Consumer goods companies focus on existing markets, cutback on new product development

Posted by Daniel Palmer on 4th February 2009

Leaders of consumer goods companies are losing confidence in their ability to boost revenues in the current climate.

The figures from PricewaterhouseCoopers Annual CEO Survey highlight a reduction in CEOs’ optimism – with 27% of consumer goods leaders ‘very confident’ about boosting their companies’ revenues over the next 12 months, compared with 50% of respondents to PwC’s survey last year.

The survey of 130 consumer goods leaders indicates that the industry will undergo further cost-cutting as CEOs look to maintain current profits. Over 30% of respondents anticipate redundancies, but, surprisingly and positively, 34% still plan to hire more people, due to the need to maintain a strong skills base. Almost all respondents rank the retention of key talent as important or critical to their company’s long term success. Despite this, 62% of those surveyed say that they have problems recruiting and integrating younger employees, while 56% report difficulties in providing an attractive career path.

A further aspect of cost-cutting is the shift by CEOs to reduce new product development initiatives. Less than 20% of consumer goods CEOs intend to focus on this in 2009. Instead, 40% plan to focus on penetrating their existing markets more effectively, believing it to be the best opportunity for growth in the current economic climate.

Despite the intent focus on challenges brought about by the downturn, CEOs reported they were still concerned about environmental issues. Over half believe that the world’s dependence on carbon-based energy sources will have a negative impact on their companies and, as a result, nearly 90% say they are reducing energy costs through operational improvements. A recent study established that nine consumer goods companies were among the world’s 100 “most sustainable”, a number which was higher than last year.

Consumer goods CEOs are also concerned about getting access to other natural resources – particularly fresh water. Three-quarters believe this pressure on natural resources will intensify. Some consumer goods businesses have already started to experience raw materials shortages and PwC expects this trend to increase, so a longer-term outlook is critical.

Supply chain risk is a further challenge. Extending a supply chain, especially into the emerging markets, brings considerable risks as visibility and control become significantly more complex. The economic downturn is likely to exacerbate these challenges, as companies will be trying to cut further costs. CEOs may also face sudden changes as suppliers go out of business and may have to be able to scale down as demand falls, without impairing their ability to ramp up production when consumer confidence recovers. Some UK supermarkets picked up on this potential issue last year, creating back-up supplier plans as a result.

“Consumer goods CEOs now have to juggle more challenges than ever before,” Carrie Yu, global retail and consumer leader at PricewaterhouseCoopers, noted. “They have to contend with immediate problems like the global recession, while simultaneously taking into account long-term systemic risks such as climate change and the impact of demographic challenges on the talent pool. The ability to balance these sometimes conflicting demands is fundamental to staying competitive in the longer term to create a sustainable business.”