McKinsey : Decade ahead
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McKinsey : Decade ahead McKinsey : Decade ahead Document Transcript

  • The decade ahead: Trends that will Consumer and Shopper Insights February 2011 shape the consumer goods industry The decade ahead: Trends that will shape the consumer goods industryBy Ishan Chatterjee, Jörn Küpper, Christian Mariager, Patrick Moore and Steve ReisThe consumer-packaged-goods (CPG) In this article, we profile an analytical markets. But leading CPG players have notindustry’s growth over the past quarter approach, developed by McKinsey’s CPG simply followed economic and demographiccentury has been nothing short of practice, that allows executives to filter trends: they have actively anticipated themexhilarating. CPG companies have the myriad potential future trends to in their strategies and investment choices.launched innovative products to meet anticipate the few that could truly affect theiran ever-growing array of human needs company’s competitive advantage. We then To start, the industry has been relentlessand desires. They have expanded rapidly apply the approach to the CPG industry in about new-product innovation. In the USinto the burgeoning consumer markets aggregate, underlining the forces most likely grocery channel, for example, the numberof the developing world. And to make this to move the needle on value creation over the of SKUs has grown by 50 percent in just coming decade and pointing to the strategic the past seven years.1 Constant innovation,breakneck growth possible and profitable, questions that CPG companies must answer along with a knack for passing on input-costthey have aggressively built global scale if they are to profit from these forces.along every part of the value chain. These increases, has allowed the industry to booststrategies, along with increased margins its margins significantly.and weighting of portfolios toward fast- The strategic choices behind thegrowing categories, have delivered stellar industry’s success Further, CPG companies have expandedshareholder returns. rapidly beyond their traditional Western Before assessing the trends of the future, bases. Emerging markets have contributed it is worth asking what has driven theBut the past is no guide to the future. Over more than half the global revenue of the industry’s extraordinary performance inthe coming decade, upheavals in global Coca-Cola Company since 2006, and recent decades. US-listed CPG companies,consumer and supply markets are likely to almost half of PepsiCo’s 2009 revenue was for example, have increased total returnsproduce as many losers as winners among generated outside of the United States. to shareholders (TRS) by an annualCPG companies. For example, Asia will At the same time, CPG companies have average of 10 percent over the past 25 years,overtake the West as the main consumer aggressively shaped their portfolios to outperforming not only the broader S&Pmarket, and it will demand new levels of 500 index but also high-growth industries increase the proportion of the fastest-value and innovation from CPG players. such as information technology, energy, and growing and most profitable categories,Rising Internet penetration could upend telecom (Exhibit 1). creating considerable “momentumtraditional sales models. Globalized trading growth.” Witness Nestlé’s recentand natural-resource shortages could To be sure, this growth has taken place acquisitions in high-growth food categoriescombine to usher in a new age of supply on the back of steadily rising incomes such as baby food (Gerber), pet foodchain volatility. and population, particularly in emerging (Purina), and frozen pizza (from Kraft).1 Food Marketing Institute, The Food Retailing Industry Speaks 2010
  • The decade ahead: Trends that will shape the consumer goods industryTo make this expansion possible—and Exhibit 1profitable—CPG players have invested Exhibit 1 Since 1985, the CPG industry has significantly outperformed the S&P 500heavily in building global scale alongevery part of the value chain, includingR&D, marketing and sales, procurement, Compound annual growth ratemanufacturing, and distribution. Weighted average CPG total return to shareholders (CAGR) (TRS) index vs S&P 500 TRS index1 %Unilever’s ice-cream business is a salient 1985 = 100%, adjusted for inflation 1985–2009example: it has rolled up its fragmented 1,000brands under the “heart” umbrella brand, CPG 10.0established a single global ice-cream 800headquarters in Italy, and consolidated S&P 500 8.6manufacturing in 16 plants worldwide. ahead: The decade 600 consumer goods industry Trends that will shape theEven over the tumultuous last three years,CPG companies have performed well, 400thanks in large part to their diversifiedexposure to faster-growing emerging 200markets and their longer-term pursuit ofscale and efficiency. 