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"Demand chain" vital for brand owners
NEW YORK: Brand owners in the consumer products sector need to boost their focus on "demand chain" factors like advertising and branding to drive growth, a study has suggested.
The Grocery Manufacturers Association, the trade body, and PricewaterhouseCoopers, the advisory firm,
142 food, beverage and consumer products groups, alongside 67 retailers.
Beverage sales were found to have grown by 10.5% in 2011, with food up 9.5% and household products by 7.5%. However, as shoppers remain in frugal mood and supply chain savings are plateauing, it was argued the "demand chain" is now crucial.
"The demand side consists of innovation, marketing and sales, and I would say the key is how these three activities are integrated to identify and exploit opportunities," said Bill Schumacher, CFO of Sunny Delight.
Consumer products companies invested 23.6% of sales revenues in selling, general and administrative (SG&A) expenses, including advertising and marketing, in 2012, up 0.3 points year on year.
This ratio hit 26.1% for the 13 best-performing corporations in terms of business results. Such a total was down by a modest 0.2% year on year, compared with a 4.5% decrease concerning firms in the bottom quartile.
"We've been trying to take more of the 'G&A' and move it into the 'S'. That lets us get out of what we call non-working spend and put it into working spend. We can put it into marketing, advertising, sales force capabilities, and other things that drive productive growth," said Duane Still, CFO of Coca-Cola Refreshments.
While 64% of consumer-facing companies were basing changing strategies on customer demand, however, only 37% have invested in social media analytics.
"Consumer information today is much more fragmented," said Steve Robb, CFO of Clorox. "It used to be you could put on a national TV spot and reach all of your consumers. But with the internet, handheld devices and other sources, consumers are getting information from many different places."
Corporate branding in emerging markets is also attracting resources, to "build trust and mindshare among hundreds of millions of consumers", the study said. Nearly half of the CPG operators assessed now generate over 20% of their sales outside the US.
"In the emerging world, as consumers' income increases, one of the first things they spend their new wealth on is eating better," Don Mulligan, chief financial officer of General Mills, said.
Other areas the study suggested firms may want to begin experimenting with were direct-to-consumer channels and enhancing their sustainability credentials, which could be key future growth sources.
Data sourced from PricewaterhouseCoopers; additional content by Warc staff, 21 June 2012
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