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Survey results: For packaged goods companies, winning in Latin America is worth more than you think

By by Marcello Berland, Bruno Furtado and Fábio Stul
Survey results: For packaged goods companies, winning in Latin America is worth more than you think

From 2003 to 2013, Latin America was one of the fastest growing regions in the world, with an annual average GDP growth of 3.97 percent. Foreign direct investment reached record levels, and the boom in natural resources (e.g., oil, natural gas, and precious metals) continued. As a result, the economy grew, wealth increased, and the middle class and domestic consumption exploded.

Consumer-packaged-goods (CPG) companies in Latin America have been and are capitalizing on the middle class’s rising income and demand for consumer goods. However, these companies must also attract lower-income groups by offering value through competitively priced products with entry price labels. Latin America’s CPG companies represent most of the multinational CPG companies from the developed world as well as strong local companies in many segments. Some of the local companies also play multinational roles, either within Latin America or globally. Both local and multinational companies are taking steps to win in the region by acquiring minor players and consolidating the market.

Within this environment, winning Latin American companies outperform their competitors and position themselves for success. What differentiates them? A relentless pursuit of more granular, analytical, and customer-based solutions across sales strategy, trade investment, and pricing, the three modules we researched in the CCM Survey.1 Winning in Latin America brings these companies significant advantages – almost twice as much value as winning in the U.S. did for winners there (Exhibit).

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The value of winning

Winning practices in these three areas offer enormous potential to companies in Latin America. Those who stand out as winners outgrew their peers by ~2 to 5 p.p./year – a significant difference in today’s market. This allows them to experience better share prices, earnings, and overall growth as they capture the value from their practices – unlike their peers, who struggle to maintain their position in the current environment.

Winners in Sales strategy grew sales by 2.1 percentage points more than the market, while reducing the cost of sales (as a percent of net sales) by 0.6 p.p. Winners in Pricing, meanwhile, grew sales by 1.9 percentage points more than the market, while increasing unit prices by 0.6 p.p. ahead of the category.

Not only do winning companies perform well but the performance gap between them and their peers is large in all three modules. Unsurprisingly, this theme runs through the rest of the Survey and the identified best practices highlight what drives these differences.

What makes a Latin American winner

Latin American winners’ membership was independent of country, category (food, beverages, pet care, home care, etc.) and size.

They could excel in one or more modules, although they usually did so in just one. It was extremely difficult for companies to win in more than that. While almost half of the companies won in at least one module, few of them (14 percent) won in two modules and only two companies (5 percent) won in all three modules.

A few characteristics truly define Latin American winners. These are present in most of the winners in the three modules described later in this report, and they underlie these companies’ ability to capture premium value from the market.

They handle fragmented trade masterfully:

  • Manage their Route-to-Market (RtM) very efficiently
  • Carefully monitor and manage their distributors and direct sales force

They excel at granular customer/channel management:

  • Segment the market according to the Point-of-Sale (POS) potential
  • Apply promotions and assortment according to the customer segmentation, managing them by product, channel and region

They constantly invest in the data-driven capabilities that underlie very sophisticated analytics that enable them to:

  • Optimize trade investments, estimating with higher accuracy the return for each promotion and monitoring if the promotions are being implemented as expected
  • Use more quantitative analysis to define pricing and capture granular opportunities around the whole product portfolio, per region and channel 

Finally, they incorporate best practices around key-account management:

  • Create account plans that tie to shop-floor execution
  • Manage trade terms by linking investments to customer performance
  • Use a promotion-management process that identifies the promotion’s impact on the bottom line
  • Improve collaboration with high-priority customers

In this report, we cover the CCM survey’s findings in detail and divide them into the three modules: sales strategy, trade investment, and pricing. As you will see, companies that excel in one or more of these areas usually achieve stronger performance and are in better positions for future growth.

  1. McKinsey & Company together with AC Nielsen launched for the first time the Latin American Customer and Channel Management (CCM) Survey, which offers an up-to-date perspective on the practices of top-performing Latin American Consumer Packaging Goods (CPG) companies.

 

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