0 1985 1990 1995 2000 2005 2009Have the rules of thegamechanged? A framework to 1 US-listed companies with real revenue (2003 currency) of more than $1 billion in any of the past 25 yearsanalyze future trends Source: Corporate performance analysis tool (CPAT); McKinsey analysis“The only constant is change,” in the Exhibit 2the industry has been relentless about new-product innovation. In the To start,words of the ancient Greek philosopherHeraclitus. The upheavals in global US grocery channel, for example, the number of SKUs has grown by 50 percent in Exhibit 2 Trends that could influence performance over the next decade just the past seven years.1 Constant innovation, along with a knack for passing onconsumer, retail, and supply markets input-cost increases, has allowed the industry to boost its margins significantly.over the coming decade threaten to wreak A billion new consumershavoc on established business models Further, CPG companies have expanded‘going green’ Consumers rapidly beyond their traditional Westernand marketing approaches—and promise Shifting demographics bases. Emerging markets have contributed more than half the global revenue of Demandhuge rewards for those best able to Rise of digital consumers the Coca-Cola Company since 2006, and almost half of PepsiCo’s 2009 revenue trends Health and wellness concernsanticipate new opportunities. was generated outside of the United States.and concentration of trade companies Modernization At the same time, CPG CPG have aggressively shaped their portfolios to increase the proportion of the fastest- Rise of the value segment performanceHow should CPG companies go about growing and most profitable categories, creating considerable “momentumanalyzing these forces and prioritizing growth.” Witness Nestlé’s recent acquisitions in high-growth food categoriesthose with the greatest likely impact such as baby foodExternal pet Rising (Purina), and frozen pizza (from Kraft). (Gerber), food trade protectionismon their own competitive advantage? factors Changing tax regimesMcKinsey has developed an analytical To make this expansion possible—and profitable—CPG players have investedmethodology to help executives provide heavily in building global scale along every part of the value chain, includingfact-based answers to these questions. R&D, marketing and sales, procurement, manufacturing, and distribution. Unilever’s ice-cream business is a salient example: it has rolled up its fragmentedHere we provide a snapshot of the brands under the “heart” umbrella brand, established a single global ice-cream Supply Increasingly volatile input costs headquarters in Italy, and consolidated manufacturing in 16 plants worldwide.methodology, filtering an array of global trends Labor shortages in emerging Even over the tumultuous last three years, CPG companies have performedtrends to prioritize the few that will markets well, thanks in large part to their diversified exposure to faster-growinghave the greatest impact on the profits emerging markets and their longer-term pursuit of scale and efficiency.of the CPG industry in aggregate overthe coming decade. For an individualcompany or a particular category, a In our industry-wide analysis, we considered 11 global trends (Exhibit 2)tailored version of this filtering exercise across the demand side (for example, the rise of the value-orientated consumer 1 Food Marketing Institute, The Food Retailing Industry Speaks 2010 segment), the supply side (say, increasingly volatile input costs), and the externalwould yield distinct results. environment (for instance, rising trade protectionism). While not exhaustive, this list includes the principal forces likely to affect the CPG industry as a whole. An analysis tailored for a particular company would include specific regional
  • ƒ The rise of the digital consumer ƒ The shift to value ƒ The impact of demographic shifts, including aging, on consumption patterns ƒ Increasingly volatile input costs, driven by natural-resource shortages and the emergence of fewer, bigger suppliers This is not to say that the other trends won’t matter in the decade ahead. For example, green consumerism could combine with regulation to prompt CPG companies to reduce their impact on the waste stream by greatly reducing packaging. But in shaping strategy, companies need a fact-based way to rank and quantify trends for their likely impact on profits. By this measure, our analysis suggests that green trends and other headline-grabbers such as health and wellness will have less impact on global CPG value creation than the five major trends above.In our industry-wide analysis, we Exhibit 3considered 11 global trends (Exhibit 2) Focus of more than 5 of top 10 CPG companiesacross the demand side (for example, the3 Exhibit Our analysis identified 5 key forces Focus of 1-5 of the top 10 CPG companies Not mentioned by any of the top 10 CPG companiesrise of the value-orientated consumersegment), the supply side (say, increasingly High Group 1 – Factor that Billion new consumers everyone is talking about, butvolatile input costs), and the external companies need to approach it in a more nuanced mannerenvironment (for instance, rising trade Group 2 – Factors that a few companiesprotectionism). While not exhaustive, Increased trade are talking about, but are likely to bethis list includes the principal forces likely protectionism2 importantto affect the CPG industry as a whole. An Rise of the Shifting Group 3 – Factors that Impact on profits1 digital consumer demographics no one isanalysis tailored for a particular company Changing tax regimes2 Health and talking wellness about, butwould include specific regional or sector Medium Rise of the value segment should be on Consumers Increasingly volatile thetrends, such as food-industry regulations going green input costs industry’s radarto prevent obesity. Modernization and concentration of tradeOur next step was to prioritize these11 