Power Lunch: 5 Principles for CPG CEO Success in a Value-Driven Market

Sticker shock at the grocery store has driven shoppers to discount retailers. Costco, Walmart, Aldi and Dollar General parking lots are now crowded with former supermarket shoppers. To win back these customers, grocery chains are discounting their private-label store brands. In many categories, the store brand is now the leading brand. Many retailers are adding more shelf space for low-priced meal solution categories by discontinuing underperforming products elsewhere.

Some CPG chief executives have led the needed change to adapt their companies to the new market conditions, while others seem to hope for market conditions to revert to 2019. Hope is not a plan. Business cycles last 3-5 years. Look around and make yourself at home. We’ve just entered a new value-driven business cycle.

A recent survey of CPG CEOs conducted by Chief Outsiders and Consensus Point Research found:

• 50% of the chief executives surveyed had no previous sales or marketing leadership experience prior to becoming CEO.
• Many are first-time CEOs with less than five years in their chief executive position, and most have never led a CPG company during an economic downturn.
• 33% reported concerns about their readiness for what lies ahead and graded their own leadership team with low scores for alignment.
• 26% said they lack confidence in their company’s 2023 business plan.

CPG firms with $50M to $500M in annual sales saw last year’s profits erased due to skyrocketing input costs they could not fully offset with price increases. Struggling to compete against bigger firms with more pricing leverage, 66% of CEOs said their CPG factories were running at or below 80% of capacity, caused by both labor shortages and shrinking consumer demand.

Although supply chain costs have shown some signs of improvement, U.S. manufacturing wages have increased over the past year at an average rate of 12 cents/hour every month and are now nearing $26/hour.

In this environment, CEOs feel pressured to make quick profit-recovery fixes with staff and marketing investment cuts that offer temporary relief but often result in long-lasting pain.

There is no one-size-fits-all playbook for what lies ahead, but any CPG chief executive who is concerned about their company’s ability to thrive in 2023 and beyond will profit greatly from abiding by the following five principles for success in a value-driven market:

1.Embrace the value-driven market

Historically, business cycles last 3-5 years. That means that the current value-driven market business cycle may linger through 2028. Is your company positioned to win for the years ahead?

33% of the CPG chief executives in the survey said “no”, and 20% said their leadership team was inadequately aligned to execute their 2023 business plan. A team that lacks a playbook or is misaligned is destined for failure. CEOs need to work with their leadership team, and outside help if needed, to define their business strategy to win in a value-driven market–across all functional areas. Top-performing CPG companies have a 3–5-year business plan, but remain agile to move and improve with every market shift.

2.Value is not low price

In the survey, a majority of CPG chief executives defined their company strategy as “cheaper, faster, better,” which is really often a race to the bottom. As evidence of that, 36% said their 2022 profitability was below CPG industry averages. Perhaps most revealing, 64% said their products are less innovative than their competition.

Top-performing CPG companies also have a 3-5-year product innovation plan, led by marketing, focused on distinguishing their products with unique and marketable value-added features, advantages and benefits all designed to surpass their competition.

3.Optimize, don’t compromise

In today’s value-driven market, for short-term profit gain, CPG chief executives often cut marketing investments from the top-down, risking long-term brand erosion. Top-performing CPG companies use a Performance Marketing model. Performance Marketing is a type of digital marketing campaign in which the budgeting and decision-making are driven primarily by the measurable results of the campaign.

Performance marketing is based on an active, iterative feedback loop: run campaigns, see what works, double down, and repeat. If the VP of Operations can give the CEO a payback analysis for capital expenditures, then they can expect the same from their VP of Marketing. If the marketing team is unfamiliar with Performance Marketing, CEOs should find an outside resource to help.

4.Challenge received wisdom

There is a CPG paradigm that if a company manufactures its own brand, it should not manufacture its competition, such as private label or other manufacturer brands. The time has come to rethink this. If the factory is producing at less than 80% of capacity, the company has a profit-killer problem. Cutting prices to increase demand for their own brand may cause long-term erosion. CEOs should consider private label as coopetition, not competition.

Retailers are partners. Win together. Help them grow, and they’ll help you grow. Store brands are growing fast, and they’re looking for suppliers. If CEOs say no, their competition may say yes.

5.Hire your weakness

It's also a values-driven market for employee engagement and retention. In the recent Chief Outsiders CEO survey, CPG chief executives ranked “measuring performance and setting goals for improvement” as their top leadership strength, while conversely ranking “being a mentor, and servant-leader” as their top weakness. If CEOs lack EQ skills [empathy to better understand and lead people], they most likely have an employee turnover problem. CEOs should consider joining a Vistage CEO Group in their area and learn best practices from other CEO members. Executive coaches can also be a great resource.

CPG companies that don’t embrace the value-driven market risk continued struggles ahead. When business cycles shift, top-performing CEOs adapt their playbook, lead with product innovation, and make data-driven choices for their marketing investments. They also value their customers as business partners by modeling their growth strategy to align with their customer’s growth strategy.

Although top-performing CEOs never stop learning, they also realize their job is to lead rather than to become a master of every subject. They learn from their peers in CEO groups such as Vistage, and hire expert resources where needed.

What is that sound we are hearing? The roller coaster cart seems to be moving again. Fasten your seatbelt.

Evan Eckman is a partner and CMO with Chief Outsiders, which provides part-time or temporary leaders for company marketing teams. Prior to Chief Outsiders, Evan was the CMO for Beiersdorf Inc. and Beech-Nut Nutrition Corp., as well as held senior marketing leadership positions at Nestlé, Energizer, International Paper and Hero AG.