The execution imperative for European consumer-goods companies

| Article

European consumer-goods (CG) companies are facing strong market headwinds. Inflation in the euro area has reached record highs, fueled by rising energy costs and supply chain disruptions exacerbated by the ongoing effects of the war in Ukraine.1 At the same time, fundamental shifts in consumer behavior—from increased price sensitivity to the rise of e-commerce—are generating new expectations from European brands and retailers. In this challenging landscape, CG companies must reassess their commercial strategies to put themselves on the path to delivering profitable and organic growth.

Profitable growth is directly tied to value creation. Between 2016 and 2019, CG companies that outperformed their peers in both EBIT margins and organic growth delivered average TSR of more than 18 percent, compared with 2 percent for all others. However, only 28 percent of the CG companies in our database achieved both top-line and bottom-line growth.2Charting a winning course for CPG value creation,” McKinsey, November 2, 2021. What differentiates these companies from the rest?

Execution—defined as gaining or losing market share within a country and category—emerged as the primary driver of profitable growth, and its importance has only increased over time. Our latest survey provides insight into how leading European CG companies are able to sustain commercial excellence and execute better than their peers (see sidebar, “About the research”). The results confirm that these companies adopt distinct and ever-evolving practices across five commercial capabilities that set them apart from the rest.

1. Gain deeper and more granular consumer insights

Winners are more likely to use consumer analytics to align their portfolios with changing consumer needs.

2. Reallocate resources toward critical capabilities

Winners tend to have dedicated e-commerce teams, with support functions shared with other commercial teams.

3. Measure and optimize real-time execution

Winners take a full-funnel approach to measuring marketing performance.

4. Leverage data and digital tools for decision making

Winners use cutting-edge tools and technologies to gather data at the store level, serve outlets, and fulfill customer needs.

5. Adopt agile ways of working

Winning marketing teams have embraced agile ways of working.

For European CG companies, commercial capabilities matter now more than ever. The road ahead will differ depending on each company’s maturity level. Those that are just planting the seeds may need to embark on a holistic transformation across all domains to catch up to the competition or build up selected capabilities with operating model pilots. CG companies with a spike in a few commercial areas can focus on filling in the gaps and honing their strengths to retain a competitive advantage. Commercial-excellence leaders can drive continuous improvement by increasing granularity, evolving the agile operating model, and setting new standards for data and technology. Regardless of their starting point, CG companies that harness the full potential of their commercial capabilities will be able to execute better than their peers and deliver profitable growth in the years to come.

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