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Thursday, May 23, 2024

Adapt or die

Increased consumer power is driving the next-gen consumer packaged goods company, writes Johan Aurik

The start of the 21st century has not been short of turning points for the FMCG industry. The digital revolution and the global financial crisis of 2008 shook traditional business models while opening windows of opportunity for the most innovative to get ahead. Similarly, COVID-19 will be another turning point as we draw a line between an old world and a new.

I last wrote here in February about why individual consumer needs have taken centre-stage in the FMCG market and how CPGs can capture this new premium. Little over a month later, millions of people worldwide were in state-imposed lockdown and the consumer goods industry was waking up to the implications of the coronavirus; the industry fault-lines were opening.

In the months that followed, the consumer goods industry has had to adapt to its wakeup call by focusing on fitting, connecting, and providing real value to the consumer.

Learning from the challengers

The world’s leading CPG companies seem to have everything: iconic brands, abundant talent, global supply chains, and ubiquitous market access. But leaving legacy structures and capabilities aside, what does a truly next-gen CPG company look like? Global supply chains and market access may be important, but what happens when they’re cut off? Iconic brands might capture imaginations, but isn’t today’s consumer more concerned with brands which ‘do good’?

Broadly speaking, the impact of the pandemic on CPG has been threefold: it has driven the acceleration of e-commerce; increased digital over physical engagement; and amplified purpose-driven consumption. As a result, retailers, discounters, e-commerce players, and indie brands have all found themselves in a competitive position over traditional CPG companies. Why? Because all of these businesses can focus on a limited set of capabilities decisive for their type of consumer proposition. Their value chains are networked and contracted, as opposed to vertically integrated.

Indie brands, for example, focus on brand purpose, consumer engagement and innovation. Leading e-commerce players are capitalising on consumer data while focusing on assortment and logistics. Large retailers can concentrate on building consumer franchises and formats, distribution networks and category management – increasingly with a focus on ‘own-brand’ goods.

Back to the drawing board

So, what would the future CPG company look like if we were to draw it from scratch? A good example is Nike. A company seen more in the media for its bold engagement with political issues than its products, Nike is committed to managing its brand in granular detail. Product design, assortment and customer experience are subject to the same focus, while manufacturing and distribution are left to contractors. Consumer engagement is managed through an innovative, digital platform called Nike+, with over 100 million members.

Translating this to a large A-brand CPG player means acquiring two key characteristics: consumer focus and networked configuration. Here’s a model that would deliver both: the next gen CPG company is made up of multiple laser-focused teams driving value from innovation, brands and customer experience based on granular data and end-to-end connectivity. Everything else needed to support, make and distribute products is a candidate to be contracted – tightly controlled of course but outside the four walls of the organisation nonetheless.

The result? A much more focused, more connected, more nimble and much smaller CPG set up that has shifted from a product focus to a consumer focus and is relieved of the need to manage a complex, bureaucratic matrix. When change is this fundamental and consequential, and when the organisation itself has become an obstacle to future success, the time has come to bite the bullet.  At Kearney, we see 5 key steps to building the new CPG:

  1. Vision – Formulate, plan and communicate a compelling vision of the future organization, highlighting the opportunities and risks at the various stages
  2. Value – Organize (and build capabilities) to dynamically manage multiple routes to market, driving growth of many consumer archetypes – supported by cross-functional teams
  3. Network – Drive the decoupling of the supply chain by creating platforming access to internal and external networked resources to serve consumer facing teams
  4. Control – Reinforce end-to-end connectivity and enablement that merges commercial and operational visibility and control into a single real-time x-functional data platform
  5. Culture – Adopt a multi-year, test-learn-scale way of working and ensure the path to. change is fully owned by leadership and organization, changing the culture step by step

The world has changed more since I wrote in February than it otherwise would in 10 years, and the shift in consumer power is here to stay. Focus, networking, connectivity and culture will define the CPG of the future. It’s time for CPG’s to adapt or get left behind.

Johan AURIK is Partner and Chairman Emeritus at Kearney, a leading management consulting firm that focuses on strategic and operational CEO-agenda issues facing businesses, governments and institutions globally.

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