trends. First we sized each trendaccording to its likely impact on CPG Labor shortages incompanies’ gross profits.2 Then we emerging markets Lowevaluated the likelihood of the occurrence Low Medium Highof each trend—gauging the momentum Probability of occurrencebehind it, its resilience to external shocks, 1 Classification guide: high = profit at stake >$300 billion; medium = profit at stake between $100 billion and $300 billion; low = profit at stake <$100 billionand the degree to which analysts and 2 Please note that these factors have not been sized due to the number of variables involved; these are estimates of likely impactstakeholders are aligned on it. Finally, Source: McKinsey analysiswe assessed the importance attributedto each trend by CPG companies in their green consumerism could combine with creation potential that each of these trendspublic communications. regulation to prompt CPG companies to offers? Let us consider each trend in turn. reduce their impact on the waste streamThrough this filtering process, we by greatly reducing packaging. But in A billion new consumers inidentified five trends that are both highly shaping strategy, companies need a fact- emerging marketsprobable and likely to have large impact on based way to rank and quantify trendsindustry profits (Exhibit 3): This decade marks the tipping point for their likely impact on profits. By this in a fundamental long-term economic measure, our analysis suggests that greenƒƒ A billion new middle-class consumers rebalancing. In the coming years, the trends and other headline-grabbers in emerging markets growth of emerging markets will continue such as health and wellness will have to outstrip that of the developed worldƒƒ The rise of the digital consumer less impact on global CPG value creation by a wide margin. While the emerging than the five major trends above.ƒƒ The shift to value countries in Asia—most notably China, India, and Indonesia—already had aƒƒ The impact of demographic shifts, including aging, on consumption Five forces that will shape the significant share of global growth (18 percent) throughout the last decade, this patterns industry’s future growth share is expected to increase toƒƒ Increasingly volatile input costs, How, then, will each of these five trends nearly 30 percent in the next decade. As a driven by natural-resource shortages shape the industry’s fortunes over the result, the global middle class will expand and the emergence of fewer, bigger next decade? And what are the strategic dramatically: by 2020, there are expected suppliers questions that CPG companies must to be more than 1 billion new consumersThis is not to say that the other trends won’t answer if they are to unlock the value- spending between $10 and $100 per day3matter in the decade ahead. For example, (Exhibit 4).2 For the sake of this analysis, we assumed that currencies will maintain their current relative valuations through 2020.3 Organisation for Economic Co-operation and Development (OECD) Development Centre, The Emerging Middle Class in Developing Countries, January 2010
  • A billion new consumers in emerging markets This decade marks the tipping point in a fundamental long-term economic rebalancing. In the coming years, the growth of emerging markets will continue to outstrip that of the developed world by a wide margin. While the emerging countries in Asia—most notably China, India, and Indonesia—already had a significant share of global growth (18 percent) throughout the last decade, this growth share is expected to increase to nearly 30 percent in the next decade. As a result, the global middle class will expand dramatically: by 2020, there are expected to be more than 1 billion new consumers spending between $10 and $100 per day3 (Exhibit 4).Nearly everyone agrees on the importance Exhibit 4of this trend, but understanding these Exhibit 4 The global middle class will add more than 1 billion people by 2020new consumers and meeting their needswill be no simple matter for CPG players. More than 85 percent of middle class growth expected from Asia-Those who get it right stand to earn Pacific region through 2020 Global middle class1tremendous competitive advantage. Millions of peopleSuccess factors will include the selection 4,884of categories and markets—to ensure 322 North Americathat the company builds a leading 680 Europeposition everywhere it plays—as well as 313 Central and South Americasegmenting the billion new consumers 3,249and innovating to meet their needs. 333 703Consider the example of Wrigley chewing 1,845 251 3,228 Asia-Pacificgum in China: the company has captured 33840 percent of a fast-growing category 664 1,740already worth $2 billion. Its tactics 181include regular launches of products 32 525 Sub-Saharan Africa 107tailored to Chinese consumers, such as 105 165 57 234 Middle East and North Africagum flavored with herbal essences and 2009 2020 2030grapefruit; intensive consumer education 1 Global middle class defined as daily expenditures between $10 and $100 per person in purchasing parity terms.to emphasize chewing gum’s health Source: Organization for Economic Co-operation and Development (OECD) Development Centrebenefits; and building a presence in themillions of small outlets where Chinese Within China’s wealthy population, the headquarters to be located in Europeconsumers typically shop. for example, McKinsey research has or North America? 