CPG - Small is the new Big

The leading global CPG companies have admirable, customer-centric purposes: to “enhance quality of life”, “improve the lives of the world’s consumers”, “make food people love”, for example.

They operate in an increasingly dynamic VUCA world where customer behaviour and attitude towards CPG products is changing. However, the CPG business targets are financial in nature: organic sales growth, margin expansion, EPS and free cash flows. The stock market and the financial analyst have become the ultimate judges of success.

CPG strategies are defined to deliver these financial targets: reshaping portfolios, transforming business practices, restructuring organisations. These are mainly internal tasks that are often disconnected from the firms’ customer-centric purpose.

Large CPG firms are facing serious challenges, external and internal.

Their legacy brands are less relevant for today’s consumers. The CPG brands among the top 60 most valuable brands in 2018 have an average age of 106 years and none was launched in the past fifty years! In contrast, the top 5 most valuable global brands in 2018 have an average age of 28 years, with the oldest launched in 1975.

Large CPG firms are asset heavy with outdated technologies so the capital cost of significant change seems prohibitive. Furthermore, they face increased pressures from suppliers and partners across the value chain to share a slice of an ever-decreasing profit pie.

Internally, the bureaucracy of these large organisations hinders speedy decision making within a risk averse culture while role fragmentation clouds personal ownership.

The way forward is for these CPG organisations to honestly face their paralysing current reality. This calls for rapid correction in strategies and development of new business models and capabilities. Optimism for the future will be re-born when company values begin to live up to the stated purpose and customer satisfaction becomes the ultimate aim.

Not all is bleak. Smaller CPG companies are starting fresh and are not held back by obsolete brands, costly assets or heavy bureaucracy. They can identify and pursue new consumer needs with an external orientation. The majority may fail but a few do succeed in novel niche opportunities. Small is the new big.