Historic CPG leaders are falling behind as their smaller, digitally enabled counterparts rewrite the rules and consumer expectations are changed by digitally native operators such as Uber, Amazon and Netflix.
Last year, the top 25 U.S. food and beverage companies drove 45% of category sales — but only 3% of growth. The remaining 97% of sales growth was driven by smaller players.
In previous eras, CPG companies have been the ones pushing the boundaries and leading the way in driving innovation. With an estimated $2.95 trillion in untapped value at stake, and with disruptors taking more than their fair share, what is preventing these historic leaders from making the move to become modern CPG companies and how can they regain their leadership roles?
While digital transformation in consumer industries is not a new concept, it appears that traditional CPG leaders are struggling to make the link between digital transformation and improved financial performance.
We developed a Digital Performance Index to better understand the interplay between digital and financial performance. The index is a cross-industry assessment of 45-plus CPG companies across geographies and provides an in-depth view of a company’s digital strengths and weaknesses, highlighting the great disparity in digital performance across companies. Unsurprisingly, CPG disruptors and non-CPG industries outperform traditional CPG companies in terms of digital performance.
Our research highlights that 83% of CPG incumbents are failing to recognize the impact of digital on the industry by not aligning transformation initiatives with corporate strategy and operations. This trend is further reflected by the 22% of incumbents failing to set and report on specific financial key performance indicators (KPIs) aligned to digital transformation.
And although we’re seeing many CPG companies investing in e-commerce, the index shows that just over half (51%) of CPG companies are failing to provide consumers the ability to order online or submit a request via social media. Clearly, there is still work to be done in transforming product, sales and merchandising approaches that historically have served offline channels.
To better shape their digital journey, CPGs should focus their time, effort and investment on four areas:
1. Plan for value: Identify the untapped value, follow the money and act decisively to ensure strategies and budgets for digitization are aligned.
2. Sell everywhere: Digitally engage consumers through multiple integrated channels and deliver a seamless experience throughout.
3. Make with agility: Use digital technology to design and build products and services, as well as to streamline visibility and activity across the supply networks.
4. Manage based on data insights: Improve operating efficiency through digital data infrastructure that is flexible, adaptable and aligned with a refreshed workforce that is augmented with real time insights.
New business models have equipped disruptors with the speed and agility to shape how they produce, drive consumer expectation and manage internal operations. Market-leading disruptors combine strong digital with strong financial performance. By contrast, while there are some legacy companies leading the way in digital performance, there’s no single role model. Instead, we're seeing the implementation of incremental initiatives.
There is a way forward for incumbents. They have the advantages of scale, financial resources, existing consumer bases, strong retail trade relationships, and deep experience in product development and branding. These assets provide the basis to transform the way they work, supporting the right balance of agility and scale.
For CPG companies embarking on journey that sees them move to the modern, there are three steps to consider:
1. Get started and master the brilliant basics: Start now. Be faster, more agile, more relevant—meeting consumers where they engage—and utilize emerging technologies like AI and blockchain to drive product development.
2. Grow the core and extend reach: Move beyond process efficiency and resetting the cost base and set your sights on transforming to an agile organization that links into a broader ecosystem of capabilities and partners.
3. Move beyond renovation to innovation: Unleash new routes to growth by exploring new businesses and business models organized around the customer.
Thanks to digital technologies, organizations are now able to unlock new sources of growth, new levels of efficiency and new experiences that satisfy the growing demand among individual consumers for relevant, convenient and cost-effective products. The challenge for CPG companies is that the financial impact can be subtle and there's no one-size-fits-all path to success. They must carefully balance transforming core businesses while scaling new ones, which demands new talent, new skills and a new mindset.
The opportunities are infinite for those CPG companies that identify the untapped value, follow the money and embrace a move toward the modern.