3 Organisation for Economic Co-operation and Development (OECD) Development Centre, The Emerging Middle Classsegments, identified seven distinct in Developing Countries, January 2010Further, winning CPG companies are ranging from the “flashy,” who care about The rise of the digital consumerlikely to be those that create valueoriented showing off exclusive brands but are While technology has played a key role inproducts. In China’s ready-to-drink coffee willing to purchase counterfeit goods, the consumer goods industry’s growth,market, for example, Nestlé has reduced to the “urbane,” who care more about it will be truly disruptive in the comingprices by 30 percent. To make this quality and refuse to purchase counterfeit decade. In figuring out how to win inpossible, it has cut its costs by establishing products.4 Across emerging markets, this new digital world, CPG companiesa local supply base in Yunnan, and its thoughtful segmentation will reveal many face some major strategic questions—sourcing is now 99 percent Chinese. In opportunities to create value—and build including how to build a successfulIndia, Cadbury has introduced products healthy margins—by meeting specific business through online retail channels,at low price points (such as its Perk consumer needs. how to build brands and categories inbrand) to attract more consumers to the a socially networked world, and how tochocolate category. However, as emerging Finally, CPG companies with Western exploit technology-driven opportunitiesmarkets account for an increasing roots will need to consider how the rise to understand consumers more deeplyproportion of CPG sales, companies of emerging-market consumers might and connect with them more often.will struggle to maintain their margins. affect—and transform—their ownBuilding scale will be one way of doing so; organizations. For a company with, say, 70 The proportion of sales via onlineskillful segmentation of emerging-market percent of its sales in China and India by channels may be reaching a tipping point.consumers will be another. 2020, would it still be appropriate for the In the United States, e-commerce now board to be dominated by Westerners and represents a $155 billion market, an estimated 6 percent of total retail sales.54 McKinsey Insights China; Yuval Atsmon, Vinay Dixit, Max Magni, and Ian St-Maurice, “China’s new pragmatic consumers,” McKinsey Quarterly, October 2010.5 Forrester Research, US Online Retail Forecast, March 2010
  • make a strategic choice on whether and New media requires new capabilities, how to follow suit. Some have taken including rigorous performance tracking, up the challenge: P&G, for example, is extensive digital-marketing analytics, piloting its own e-commerce site, www. and flexible vendor management. pgestore.com. However, manufacturers Winning CPG companies will be those must weigh the trade-offs, and for many that invest in these capabilities to keep the economics of launching a branded pace with the digital consumer. e-commerce site will prove unfavorable. For those who decide against launching The shift to value their own Web stores, online retail The global financial crisis has driven platforms such as Amazon.com and Alice. consumers to value offerings, and it com offer direct access to consumers. is a trend that is likely to stick. Recent McKinsey research suggests that 70 Digital technology will have just as great percent of US consumers are looking an impact on brand communication. for ways to save money.9 Fifteen percent Consumers are more reliant than are “trading down” to cheaper brands ever on referrals: 70 percent look to during the recession, and almost halfIn the United Kingdom, as many as one- user reviews to inform their purchase of consumers say their experience withthird of adults say they now regularly decisions.8 Moreover, digital marketing cheaper brands, including private labels,shop for food online;6 the same is true in is no longer just about one-way has exceeded their expectations.10Germany for apparel.7 In China, the online communications to consumers. User-retail market has more than doubled in generated content can be difficult to The shift to value has major implicationseach of the last three years and could control, but it also offers one of the best for the CPG industry’s profit formula. Notexceed 1.3 billion renminbi ($200 million) ways to influence consumer opinion. least, it could erode the pricing power ofby 2013. brands. Indeed, our analysis suggests that In addition, social media provides an private-label players are riding the valueTo capture their fair share of this rapidly important channel for CPG companies trend to become a serious force acrossgrowing channel, CPG companies must to “listen” to consumers without the CPG categories, accounting for more thanraise their game with online retailers. biases created by conventional research 40 percent of supermarket sales in theThey must work in close partnership with techniques. CPG companies are just United Kingdom, more than 30 percent inretailers to manage their online shelf starting to tap into social media to Germany, and more than 15 percent in thespace (including how prominently their understand brand buzz, monitor the United States.products appear on Web listings), run impact of campaigns, and even gainjoint targeted campaigns, and in general input into new product development. CPG players are employing