Consumer packaged goods (CPG) companies will need to employ different tactics than those used during the recession — divesting non-core brands, conserving cash, and cutting costs – to preserve shareholder value as the economy recovers. To grow revenues in this new climate, companies will have to focus on innovation to encourage household spending, especially for products in mature segments and to offset reduced spending by Baby Boomers who are nearing retirement, according to the Grocery Manufacturers Association (GMA) and PricewaterhouseCoopers LLP (PwC) 2010 Financial Performance Report released this week, titled Forging ahead in the new economy.
According to the study, many CPG companies are looking to innovate by reaching consumers in more places or tailoring products for local customer tastes in emerging markets. Additionally, understanding customer priorities is central to innovation as consumers in the United States are buying more carefully, buying different pack sizes, taking advantage of volume discounts, and trading down to non-premium brands.
The 2010 GMA & PwC Financial Performance Report is the latest installment of the annual industry report issued by GMA and PwC, now in its 14th year, and is compiled from interviews with senior leadership of GMA members (including members of the GMA CFO Committee), publicly reported company financial data, government statistics, analyst reports, and other published material on 152 companies in the food, beverage and consumer products sector.
“The CPG industry has a legacy of strong financial performance and resilience in the face of challenging economic times, and 2009 was no exception,” said GMA president and CEO Pamela G. Bailey. “However, restrained consumer spending and continued fears about the future of the US economy mean that companies will have to harness the innovation for which they are known as they look to grow sales.”
The report found that establishing a foothold in emerging markets – especially in China, Russia, Brazil, India and Southeast Asia – has taken on a sense of urgency for CPG makers as capital flows faster than ever and new competitors can ramp up quickly. The middle classes are growing and forming attachments to new brands and products just as fast. Consequently, product growth cycles in emerging markets have accelerated and the success or failure of a product launch or brand introduction now can be determined in a matter of just 12 or 18 months.
Additional key findings from Forging ahead in the new economy include:
“These food, beverage, and household product companies are part of a true counter-cyclical industry, as it performs better than other industries during recessions, but tends to balance the scales with slower growth during expansions, as was the case in 2009,” said Susan McPartlin, US consumer packaged goods industry leader, PricewaterhouseCoopers. “This may reflect the fact that CPG companies have been adapting to market conditions and sacrificing a bit of short-term growth to get their houses in order through increasing sales per employee, paying down debt, trimming workforces, and paring brand and product portfolios. We expect CPG companies to emerge much stronger as we move through 2010.”
“CPG companies are operating in a new environment, characterized by more cautious, value-driven consumers and volatile commodities,” added Lisa Feigen Dugal, North American consumer packaged goods & retail advisory leader, PricewaterhouseCoopers. “It will be tough to succeed using the same tactics employed during the recession. Novel approaches will be crucial – and that includes creating new trade promotions programs for retailers, rethinking how they spend their media dollars, targeting coveted demographic groups like Generation Y with smart social networking campaigns, reaching customers in more places, and tailoring their products for local customer tastes in emerging markets.”