European consumer companies are seeking growth at a volatile moment

Expectations for growth have dimmed. About 40 percent of all respondents report that their companies experienced high growth—meaning compound annual growth rates (CAGR) topping 10 percent—from 2020 to 2022, but only about 25 percent of respondents express ambitions to reach that rate of growth over the next three years. The winners of the past do not necessarily expect to be the winners of the future: of respondents whose companies previously logged high growth, only about 45 percent expect to continue at the same pace or exceed it.

Within this challenging context, one group’s ambitions stand out: respondents from companies owned by venture capital or private equity firms report higher growth goals than their peers. Other types of companies might consider adopting similarly bold mindsets as a means of pushing themselves to achieve more growth.

It’s no surprise to learn that pandemic-related issues head the list of growth obstacles that mid-cap consumer executives faced over the past three years. Supply chain disruptions (67 percent) and supply chain inflexibility (30 percent) remain top of mind—just as they were in our previous survey—when respondents were asked to rank the five greatest challenges impeding recent growth.

But as the world emerges from the depths of the pandemic, respondents expect to encounter an altered mix of challenges. Rising inflation is becoming a major concern—named by 42 percent of respondents. Sinking consumer sentiment has also entered the picture, with 27 percent of respondents placing it on their top five lists. Beneath these headline items, however, the survey reveals significant differences among sectors. Consumer goods executives name competitive pressure as their number-one future growth obstacle; retail executives name operating model challenges; and restaurant executives name (overwhelmingly) inflation.

Faced with unpredictable headwinds, companies should ensure that they have a strong system in place to spot new challenges as they arise while maintaining the flexibility needed to quickly update plans in response.

A company can benefit from exploring three approaches to seeking profitable growth: strengthening the core of its business, expanding into adjacencies, and igniting breakout businesses. Survey respondents expect more than half of future growth—including long-term growth—to come from their core businesses (meaning existing categories and markets). The expected importance of this core has increased since our previous survey, in which respondents projected that about 40 percent of growth would be core-driven. That said, the role of adjacencies and breakout businesses in driving growth is expected to increase in importance over the longer term.

Whatever the mix of levers chosen, fast execution is a common goal. Several survey respondents say that not acting faster is their number-one regret when they review their performance over the past three years.

Further nuances in emphasis emerge at the sector level. Consumer goods manufacturers list product innovation and expansion into new categories that are closely adjacent to their core businesses as their top growth levers. But among those who report comparatively higher future growth expectations, a slightly different mix of levers comes to the fore: these executives are more likely to underindex on marketing efficiency and expansion into closely core-adjacent categories while overindexing on pricing, expansion into new markets distant from their core businesses, and backward vertical integration (a process in which companies gain control of operations that exist further up the supply chain).

Retailers envision using a mix of levers (including store experience optimization, assortment optimization and expansion, and omnichannel integration) to strengthen their core businesses, with no single lever being the dominant choice. Respondents with high-growth ambitions focus in particular on assortment expansion and optimization, while putting less emphasis on store optimization. When expanding into adjacencies, respondents expect to focus primarily on new categories and new channels. However, for retailers with high-growth ambitions, new channels rank much further down the list (in ninth place). Respondents expect their efforts to launch breakout businesses to be focused on establishing their own marketplaces and on disruptive product innovations (with companies that express high-growth ambitions placing added emphasis on establishing their own marketplaces).

This edition of the survey adds executives from restaurant companies to the mix of respondents. When asked how they plan to grow their core businesses over the next three years, restaurant executives report that they expect their top growth levers to be improving same-store sales, opening new channels, and maximizing digital channels. Restaurant respondents also project that digital solutions will remain the most important factor in their efforts to expand breakout businesses, while caveating that digitization will become slightly less relevant in comparison to the role it played over the past three years. Asked how they plan to help breakout businesses succeed, restaurant executives say they expect to increase focus on backward vertical integration.

Overall, respondents expect their companies to increase investment levels over the next three years (compared with the past three years) in an effort to create more growth. Capital expenditure is projected to be the number-one investment area overall, while external marketing tops the list of investment areas for companies with high-growth ambitions.

At the sector level, consumer goods manufacturers report little change in their ranking of investment priorities, with capital expenditures and external marketing leading the way. For restaurants, upskilling and training are expected to be major investment areas—ranked second in priority after capital expenditure over the next three years. Retailers expect external marketing to become their most substantial future investment area, followed by capital expenditure and R&D innovation.

In general, companies with low historic growth rates and low growth ambitions tend to invest less than their peers.