The once fast-growing consumer goods industry has been on a journey of slimming down in recent years, with cost cutting and cost management as the primary focus.
But an in-depth global Accenture survey among industry analysts and senior executives reveals that Consumer Package Goods (CPG) companies are now at a significant crossroads. CPG companies that keep cutting costs and don’t invest in future capabilities, channels and markets are putting their brand reputation and market share at risk.
Clearly, it’s time to pivot to growth. Among stakeholders both on the inside and outside, there’s broad agreement that funding investment in profitable growth will keep consumer goods companies competitive in the fast-changing digital age. Senior consumer goods executives, in particular, see digital technologies as the most promising area for reinvestment. They’re especially focused on ways their companies can channel cost savings into new operating models that are more agile and responsive and can enhance engagement by driving relevant content directly to consumers.
As for companies’ efforts to slim down, an analyst within the CPG space had this to say: “It’s easy to artificially boost the margin for a year or two by reducing the level of advertising and promotion. But it is very dangerous for the long-term.”
Analysts are vigilant in rooting out the kind of short-termism that can doom a company over a broader horizon, stating, “We don’t look for companies to only be lean, we also like to see a strategy that will drive growth.”
For example, technology can help cut nonworking advertising costs as spend has migrated increasingly to digital media. Previously, CPG brands have been using traditional advertising and promotion. Today, brands are using social networks to promote their companies and their products. In fact, more brands are shifting their advertising dollars to digital media to accommodate this trend.
Senior executives of CPG companies cite these adaptive strategies and technologies as key to staying relevant in years ahead. Through an adaptive strategy, these companies are constantly learning about their customers and anticipating and flexing to deliver relevant, engaging and useful interactions. This more holistic view can enable companies to push the right offer through the right channel at precisely the right time, and engage in meaningful ways with the right experiences— to win consumers and build loyalty.
CPG companies need the right talent, operating model and capabilities to integrate these digital-first adaptive strategies, and senior executives are aware that they have work to do. On the talent front, their companies need to attract and motivate people who understand the next generation of buyers, while building that more agile operating model that will support the evolution of their business.
Furthermore, each CPG company’s leadership team needs to be in alignment on their growth agenda, as individual executives will need to be the champions within their division or function to enable the transformation that will fuel growth. And here’s where some of the greatest barriers lie — a full 40 percent say leadership misalignment, along with company culture (44%), are barriers to advancing the company’s operating model. Only 22 percent of the senior executives surveyed have the utmost confidence that their leadership have the appropriate investment and growth initiatives to achieve their business goals.
There’s a further disconnect around the operating models currently in place. Although 82 percent of senior executives surveyed believe digital strategies will enable the advanced operating models they need, only 25 percent believe that their current operating model can support strategic growth across the enterprise. And only 15 percent strongly believe they currently have an agile operating model in place, which can successfully pivot to changing market conditions.
As we’ve seen in our conversations with senior executives, investment in adaptive capabilities is a critical step for many consumer goods companies — so they can constantly learn about their customers and anticipate and flex in order to deliver relevant, engaging and useful interactions. Today, leadership teams are reinvesting the savings they’ve made in their go-lean years to gain the agility they need to maximize data and capture consumer insights. Beyond their product offerings, they must get closer to their target consumers by engaging in meaningful and targeted ways. They must become digital-savvy organizations that attract the next-generation workforce. And they must operate more efficiently and responsively to shifts in consumer demand.
As this broad consensus among senior executives shows, the long period of cost-cutting and retrenchment post-recession is finally giving way to a new period of growth and investment. The companies that navigate this course correction with skill and appropriate focus will determine their standing with consumers and shareholders in the years to come.