Grow your consumer-package-goods business by implementing these four strategies.
The consumer-package-goods market has become so competitive that companies have to think outside the box to stay ahead. Retailers like Amazon are moving into private-label goods, logistics, and other areas of the value chain.
While direct-to-consumer start-ups, such as Dollar Shave Club, are competing with traditional manufacturers by offering low prices and convenient services, according to McKinsey. You’ll need to have an innovative approach to your offering if you want to remain competitive and profitable.
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Portfolio momentum, the growth achieved based on the product categories and geographic markets in which companies are active, accounted for 77% of total revenue growth, according to research conducted by McKinsey.
Here are the four strategies that will grow your consumer-packaged-goods business:
1. Consider the growing power of emerging economies
CPG businesses have already recognised the potential of emerging markets, but have underestimated their current role in driving growth. Although developed countries accounted for 51% of CPG revenues in 2014, emerging markets drove 77% of growth from 2010 through 2014, according to McKinsey. Considering this information, emerging markets should account for more than half of all CPG revenues by 2020, which makes it a worthwhile market to expand into.
2. Streamline your systems and processes
With the rise in competition and economic uncertainty, CPG executives might want to pursue numerous, diverse opportunities. According to McKinsey, players typically managed hundreds or even thousands of business ‘cells’, defined as specific combinations of products and geographies.
But, within these broad portfolios, most revenue growth came from the top 20% of cells. This means that the distribution is lopsided causing certain opportunities to go without resources in proportion to their value, unless you’re keeping an eye on your performance.
To remain competitive, you need to reduce the complexity of your operation so you can focus your energy on high-earning low-resource opportunities.
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3. Prioritise your resources
If you can’t simplify or streamline your operation, you can always reduce your risk using dynamic resource reallocation. The highest-growth companies reallocate their resources constantly, rather than making a one-time decision or conducting cyclical reviews, according to McKinsey.
Agility is usually associated with top performers that can move resources, by both product category and geography, as opportunities become available.
Top performers achieved average annual revenue growth of 5.9% between 2007 and 2014, compared with 4.9% growth for companies that only made geographic shifts and 3.9% growth for those that maintained their traditional portfolio positions, according to McKinsey.
4. Change up your M&A strategy
Your deal-making strategy will affect your CPG business’ performance. For merger and acquisition activity, companies in our analysis fell into three groups, they either refrained from deal making, conducted only small deals that accounted for less than 10% of sales in the year after closing, or took a balanced approach by pursuing a mix of large and small targets, according to McKinsey.
Average annual revenue growth was 11.1% for the balanced group, compared with 6.4% for companies that concentrated on small targets, reports McKinsey. These figures reveal that businesses that focused on small target didn’t perform as well as those with a balanced portfolio.
- Consider investing in the growing power of emerging economies.
- To remain competitive you need to reduce the complexity of your operation so you can focus your energy on high earning, low resource opportunities.
- Agility is usually associated with top performers that can move resources, by both product category and geography, as opportunities become available.
- Balance out your mergers and acquisitions strategy to ensure the highest annual revenue growth.