESG environment in the US. Consumer markets companies could benefit by proactively aligning their strategies with potential ESG requirements.
Most retail shopping now includes physical and digital interactions, and almost three quarters of retail purchases involve engagement with brick-and-mortar businesses. Going forward, retailers could face potential risks as they integrate the hybrid shopping experience demanded by consumers.
As COVID-19 cases continue to fluctuate nationwide, potential surges in infection could result in retail shutdowns, supply chain disruptions and other business interruptions. Another potential issue hinges on the degree and duration of inflation.
Responsibility for risk management typically varies based on the maturity of the business. The CEO has primary responsibility for management of strategic risks (32%), followed by the CRO (17%) and the COO (11%). Operational risks, however, are the responsibility of the COO (39%), the CEO (22%) and the CRO (10%).
Business and risk executives need to take a panoramic view of risks by examining challenges and opportunities from all angles to avoid missing important connections among risk domains. “You need to actively listen,” says Margereson of Hotel Chocolat. “Consider a diversity of views and opinions to really distill down into an action plan. That’s the part that I’ve really taken out of the last 12 to 15 months.”
More than half (59%) of consumer markets companies say they have implemented at scale or begun implementing a panoramic and integrated governance, risk and controls programme. But only 22% are already realizing benefits from doing so. And a much smaller segment is realizing benefits while also improving risk management.
Consumer markets companies are upskilling risk teams to build digital acumen. Consumer markets companies face heightened expectations for increased technical fluency. Many C-suite executives and audit committee chairs recognize a lack of internal risk management skills. As a remedy, many are seeking opportunities to upskill their existing risk management people. Others are exploring sourcing or co-sourcing of talent to evaluate and better manage risks.
Consumer markets companies are taking steps to involve risk professionals early in business processes and decisions to improve risk management.
Here’s an example. In 2020, during the Halloween season, many candy manufacturers were reluctant to heavily promote their products in the midst of a pandemic. James Turoff shared, "The way we adjusted our Halloween sales programme during COVID 2020 was transformative for us. Bringing the risk management lens into the strategic planning for that season, we were able to consider data about varying levels of comfort with trick-or-treating [during COVID] and how eagerly people would adjust to celebrate the holiday. We reimagined our sales and marketing, encouraging safe in-home family celebrations and working with local governments on safe trick-or-treating tips such as putting out individually-wrapped treats so people could pick up treats themselves. We even shared data with retailers so they could have adequate inventory. The result was spectacular: we took around 500 basis points of share that Halloween season. And the business line leaders and risk managers learned that tackling risk early together allows them to think of ways to achieve the business goals while mitigating risks."
“Companies that identify risks earlier in the process, bring them under one umbrella in a holistic and robust way, and incorporate data in the strategic planning process can pivot much more rapidly.”
Technology investments are critical to managing risks. As a tax director for a major consumer packaged goods organisation noted, “It’s not only about educating on how to manage risks in taxation but about upskilling digital capabilities and gaining the ability to access the information that we need to monitor risks and drive informed decisions.”
PwC’s survey found that 69% of consumer markets companies plan to increase their spend on process automation. Even more (72%) intend to boost spending on data analytics. Other priorities include reporting and visualisation (70%), risk detection and monitoring (65%), an integrated risk management platform (65%) and workflow management (63%).
Successfully navigating current and future risk landscapes will require a framework for risk mitigation and incident response — as well as an inclusive approach to considering a variety of valuable inputs.
Consumer Markets Sector Leader, Cyber, Risk & Regulatory, PwC US