CPG brand owners need strategy rethink

16 March 2012

NEW YORK: Consumer packaged goods firms seeking to drive growth should consider taking a localised approach for their marketing, R&D and sales operations, new analysis has shown.

McKinsey, the management consultancy, assessed the organisational structures and performance of 40 companies in the sector. It found that large corporations, with sales surpassing $10bn a year and active in at least two regions, enjoyed major economies of scale.

These firms were 34% more efficient at generating revenues than smaller rivals, relative to their respective headcounts.

"What is more surprising is that there appears to be a tipping point - both in terms of revenues ($20bn) and number of countries (approximately 50) - at which point the scale advantage tapers off, most likely offset by increasing complexity," McKinsey added.

When looking at marketing, McKinsey stated that the companies with the fastest growth rates had "more of their resources located closer to the consumer", and based 89% of staff locally.

This group of firms posted organic revenue growth some 2.2 percentage points higher than their peers with less diffuse business models.

Moreover, they generated an average of $14.5m in revenue for every full-time member of marketing staff employed, versus $10.8m for enterprises where decision-making remained concentrated.

McKinsey argued a centralised marketing model was only viable if shopper preferences were similar globally, if economies of scale created "significant value", when portfolios were "truly global" or if highly top-down cultures already existed.

This trend was replicated when discussing sales teams, with a greater on-the-ground presence helping firms outperform the market on organic growth terms by 1.5%.

In keeping with this, revenue levels, when equalised to discount the size of the business concerned, were 53% more "efficient" for corporations adopting a more localised strategy.

Establishing research and development centres in emerging markets can also provide cost benefits of 8% for food and beverage specialists, standing at 6% for home and personal care.

Despite this, only 12 of the top 20 consumer goods manufacturers boasted an R&D hub in Asia Pacific, compared with 18 of the top 20 pharmaceutical companies, McKinsey revealed.

By contrast with the broader trend, McKinsey reported that organisations taking a rigorous approach to centralising back office functions typically yielded significant cost benefits.

Data sourced from McKinsey; additional content by Warc staff