CPG companies: 6 strategies for long-term success: PwC

Many consumer packaged goods (CPG) companies are increasingly execution-focused as they plan to stimulate stagnant volumes and lure back budget-constrained consumers. That was the consensus from industry leaders at the 2024 annual conference of the Consumer Analyst Group of New York.

As supply chain challenges stabilize, the race is on to recapture distribution lost to service issues and to capitalize on foundational investments in data and technology. The question is whether innovation and premiumization can help drive consumer purchasing and strengthen margins.

Facing a potentially muted year, many industry leaders are leaning into building resilience as they position themselves for long-term success. These are the six key areas to focus on.

1. Spur demand with innovation and premiumization

Use marketing to compensate for the limited ability to raise pricing to help drive revenue. Though stabilized, consumer budgets have limited capacity for further price increases, so prioritize long-term brand building over the short-term transactional purchasing associated with promotions.

New technologies like generative AI (GenAI) have revolutionized customer journeys. With improved usage data, CPGs can deliver premium personalized offerings that not only build loyalty but also turn loyalty into a growth engine. For example, e.l.f. Cosmetics, with a significant boost in marketing spend, is focused on opportunistic media as it builds a social ecosystem targeting individuals across TikTok and Twitch.

To stimulate consumer demand, innovation can be the key. From product enhancements targeting new platforms to packaging redesigns that lean into ESG initiatives and bolster the bottom line, innovation is extending beyond traditional consumer-focused products to include improvements in distribution and away-from-home (AFH) solutions.

2. Help grow portfolio potential with power brands and local jewels

Invest in power brands and use these category leaders to help increase household market share. Church & Dwight, for example, strategically narrowed its focus from 14 to seven power brands, allocating more resources to areas with the highest potential for growth, profitability and competitive advantage.

For international markets, leveraging local brands can provide a critical boost. Use these “local jewels” to build trust and help drive categories more sensitive to local preferences and tastes. As Kellanova expands into Africa, it is combining the power of its Pringle brand with local snacks and instant noodle brands that are developed and distributed through local joint ventures.

Shifting investment toward power brands and local jewels may reveal laggards that no longer align with the business’s strategy or growth priorities. Divesting these assets prior to underinvestment is a strategic way to return value to shareholders while improving portfolio margins.

ternational markets, leveraging local brands can provide a critical boost. Use these “local jewels” to build trust and help drive categories more sensitive to local preferences and tastes. As Kellanova expands i

3. Build a strategy that’s fit for purpose

Make entrepreneurship a foundational piece of the company’s culture. Today’s industry-leading companies are winning the race to capitalize on opportunities for viral marketing, rapid innovation and market disruption.

Molson Coors realized a 50% increase in innovation-related revenue after reducing new production innovations by 50% to focus on bigger bets and commercialization.

No one has the resources to play everywhere. Deliberate decisions on where and how to play are foundational to company strategy and need to be carefully calibrated based on business models, portfolio strengths and customer needs. Nomad Foods is putting this into practice by remaining hyper-focused on the frozen foods category and expanding its portfolio across many favorable markets in Europe.

4. Structure supply chains to recapture distribution points

Global supply chains can be fragile — lesson learned. It’s time to prioritize resiliency over globalization and cost arbitrage. JBS Foods lowered its volatility while maintaining service levels and agility by localizing its supply chain in a geographically diverse set of key markets.

The other supply chain lesson of 2023? The benefits of GenAI are real. Use it — in conjunction with broader AI tactics and first- and third-party data analytics — to improve truck loading, warehouse operations, inventory reduction and more. PepsiCo, for example, is capitalizing on its technology investments to drive automated order-building and dynamic truck routing.

5. Increase profitability by scaling tech and AI use cases

Many leading CPGs are cashing in on their foundational investments in data and technology by scaling AI and digital use cases across the enterprise. Among the adopters is Mondelez, which used AI to enhance sales and demand planning to generate a 2% increase in return on investment (ROI) and 5%-10% improvement in forecast accuracy.

The key here can be to use these emerging tech efficiencies to help improve consumer targeting, advertising and promotion effectiveness, revenue growth management and working capital. Roughly 60% of consumer markets leaders told PwC they were investing in emerging technologies as a strategic priority in 2024, while more than two-thirds (73%) have plans to use GenAI to support new business models.

Clorox, using an AI-enabled digital core for sensing consumer trends and GenAI for consumer prototyping, reduced innovation cycle time by 50% after testing early-stage ideas in a virtual marketplace.

However, there is still work to be done. Sector results from PwC’s Digital Trends in Operations Survey show that while consumer-facing companies are making progress, opportunities to scale remain. Consumer markets operations and supply chain officers say their companies are already benefiting from GenAI and expect additional gains. Yet these companies slightly lag other sectors when it comes to implementing GenAI technologies.

6. Proactively assess portfolio performance

Between improved financial markets and the pressure to reinvent business models, mergers and acquisitions are back on the table. Be on the lookout for the right asset at the right price, especially for brands with potential to lead their category and capabilities that fill portfolio gaps. General Mills, for example, through its growth equity fund Gold Medal Ventures, is seeking to boost enterprise growth by 50 basis points by investing in assets in new growth spaces.

At the same time, the focus on power brands indicates portfolio pruning and enhancements are also on the way. Divestitures can fund organic investments, like marketing, as well as acquisitions in target markets and categories.

Focused reinvention launches stronger futures

With volume recovery likely pushed back until the second half of 2024 due to budget-constrained consumers, CPGs are creatively using marketing, innovation and premiumization to improve margins and strengthen customer relationships. Entering 2025 with momentum may require an investment ramp-up in power brands while staying focused on enhancing their digital capabilities and making their supply chain more resilient for the future.