The Recession's Over; Get Growing!

Grocery Manufacturers Association-commissioned report recommends shifting gears into innovation.

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The recession's over, so get on with it – that seems to be the message of a report from Grocery Manufacturers Association and PricewaterhouseCoopers LLP.

To grow revenues in this new climate, companies will have to focus on innovation to encourage household spending, especially for products in mature segments and to offset reduced spending by Baby Boomers who are nearing retirement.

"Consumer packaged goods (CPG) companies will need to employ different tactics than those used during the recession - divesting non-core brands, conserving cash, and cutting costs - to preservConsumer packaged goodse shareholder value as the economy recovers," according to a summary of "2010 Financial Performance Report: Forging Ahead in the New Economy."

"To grow revenues in this new climate, companies will have to focus on innovation to encourage household spending, especially for products in mature segments and to offset reduced spending by Baby Boomers who are nearing retirement."

According to the study, many CPG companies are looking to innovate by reaching consumers in more places or tailoring products for local customer tastes in emerging markets. Additionally, understanding customer priorities is central to innovation as consumers in the U.S. are buying more carefully, buying different pack sizes, taking advantage of volume discounts and trading down to non-premium brands.

The 2010 Financial Performance Report, released in July, is the 14th annual edition, compiled from interviews with senior leadership of GMA members (including members of the GMA CFO Committee), publicly reported company financial data, government statistics, analyst reports, and other published material on 152 companies in the food, beverage and consumer products sector.

"The CPG industry has a legacy of strong financial performance and resilience in the face of challenging economic times, and 2009 was no exception," said GMA president and CEO Pamela Bailey. "However, reigned-in consumer spending and continued fears about the future of the U.S. economy mean that companies will have to harness the innovation for which they are known as they look to grow sales."

The report found that establishing a foothold in emerging markets - especially in China, Russia, Brazil, India, and Southeast Asia - has taken on a sense of urgency for CPG makers as capital flows faster than ever and new competitors can ramp up quickly. The middle classes are growing and forming attachments to new brands and products just as fast. Consequently, product growth cycles in emerging markets have accelerated and the success or failure of a product launch or brand introduction now can be determined in a matter of just 12 or 18 months.

Additional key findings:

  • CPG company median shareholder returns stood out as strong relative to the rest of the market.
  • With shareholder returns up 49 percent in 2009 and median earnings from continuing operations jumping a remarkable 33 percent, the beverage sector had the best quantitative performance among the three major CPG sectors (beverage, food and household products). 
  • Median net sales growth sank in all three sectors, and beverage's 1.6 percent decline was the first time in five years that the sector experienced negative growth. 
  • The food sector as a whole cut spending with a nearly 2 percentage point drop in median selling, general and administrative costs as a percentage of sales.
  • The food sector's median five-year shareholder return metric of 6 percent led the way for all three sectors, with beverage coming in at 5.3 percent and household products at 2.7 percent. 
  • The CPG sector lagged the S&P 500 by 5 index points and the Dow by 1 index point in 2009.

"These food, beverage, and household product companies are part of a true counter-cyclical industry, as it performs better than other industries during recessions, but tends to balance the scales with slower growth during expansions, as was the case in 2009," said Susan McPartlin, U.S. consumer packaged goods industry leader at PricewaterhouseCoopers.

To see additional report highlights, advance to page 2 of this article

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