Transform or bustWednesday, December 11, 2019
In the last few years, FMCG companies in developed markets have been battling to hold their topline sales. The challenge comes on multiple fronts – discounters are bringing greater competition, e-commerce channels are eroding profit, smaller companies and private labels emerging in new, niche, trending sectors such as ‘health’ and ‘organic’ are chipping away at share, and consumers themselves are changing their behaviour, abandoning long-held loyal shopping habits to explore this broadening field of options.
As a result, many FMCG companies are finding it difficult to improve revenues and margins in line with their targets. Reacting with the correct commercial levers to win on sales requires constant fine tuning.
While it can be more comfortable for businesses to continue making small fixes, with different functions acting as segregated silos, or to simply buy up these disruptors to overcome the challenges of the current consumer climate, it’s crucial for market leaders to look to transform rather than tweak their way of working. Nothing less than this will future-proof FCMG companies to help them win the war of profitability.
The evidence shows that, of the top 50 companies growing in this sector, the ones gaining most ground are those taking a more holistic approach to revenue management. These businesses are examining and working across all their commercial levers – brand portfolio pricing, pack/price architecture, promotions, trade terms, the mix of channel, customers and SKU, and their operating model.
Transformation not tweaking
To be successful FCMG companies need to implement a revenue management framework working across two dimensions: the commercial levers and the operating model. The operating model has to change in order to ensure the commercial levers can work at their best. Enablers such as processes, data-driven methodology, organisational capabilities, tools and systems all need to be fine tuned, so that the commercial levers can be optimised holistically rather than in silos.
It’s a structured approach that builds and embeds a cross-functional capability into the organisation. It’s also an approach supported by the right analytical tools and methodologies. Success requires disciplined strategy, analytics and execution; the revenue management framework offers the opportunity to deliver this.
In order to have a real change of direction, companies need strong sponsorship at a high level to encourage a cross-functional approach, to ensure each function no longer works alone to its own objectives to maximise their specific returns, but as part of an interactive whole. To put it another way, instead of individual teams rowing small boats in their own directions in the same sea, everyone comes together to use their different skills to steer a ship in a single direction. A standard process and methodology is applied across different functions, delivered by an interfunctional team, who have the potential to give input into every single function in the core processes of the company.
Reap the rewards in revenue
In short, it’s a new way of working. This can seem daunting, but the process we recommend to minimise the risk on business is to proceed with a modular implementation of a revenue management framework. After assessing the current situation in the company, the process starts first with a pilot project in one country, with quick wins that are easy to implement with obvious value happening first, before moving on to implementing a full transformation programme. Once the pilot is established and the best framework for that company finalised, the structure can be rolled out across other countries.
The rewards of taking this approach are there to be reaped. Though small growth might be possible through organic means and tweaks to individual functions, an integrated and rigorous framework to optimise commercial levers and the related operating model can deliver increased revenues at point of market beyond two or three per cent and a margin of 1.5 to three points. It also means teams modernise to work in a more effective and purposeful way – a happy side effect alongside the obvious economic benefits.
Getting a taste for success
Consumer goods companies are right to embrace the trends such as health, indulgence and convenience that currently underpin product development in food and drink. But being topical doesn’t mean you’re always doing the right thing