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In recent years, global consumer product companies have seen their scale advantages slowly unravel. Matthew Meacham, a partner with Bain's Consumer Products practice, discusses how large brands need to take a two-pronged approach to thrive now and in the future.
Read the Bain Brief: Overcoming the Existential Crisis in Consumer Goods
Read the transcript below.
MATTHEW MEACHAM: It was pretty good being a global-scale consumer products manufacturer in the couple of decades up to 2011. You had developing markets growing at four times the rate of developed markets, at the same or higher margins. They were all growing, and you had enormous economies of scale.
In 2011, that changed. The market slowed down, currencies hit, there was less consolidation M&A, and fundamentally, these advantages of scale began to unravel.
The impact of this was to take a healthy growth rate in the industry from 5.5% back in 2011 down to 2% in 2016, with, for 34 of the top 50 CPGs, 85% of them experiencing a decline in either revenue or profit or both.
It's important to understand how the scale advantages have unraveled from a world of advantages through mass advertising, large salesforces, large plants, large ERP systems, a talent advantage, and a data advantage, the large CPGs are now in a world of digital marketing, where salesforces are stranded cost as new channels grow, where ERP systems can't handle the complexity of the new channels, where talent wants to work for the insurgent brands, and actually, where everybody else owns the first-party consumer data.
We think CPGs have to look at this both, what we would call "present-forward," the next three quarters, next three years, and "future-back." What do you have to do now to be able to be in control of your destiny in a completely new world in 10 or 15 years time?
For present-forward priorities, we believe that the large manufacturers have to get back on the front foot for growth, really understand consumer partitions and how their shoppers are shopping their categories, really understand the alternative in new channels and where the growth is. We also think right-sizing the operating model and cost structure to reasonable strategic expectations and focusing on strategic priorities and capabilities is critical.
For future-back, we think the large manufacturers are going to need to rediscover their consumer purpose. What made them great in the first place? We think that the large consumer products manufacturers can rebuild advantages to scale, both on the supply side—through security of supply, food safety, robotics—and on the demand side—through data, through test-and-learn, through ecosystem partnerships, innovation.
The best CPGs are driving this type of future-back transformation using Agile throughout the organization, not just for process design, but for solving in a collaborative, Agile manner, the biggest commercial issues at the front line.
Overcoming the Existential Crisis in Consumer Goods
Leading brands need to fight today's battles and the even bigger ones hitting them tomorrow.