Most consumer-packaged-goods (CPG) manufacturers in Europe today have to maintain a tricky balance. On the one hand, they must continue to nurture long-standing but constantly evolving relationships with major retailers, which account for the bulk of their current business. On the other hand, they need to pursue new (or newly important) channels such as convenience stores and e-commerce, which have completely different characteristics and requirements but offer the most promising growth opportunities in an otherwise stagnant market.
In this increasingly complex retail landscape, a handful of CPG companies have achieved above-average growth while also outperforming peers on other financial metrics. What do these companies do particularly well? As part of our multiyear global survey, conducted in partnership with Nielsen, we asked more than 100 sales executives across Europe about their customer- and channel-management practices. Survey respondents represented 43 country organizations in 18 CPG companies. By analyzing survey responses and Nielsen data, we identified a set of “winners”—CPG companies that posted higher sales and EBITDA growth than competitors—and found that winners excel in part by keeping a sharp focus on retailer collaboration, revenue-growth management, and omnichannel initiatives.
Build collaborative relationships with key accounts
Winning CPG companies grew sales at a rate of 6 percentage points above the category, even as they trimmed their selling costs more aggressively than their peers. This is particularly remarkable at a time when most CPG product categories are experiencing flat or falling prices and little to no growth in Europe.
The survey results show that winners invest in the highest-growth channels—in particular, discounters and convenience-store chains, as well as e-commerce—and collaborate with important customers in these channels. For instance, winning CPG companies work closely with key retailers to gain a deep understanding of shoppers, improve outlet coverage, and create customer-specific assortments and marketing programs. Winners are twice as likely to collaborate with retailers on assortment optimization; half of the winners (compared with only 8 percent of others) create tailored pack sizes. Winners are three times more likely to develop a joint space strategy and to refine planograms with retailers.
Furthermore, as retailers have invested more in big data and analytics, winning CPG manufacturers have done the same. They’re thus able to enter into mutually beneficial data-sharing agreements with retailers and are better equipped to address longer-term strategic issues and codevelop targets with retailers (Exhibit 1). Two-thirds of the winners (but less than half of others) report having the analytical capabilities to make the most of their data.
Use advanced tools and analytics to excel in revenue-growth management
Revenue-growth management has become an important building block in winning companies’ sales approaches. Winners are more likely to use a broad mix of revenue-management tactics, such as raising list prices, changing promotion intensity, or adjusting trade funding. By using sophisticated pricing tools and advanced analytics, they can make faster, better decisions than competitors. Indeed, close to 90 percent of the winners maintained price increases over the past two years, and most of them did so without having to adjust their trade spending.
Winners also increased net sales faster than trade investments; some even managed to increase net sales while reducing trade investments. Many winners attribute their success in this area to their performance-based approach: specifically, they enter into performance-based agreements with retailers based on predefined activities (such as assortment expansion or new-product listings) and outcomes (such as volume or share growth). Most winners don’t simply roll trade-investment levels forward from one year to the next. Instead, they develop a clear and detailed understanding of their trade investments, allowing them to better manage funds across customers and channels. Winners achieve this transparency by investing in advanced IT tools and solutions for trade-investment management and optimization (Exhibit 2), and by having people on staff dedicated exclusively to revenue-growth management.
Make bold omnichannel investments
Omnichannel and online retail are at different maturity levels across the major European markets, with the United Kingdom and France the most developed. In the UK market, online food sales account for 4.0 percent of total food sales; in France, the number is 1.5 percent; and in Germany, a mere 0.5 percent.
E-commerce’s share may seem negligible at present, but it is poised to make big gains in the coming years. Winners have invested ahead of the curve, and as a result the online channel generates a higher share of their total sales (4 percentage points more than nonwinning companies). Their online-sales growth rate is 19 percentage points above the category. This healthy growth is largely the result of having a clear online strategy with a long-term horizon, bolstered by strong top-management support (Exhibit 3). Winners tend to focus their sales efforts more on multichannel retailers than on pure-play online companies.
By being early entrants into the e-commerce space, winning CPG companies have gained valuable insights into how to activate online shoppers, curate an online assortment, and manage channel conflict. For example, half of the winners—but only 20 percent of the others—develop assortments tailored for e-commerce. Winners use the online channel for both sales and marketing, with 75 percent of winners (and 20 percent of others) saying they’ve increased their online advertising and marketing spend.
CPG manufacturers can’t afford to ignore best practices in customer and channel management. It may be daunting for a low-performing company to close the gap between its own practices and those of the winners; an overhaul of processes, systems, and mind-sets may be necessary. But in Europe’s low-growth market, the greater risk is to simply continue doing business as usual.
Download the full report on which this article is based, New frontiers in customer and channel management: Learning from the winners (PDF–1.52MB).