Consumer Packaged Goods Industry Must Capitalize on Innovation and New Growth Opportunities, According to New Grocery Manufacturers Association-PricewaterhouseCoopers Report

NEW YORK and WASHINGTON, July 13 /PRNewswire/ -- Consumer packaged goods (CPG) companies will need to employ different tactics than those used during the recession – divesting non-core brands, conserving cash, and cutting costs – to preserve shareholder value as the economy recovers. To grow revenues in this new climate, companies will have to focus on innovation to encourage household spending, especially for products in mature segments and to offset reduced spending by Baby Boomers who are nearing retirement, according to the Grocery Manufacturers Association (GMA) and PricewaterhouseCoopers LLP (PwC) 2010 Financial Performance Report released today, titled Forging Ahead in the New Economy.

According to the study, many CPG companies are looking to innovate by reaching consumers in more places or tailoring products for local customer tastes in emerging markets. Additionally, understanding customer priorities is central to innovation as consumers in the United States are buying more carefully, buying different pack sizes, taking advantage of volume discounts, and trading down to non-premium brands.

The 2010 GMA & PwC Financial Performance Report is the latest installment of the annual industry report issued by GMA and PwC, now in its 14th year, and is compiled from interviews with senior leadership of GMA members (including members of the GMA CFO Committee), publicly reported company financial data, government statistics, analyst reports, and other published material on 152 companies in the food, beverage and consumer products sector.

"The CPG industry has a legacy of strong financial performance and resilience in the face of challenging economic times, and 2009 was no exception," said GMA President and CEO Pamela G. Bailey. "However, restrained consumer spending and continued fears about the future of the U.S. economy mean that companies will have to harness the innovation for which they are known as they look to grow sales."    

The report found that establishing a foothold in emerging markets – especially in China, Russia, Brazil, India, and Southeast Asia – has taken on a sense of urgency for CPG makers as capital flows faster than ever and new competitors can ramp up quickly. The middle classes are growing and forming attachments to new brands and products just as fast. Consequently, product growth cycles in emerging markets have accelerated and the success or failure of a product launch or brand introduction now can be determined in a matter of just 12 or 18 months.

Additional key findings from Forging Ahead in the New Economy include:

• CPG company median shareholder returns stood out as strong relative to the rest of the market.
• With shareholder returns up 49 percent in 2009 and median EBIT (earnings from continuing operations before interest and taxes) growth jumping a remarkable 33 percent, the beverage sector had the best quantitative performance among the three major CPG sectors (beverage, food, and household products).
• Median net sales growth sank in all three sectors, and beverage's 1.6 percent decline was the first time in five years that the sector experienced negative growth.
• The food sector as a whole cut spending with a nearly 2 percentage point drop in median selling, general, and administrative (SG&A) costs as a percentage of sales.
• The food sector's median five-year shareholder return metric of 6 percent led the way for all three sectors, with beverage coming in at 5.3 percent and household products at 2.7 percent.
• While household product companies saw negative median net sales growth for the first time in five years, they mitigated this decline with the highest one-year median return on invested capital of any of the sectors, the highest median sales per employee, and the highest median gross margins.
• The CPG sector lagged the S&P 500 by 5 index points and the Dow by 1 index point in 2009.

"These food, beverage, and household product companies are part of a true counter-cyclical industry, as it performs better than other industries during recessions, but tends to balance the scales with slower growth during expansions, as was the case in 2009," said Susan McPartlin, U.S. consumer packaged goods industry leader, PricewaterhouseCoopers. "This may reflect the fact that CPG companies have been adapting to market conditions and sacrificing a bit of short-term growth to get their houses in order through increasing sales per employee, paying down debt, trimming workforces, and paring brand and product portfolios. We expect CPG companies to emerge much stronger as we move through 2010."

"CPG companies are operating in a new environment, characterized by more cautious, value-driven consumers and volatile commodities," added Lisa Feigen Dugal, North American consumer packaged goods & retail advisory leader, PricewaterhouseCoopers. "It will be tough to succeed using the same tactics employed during the recession. Novel approaches will be crucial – and that includes creating new trade promotions programs for retailers, rethinking how they spend their media dollars, targeting coveted demographic groups like Generation Y with smart social networking campaigns, reaching customers in more places, and tailoring their products for local customer tastes in emerging markets."

Forging Ahead in the New Economy will be presented via webcast by PricewaterhouseCoopers and GMA on Wednesday, July 14 at 1:30 p.m. EDT (click here for registration information: http://www.meetpwc.com/GMA_PwC_webcast ). For an electronic copy of the complete report, visit www.pwc.com/us/retailandconsumer or www.gmaonline.org/publications .

Additional Report Highlights

Forging Ahead in the New Economy contains articles on the following key industry trends:

Category Management: Less Is More

Category management is best pursued through a partnership between manufacturers and retailers to understand consumer spending patterns and to set goals grounded in those insights.

Social Media: Raucous, Risky and Impossible to Ignore

Social media represents a massive opportunity for consumer businesses – if they can figure out how to discern useful patterns in the noise and mine this sea of sentiment and ideas.

Sustained Economic Growth: Jobs Hold the Key

CPG industry performance over the next several years will depend largely on two factors: increased consumer spending with a more stable economy and the ability to capitalize on new growth opportunities.

The Value-Added Tax Surfaces as a Debt Reduction Measure

Adopting VAT would put the US more in synch with other major industrialized countries, but it remains to be seen whether a VAT is politically viable in the near future.

A New Treatment for Leases

Sweeping accounting changes for the retail industry are likely to take place in 2012, affecting how companies record leases for retail/warehouse space and major equipment on their financial statements.

A No-Nonsense Approach to Environmental Sustainability

Corporations are taking a proactive stance by identifying and addressing the sustainability and climate change issues that impact their business models.

Greater Sustainability Disclosure on the Horizon

PwC analysis comparing the financial performance of CPG companies in various industries found that there are notable differences between the performance of companies who issue sustainability reports and those that do not.

Raising the Bar on Supply Chain Agility

Leaning and greening supply chains expands margins and funds growth, while providing greater value to consumers.

Indirect Costs: New Tactics for Extracting Waste

Judicious choices in the second round of cutting indirect spend will help companies become more agile by adjusting the rules of the past to align with future opportunities.

More Bang for the Trade Promotion Buck: Focus on Decision-Making Instead of Allocation

Companies are starting to make improved investment decisions during the promotional cycle (point-of-sale) rather than after, resulting in the need for trade promotion management to become trade decision making.

Emerging Markets: China

Discerning the priorities and behaviors of Chinese consumers is much more complex than any other country. Likewise, distribution is a critical capability for gaining insight into the needs of retailers and consumers.

Emerging Market: India

CPG companies need to increase their footprint in rural India to maximize cost benefits and ensure they are producing goods that match consumer demand.  

About the Grocery Manufacturers Association

The Grocery Manufacturers Association (GMA) represents the world's leading food, beverage and consumer products companies. The Association promotes sound public policy, champions initiatives that increase productivity and growth and helps to protect the safety and security of the food supply through scientific excellence. The GMA board of directors is comprised of chief executive officers from the Association's member companies. The $2.1 trillion food, beverage and consumer packaged goods industry employs 14 million workers, and contributes over $1 trillion in added value to the nation's economy. For more information, visit the GMA Web site at www.gmaonline.org.  

About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

SOURCE PricewaterhouseCoopers