The Balancing Act: Unravelling the Top 5 Profit and Growth Challenges for Consumer Goods Companies

Introduction: I’ve been studying the quarterly earnings reports from 联合利华 , 雀巢 , 亨氏 , The Hershey Company , 宝洁 , and there’s a consistent picture emerging - operating margins are being squeezed due to inflation and with consumer expenditure expected to soften in the quarters to come, finding the funds to invest in growth is an increasingly difficult ask.?And while some FMCG businesses have been proactive in cost control, others are late to the party and are feeling the squeeze. ?

To put this in numbers, FMCG's revenue per employee languishes in comparison to the average tech counterpart. The FMCG average is about $500k and the tech average is there or thereabouts $800k - which is 60% more and underpins why US Tech 100 YoY growth is 24% vs Top 25 FMCG average growth rate is 2%, a whopping 12x higher!?

With that as the backdrop, I decided to dig into the top 5 profit and growth challenges for FMCG and each challenge is grounded and brought to life with quotes from respectable FMCG leaders.?

CHALLENGE 1: Hyper-personalisation

Evolving Consumer Preferences and Demands Today's consumers are more discerning and demanding than ever before, expecting products to cater to their individual needs and values. Think Starbucks in-app real time offers – more than 60% are customised to the individual customer. Companies must adapt to these shifting preferences and develop innovative products to stay relevant.?

Loyal Starbucks Reward members drove a record 56% of tender, up 3% from last year, reflecting increased customer engagement throughout our system – Howard Schultz Founder at 星巴克 (Analyst Call 2023)

We delivered strong growth in our international business and record-breaking revenue performance in our direct-to-consumer channel. As we celebrate the 150th anniversary of the iconic 501 jean, we are deepening connections with consumers and cementing loyalty with the next generation of Levi’s fan ...In our direct-to-consumer business, growth accelerated to 16% in constant currency, with record DTC sales, representing 42% of global revenues – Chip Bergh , President at Levis’Store (Analyst Call 2023)

CHALLENGE 2: Intense Competition and Price Pressure

The consumer goods industry is characterised by intense competition and price pressure, making it challenging to maintain profitability and market share. Companies must find ways to differentiate themselves while remaining price-competitive.?

The secret to thriving in this competitive landscape is to never rest on our laurels. We must continue to innovate, optimise our cost structure, and deliver superior value to our customers to stay ahead of the curve. – David Taylor , Chairman, President, and CEO of 宝洁

There are four areas we are driving to improve the execution of the integrated strategies: Supply Chain 3.0, digital acumen, environmental sustainability, and employee value equation. These are not new or separate strategies, they are necessary elements in continuing to build superiority, reduce cost to enable investment, and value creation, and to further strengthen our organisation. – Andre Schulten , CFO, 宝洁 (Analyst Call 2023)

CHALLENGE 3: Rising Operational Costs and Margin Squeeze

Increasing raw material costs, labour expenses, and regulatory pressures can lead to a squeeze in profit margins. Consumer goods companies need to find ways to streamline their operations and optimise costs without compromising on quality.??

To overcome the effects of inflation, we have introduced new products at higher prices and implemented operational efficiencies to offset cost increases – Tracey Travis , CFO 雅诗兰黛有限公司 (Analyst Call 2023)

CHALLENGE 4: Rapid Technological Advancements.

Adapting to rapid technological advancements is essential for growth and efficiency. However, implementing new technologies can be costly and time-consuming, posing a challenge for consumer goods companies.

Recently introduced strategic initiatives include our efforts to continue to expand our presence in digital commerce, to transform our manufacturing, commercial and corporate operations through digital technologies and to enhance our data analytics capabilities to develop new commercial insights.

If we are not able to capture our share of the expanding digital commerce market, if we do not adequately leverage technology to improve operating efficiencies or if we are unable to develop the data analytics capabilities needed to generate actionable commercial insights, our business performance may be impacted, which may negatively impact our financial condition and results of operation?

And importantly, all of this is further fueled by a mindset of never being satisfied, not resting on our laurels, a restless ambition to be the best – Michele Buck , President and CEO of The Hershey Company (Analyst Call 2023)?

CHALLENGE 5: Regulatory and Geopolitical Uncertainties

Consumer goods companies face an ever-changing landscape of regulatory and geopolitical uncertainties, which can impact global supply chains, taxation, and market access. Navigating these complexities requires adaptability and strategic planning.?

In 2023, we expect that the world will continue to be extremely volatile, inflationary pressure, supply chain disruption, geopolitical environment, and continued impact from COVID-19 pandemic in certain parts of the world. So, with that in mind, we are certainly prepared to navigate this environment, thanks to the quality of our brands, the strengthening of our execution capabilities around the world …and innovation, will continue to play a big part in our results moving forward. – Thibaut Mongon – Chairman Consumer Health, 强生公司 (Oct 2022, Analyst Call)?

MY CONCLUSION: 5 ways in which COO’s and Global Category Presidents at FMCG businesses can unlock the next horizon of profitable growth. ?

1. Drive efficiencies within their supply chains and free up margin to invest in growth and innovation??
2. Build capabilities to become leaner and faster with innovation to keep pace with consumers who are used to innovation at tech speed.??
3. Streamline headcount through the effective use of automation and technology??
4. Re-imagine how they create, access, and use data to drive profitable growth and de-risk bigger bets. ?
5. Build new capabilities to navigate an increasingly fraught geopolitical landscape and what that means for procurement of raw materials and operating risks.??

Here at Sia Partners, we have helped numerous clients overcome these challenges and you could be next!??

If anything in this article resonates with you, reach out to me at [email protected] . We operate in 20 countries and have 4000 experts in these areas and can help you make substantive progress on these fronts while advancing your sustainability goals in tandem.??

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Author: Luke Raskino , Senior Manager, Growth & Innovation team at Sia Partners.??