The importance of Brand & Corporate Purpose has grown over the last decade. Companies have understood the importance of Purpose as a growth driver...
Harder and harder to grow
In the current environment, top line growth for multinational CPG companies is increasingly becoming a challenge. The average revenue growth among a set of key multinational players reveals a progressive erosion over the last few years (1). Nestle’ claimed a 2.4% growth in 2017 (2), their lowest result since many years. Pressure from shareholders is increasing and the way these companies are operating is under discussion.
Small brands in most markets and countries are progressively intercepting consumer purchases, shifting a significant amount of value from mainstream brands. The equalization of growth between mature and emerging markets is also redefining the focus and scope of large corporations.
Different strategies to regain growth
Within this context, multinational CPG companies are adopting different strategies that range from renovating their portfolio to incorporating codes and signs of the emerging trends, making targeted acquisitions or further leveraging the equity and heritage of their core brands.
In renovating portfolios one of the strategies is centered around getting out of low growth categories and focusing on the most promising ones.
This could potentially be a mistake as it is somehow recognizing the inability of the big players to cover one of their key functions which is supporting category growth.
Lack of real innovation and short-termism are defining the conditions by which it becomes impossible to plan for the long term and develop a strong vision for the category (and ultimately the business). Focusing on fast growing categories is implicitly recognizing the fact the companies have no longer the skills and assets required to anticipate consumer needs, so they can only try to follow the tide of existing growing trends. This is again dictated by a short term/opportunistic vision instead of a longer term and structural approach.
Small players driving category growth
Small players are now adopting what big ones were doing in the past as they are the ones building category growth by redefining the borders of the categories, improving the overall category equity, re-establishing the value equation between tangible and intangible components. In 2015, the top 25 largest food and beverage companies in the USA contributed only to 3% of total category growth while accounting for 45% of category sales (3).
Regaining the lead
A savvy investor may consider prioritizing companies that are willing to put resources and money into redefining and developing a category versus investing in a company that is just selling off poor performing categories and acquiring fast developing ones. This, in fact, is not a structural long-term development and is denying the core capabilities of a corporation (“instead of developing myself, I buy what has been developed by others”).
Understanding what the real potential of a category is, redefining its territory and developing a better mix of tangibles and intangibles elements of the offer, is a much more sustainable approach that can help big manufacturers to regain the lead and effectively support their top line growth.
(1) Sevendots research on a pool of leading FMCG corporations : Diageo, Unilever, Procter&Gamble, Nestlé, Danone, Coca Cola, Pepsi Cola, Heineken, AB Inbev, Henkel, Colgate, L’Oreal, Reckitt Benckiser, Beiersdorf