Consumer Products Sector: Navigating Growth Challenges in 2024

Consumer Products Sector: Navigating Growth Challenges in 2024 

The consumer products sector has experienced a year of remarkable growth, witnessing a nearly 10% increase in retail sales value (RSV) globally in 2023. However, this surge has been predominantly driven by price hikes rather than volume expansion, with price increases contributing to 95% of RSV growth in the US and Europe. This imbalance, deemed largely unsustainable, underscores the necessity of generating profitable volume-driven growth, particularly in emerging markets, to sustain future progress.

Bain & Company's inaugural Consumer Products Report, based on a survey of over 120 senior consumer products executives worldwide, highlights the significant impact of rising input costs on the decoupling of price and volume growth. The survey reveals that 82% of respondents identified inflation as a major challenge in the previous year, making it a top concern for executive teams.

Richard Webster, head of Bain & Company's global Consumer Products practice, notes a paradox emerging for consumer companies. While prices have escalated, hindering consumer spending, they haven't risen sufficiently to offset mounting costs and pressures from retailers. Webster emphasises the need for a fundamental reshaping of value propositions, portfolios, and business models to drive future growth.

Despite the overall sector growth of approximately 10% in 2023, top CPGs experienced a more modest average growth of around 4%, marking a reversal from previous years. Consumers, facing higher prices without corresponding benefits, are turning to more affordable private-label brands or premium insurgent brands offering enhanced value. This trend, coupled with consumers cutting back on spending, significantly impacted over half of executives surveyed.

Although leading CPGs have raised prices by over 20% on average since the third quarter of 2021, this increase has been offset by rising costs of goods sold, maintaining EBIT margins near a 10-year low. To alleviate pressure, many top CPGs resorted to reducing headcount or freezing hiring, but with limited cost levers available, a return to volume growth becomes imperative.

Expanding into emerging markets presents opportunities for volume growth, with India exemplifying balanced growth driven by consumers shifting to larger, international brands. However, capitalising on these opportunities will require CPGs to develop new capabilities.

Digitalisation emerges as a critical factor, with early investments differentiating CPGs. Digital leaders are poised to leverage data and AI technologies for revenue-generating consumer-facing initiatives and cost-efficient internal processes. Additionally, sustainability gains prominence, with half of global consumers prioritising sustainable products and retailers seeking suppliers to reduce emissions.

Faisal Sheikh, a partner at Bain & Company Middle East, emphasises the need for decisive actions to restructure growth strategies, enhance productivity, and leverage digitalisation. Balancing stakeholder interests is crucial for sustained long-term growth, serving consumers, customers, employees, and the planet alike.

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