Growth in an Uncertain Economy: Three Key Considerations
A variety of forces are converging to drive volatility in consumer brands — including inflation, interest rate uncertainty, crude oil price volatility, sales price ceilings and changes in consumer sentiment.
The convergence of these forces suggests that CPG companies are likely to face COGS and SG&A increases alongside slower-to-declining revenue growth in 2023.
What steps can companies to take to grow profitably in such an uncertain economy? We offer three considerations companies should weigh in this environment:
- Choose tactics that help achieve strategic goals:
Amid market uncertainty, three macro strategies can enable companies to drive long-term, sustainable growth:
- Focus on your most valuable customers
- Empower employees to build an agile, role-based organization
- Maximize leverage from strategic partnerships
To implement these strategies, focus on any of nearly a dozen tactics to lift performance in specific business areas. While the precise impact of each tactic will depend on a company’s particular situation and growth strategy, our experience indicates these improvements:
- Between 2% and 3% in response to net revenue management
- Between 10% and 20% for marketing spend optimization
Note that while net revenue management’s impact on absolute growth seems modest, efforts in this area can improve operating income between 5% and 20%.
- Explore the potential of digital value acceleration:
Another tactical approach that can have a high impact on margin — between 25% and 35% — is digital value acceleration (DVA). DVA is an end-to-end delivery model that drives value by using integrated technologies and advanced analytics to reconstruct business models and value chains.
Companies are increasingly adopting DVA because it focuses on delivering value throughout a 12- to 16-week cycle. Depending on the focus of the project, DVA can improve incremental revenue, generate cost savings_ or experience improvements.
Opportunities to benefit from DVA exist in several dozen processes extending across the entire CPG value chain. Some are likely to deliver a higher return than others, although again, this will depend on your current technology profile and level of existing digitization.
- Pay heed to tax implications:
Throughout the process of planning and implementing any change initiatives, companies should carefully examine the ways that success may affect corporate tax liabilities. The goal is for potential revenue growth or cost savings to flow to the bottom line rather than to end up as a tax liability.
Consider these factors:
- Which legal entity would fund the program and how;
- Where to allocate savings to create additional value;
- What taxes arise when people, processes, contracts or assets are moved;
- What new process and technology tools are developed; and
- Whether to centralize or decentralize.
When properly managed, tax savings may even help offset the cost of a business transformation.
Find the path that’s right for your company:
No one-size-fits-all growth formula exists because each company has its own distinctive characteristics. The only constant is a strong, strategic vision flexible enough to weather economic turbulence while preparing for the future.
Published on March 21, 2023
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