Dive Brief:
- The Grocery Manufacturers Association and PwC have identified five trends among high-performing CPG companies in their new report, "2016 Financial Benchmarking and Industry Trends."
- Certain trends were more obvious, such as being innovative and strategically collecting and employing data analytics. Others have grown out of necessity in adapting to the fast-paced changes in consumer preferences and technology, including balance between productivity and profitability growth, a holistic approach to revenue growth management, and portfolio coherence in M&A target selection.
- Top-performing CPG companies are struggling with sales declines: Net sales growth rates for the 12 top-performing companies fell from 0.4% to -5.0% last year. Among the 12 bottom-performing companies, net sales growth rates went from red (-2.2%) to more red (-12.4%), creating the largest gap between the top and bottom quartiles in the past five years.
Dive Insight:
Balancing productivity and profitability growth means weighing pressures from shareholders and investors to boost margins without needlessly sacrificing top-line growth opportunities. Top-performing CPG companies create a value proposition that resonates with consumers; align their portfolio with that value proposition through product development, acquisitions, and divestments; and use their distinctive capabilities to deliver on it better than the competition.
ConAgra, for example, has been slimming down its portfolio significantly over the past year with divestments of its private-label brands business, Spicetec, and most recently, JM Swank. But the company has also made investments to expand Lamb Weston plants to capitalize on opportunities in the fast-growing frozen potato market. As a result, earnings soared in the latest quarter, and analysts and investors have been confident in ConAgra's turnaround and renewed focus on building up its consumer brands portfolio.
High-performing companies also take a holistic approach to revenue growth management. This enables them to achieve five times the return on their trade promotion efforts compared to their lowest-performing peers, even when Nielsen found that nearly 2 out of 3 (65%) trade promotions don't break even.
This trend hinges in part on two other common trends among high-performing CPG companies: agility and data analytics. Manufacturers must be agile and innovative enough to change course in response to consumer trends, which impacts the value chain from R&D and ingredient sourcing to pricing and trade promotion strategies.
But top performers also back their decisions with data analytics, from which they generate applicable and profitable insights into consumers, markets, and the supply chain. From operations and product development to marketing campaigns and startup investment decisions, data analytics encourage a disciplined focus on pursuing what works while discontinuing what doesn't.
Agility and analytics will be especially important as more companies continue to expand their e-commerce strategies. Direct sales to consumers, particularly through an online retail channel, may be a new frontier for many manufacturers. But the wealth of data provided by doing business in this channel can guide companies to what brings the best return.