It was only a decade ago when many industry analysts looked at two looming trends — the rise of retail consolidation and proliferation of private labels — and issued warnings about the power of consumer packaged goods brands. However Bain & Company, a global business consulting firm, says those predictions turned out to be premature. Their analysis released Winning with Brands, last month of the largest consumer goods companies and retailers globally confirms that the opposite has occurred: Consumer packaged goods brands now report a 10-year high operating margins and they are capturing growing portion of the industry profit pool.
Brands beat the odds in three ways:
- Aggressively managed overhead costs
- Pursued dynamic growth in developing markets
- And gained scale, efficiency and entry to new markets through mergers and acquisitions.
What lies ahead? The scale and complexity of today’s consumer goods companies heightens the importance of discerning what has worked in the past—and what will continue to work—while understanding the future trends that will inform new and critical choices. The report explores five ways executives can keep their brands thriving in the new era of profits.
Ignite the topline. Some companies are boosting their toplines by rethinking pricing strategies. The report cites for example in beverage categories, price increases accounted for more than 50% of household spending increases globally and 98% within North America and 107% in Western Europe.
Plan to take out — and keep out — another 10% to 30% of costs. As consumer goods companies continue to look at ways to cut costs and improve their cost positions year after year, they’ll look at both the total amount spent and at the effectiveness of what they spend. The report says by analyzing total spend and spend effectiveness, one global brand discovered that over half of its above-the-line marketing budget went to subscale and ineffective campaigns that ballooned nonworking media expenses. By concentrating on fewer, more quality promotional campaigns, the company was able to reduce its below-the-line spending and fund higher-reach media spend.
Reinvent your supply chain. The report explores two fundamental questions according to the research that any consumer goods company should consider: Does the existing supply chain provide a demonstrable (and measurable) competitive advantage? Are all growth platforms, brands and technologies on advantaged assets in optimal locations? The best companies will strive to have supply chains that are aligned with their future commercial strategy.
Future-proof your capabilities. Technological innovations and consumer taste and shopping trends may not fundamentally change the actual products that consumer goods players make in the next decade — toothpaste will be toothpaste and people will drink beer — but they are transforming where and how consumer goods companies operate and build scale. The report found that companies are aggressively discovering novel ways to use data to improve existing products and processes across the full value chain. Brands now rely on digital insights tools that reduce both development cost and time, inform how and where to confront shoppers, and enable efficiencies in everything from truck routing to shelf availability and inventory management. For example, a beverage company has incorporated real-time, image-based technology to improve planogram compliance and minimize out-of-stock items.
Build agile teams. To grow in rapidly shifting markets, executives know they need to adapt their operating model for new strategies. Many are turning to an approach to product development that provides them with rapid feedback from internal and external customers to complement their traditional waterfall approach to longer-term projects. They’re speeding time to market and lowering delivery costs by reducing dependence on business analysis and project management roles and by making better use of people and time. In this so-called “scrum” approach, small, cross-functional teams collaborate with customers and consumers in an iterative process, relying on continuous, real-time testing and integration instead of waiting until after development is final. Brands improve their chances of quickly delivering products that customers want.
Learn more: Winning with Brands