Over the past several years, sales have declined across the largest CPG companies at a startling rate. According to Nielsen, the 20 largest consumer packaged-goods companies suffered from flat sales last year, while smaller ones posted sales growth of only 2.4%. In order to address diminishing sales and evolving consumer shopping behaviors, CPGs have had to shifts their strategies and identify new ways to build profits. One of the most wide-spread approaches CPGs are applying to revert the profit loss trend is a focus on operational excellence.
Below are four of the most prominent ways CPGs are working to improve operations as a means of combat declining sales:
1. Slashing Excess Expenditures
CPGs such as Reckitt Benckiser (RB), Kellogg’s, Unilever, P&G, Kraft-Heinz and Mondelez were early adapters of the cost-cutting approach. In 2015, RB introduced Project Supercharge, which generated cost reductions in travel, operations and manufacturing. Similarly, Kellogg’s launched Project K in 2013, a four-year efficiency and effectiveness program to drive the creation of new and improved capabilities in various parts of the company. In a slightly different approach, Unilever and P&G focused their cost-cutting on their agency spend, cutting the amount of agencies they work with in half and reducing the amount of advertising campaigns they produce. P&G’s Chief Brand Officer, Mark Pritchard, has been heard on many occasions speaking out for the simplification of the media supply chain, asking P&G’s agencies to “work together across creative and media discipline to create what looks like a good old one-stop shop.”
2. Adopting Zero-Based Budgeting
Zero-based budgeting has been adopted by 22% of CPG companies, as reported by the Deloitte January study. Unilever, Kraft-Heinz, Mondelez and Kellogg’s have all adapted a strategy of building their budgets from the ground up, rather than basing on past budgets. This strategy forces managers to validate every expense and ensure budgets are only being spent on truly strategic programs, rather than repetitive items that have failed to produce results. In implementing zero-based budgeting, agencies working with these companies are also forced to increase their efficiency and produce more measurable campaign results. With this, the use of Key Performance Indicators (KPIs) and integration of advanced campaign reporting and analytics systems are becoming increasingly important.
3. Optimizing Media Planning & Measurement
Media planning is not how it used to be. Today, CPGs have a multitude of channels and in turn, a multitude of data sources to analyze and integrate, bringing new complexity to the media planning picture. While employing a variety of channels and reporting tools is allowing agencies to build rich consumer profiles, some CPGs believe the amount of channels being used and touches being executed is excessive. CPGs no longer feel that marketing success should be defined as pummeling consumers across every channel, all the time, simply to accelerate channel presence. Instead, they are turning to agencies that follow Media Rating Council (MRC) standards, aiming for ad transparency and media spend based on the most proven-effective mix of channels for their given brand(s). According to Marketing Week, “effectiveness has always been important, but it is now critical as budgets come under review and spend has to be accounted for.” This progression isn’t about necessarily cutting the agencies out of the media planning process, it’s simply about enhancing the efficiency and strategy of the processes.
4. Developing Strategic Partnerships & Investing in Digital
In order to remain relevant, CPGs recognize that they must cultivate more direct, 1:1 relationships with their consumers. But with buying behaviors continuously changing and numerous channels to measure interactions across, it can be difficult to grasp individual-level needs. Curtis Tingle, CMO of Valassis, offers insight into how CPGs should use data to understand individual customers and explains that, “to truly gain this perspective, CMOs should embrace a customer-centric, not marketing-centric approach. Go beyond insights to understand behaviors and what motivates those behaviors.” He also discusses that garnering the insights you need sometimes requires reaching out to find a partner who can help turn the raw data into actionable customer profiles. Sought-out partners should carry extensive knowledge of omnichannel integration and offer technology that supports single-point customer view. The right partnership can provide CPGs with the opportunity to leverage data in ways that drive more relevant, meaningful and motivating media engagement.
The health conscious, wellness-centric movement may have made Americans more hesitant to buy processed foods, but the CPGs who have applied these approaches are experiencing a significant turnaround in profits. According to Hargreaves Lansdown, RB’s initiative delivered £100m of cost savings in its first year; with a further £50m of savings projected for the end of 2017. Additionally, Project K’s success pushed Kellogg’s to extend the project until 2019, and Kraft Heinz is ahead of schedule in their savings, expecting to achieve 1.7 billion in savings, surpassing their original goal of 1.5 billion.
CPGs are fostering operational excellence through strategic cost-costing initiatives. They are putting their operations under the microscope and looking to eliminate inefficiencies, non-strategic programs and excess expenditures across every segment of the supply chain. Doing this is not only working to produce major savings, but to produce a leaner, more agile business orientated around efficiency and growth.