a variety ofexpand the category online. For example, Unilever used co-creation strategies to address this trend. Some with its online community to develop companies are trying to minimizeThere may also be the opportunity to sell Axe Twist, a fragrance that changes retailers’ need to launch their owndirectly to consumers. Manufacturers throughout the day. Companies that private-label brands. For example, ain other consumer-facing industries ignore this important new information major chocolate company reduced itshave successfully shifted consumers to source risk being slower to respond and pack size in the United Kingdom from 150e-commerce, allowing them to conduct adapt to their consumers’ changing needs. grams to 125 grams in order to keep thetransactions and even customize products £1 ($1.60) pack price on the shelf, a keyon branded sites. CPG companies must concern for retailers. Some companies6 Mintel International Group, Online Grocery Retailing – UK, September 20097 ENIGMA GfK’s online shopping survey, April 20098 Survey by Penn Schoen Berland, published in BusinessWeek, October 20099 McKinsey Consumer Sentiment Survey V, September 201010 McKinsey New Normal Survey, March 2010
  • goods industryare rationalizing their price lists to help population of people older than 65 willretailers control SKU proliferation. double to 1 billion over the next 20 years.11 By 2030, one in four Western EuropeansOther companies are riding the shift to will be elderly, as will one in five Northvalue by running joint promotions with Americans. But the trend will be just asprivate-label brands in adjacent categories. marked in the developing world: China’sOne major CPG company in the United over-65 population will double to 16States is running joint displays and percent of its total population, while India’spromotions with private-label players; for will almost double, reaching 8.5 percent.example, consumers receive a discount ifthey buy a national brand of cheese along CPG companies will need to findwith a private-label bread brand. innovative ways to meet the needs of aging consumers. For example,Still other CPG companies are meeting Unilever’s Dove recently launchedthe private-label challenge head-on by Pro-Age, a line of deodorants, hair-introducing directly competing lower- care products, and skin-care products,priced products and through direct to target female consumers betweencomparisons in advertising that highlight the ages of 54 and 63. In packaged These micro-demographic shiftsthe superiority of their own product. food, ConAgra targets seniors with its create additional opportunities forIndeed, the winning companies of the Golden Cuisine brand, which offers CPG companies to capture growth. Infuture will be those best able to develop nutritionally balanced food in packaging the United States, for example, manystrong value brands with both excellent that features easy-to-read, large fonts. companies are experimenting to capturefunctional benefits and competitive prices. the growing Hispanic segment. Knowing While aging represents one major that heavily-scented products are popularThe shift to value will make scale an even global demographic trend for which with Hispanics, P&G recently launchedgreater competitive advantage than CPG companies must prepare, there are Gain laundry detergents in lavender,before. The leading CPG companies have others that will be just as important in citrus, and apple-mango scents. And foralready harnessed their global scale key markets. In the United States, for the first time, P&G used a specializedto reduce costs, pushing work to low- example, Hispanics will make up 23 marketing firm as its lead agency forcost centers and spreading fixed costs percent of the population in 2030, up Spanish-language media. 13over a broader business. The stronger a from 16 percent today, while the whitecompany’s overall market position and population will fall from 65 percent to 55 Increasing supply chain volatilitythe more number-one category positions percent.12 The Census Bureau predictsit holds, the better equipped it will be to that the majority of children will be We have considered four demand-sidewin in a value-focused world. nonwhite by 2023. trends. Just as disruptive, however, will be one trend from the supply side:The impact of demographic shifts Moreover, despite the global aging trend, increasingly volatile input costs, driven byon consumption patterns pockets of younger consumers are growing the emergence of bigger, fewer suppliers in key markets. In sub-Saharan Africa, and natural-resource shortages.While consumer markets’ center of where many observers expect rapidgravity will shift inexorably toward the For the most successful CPG companies, economic growth in the coming decade,developing world over the coming decade, globalized trading has represented a the United Nations predicts the under-50there will also be profound demographic huge opportunity to expand into new population will grow 23 percent, reachingchanges across all markets. In particular, markets and consolidate supply and about 700 million by 2020.the world’s population is aging quickly. production. Yet globalization, combinedThe United Nations projects that the total with specialization, has also triggered a11 World Population Prospects, 2008 revision, United Nations (Population Division)12 US Census Bureau national population projections, 200813 “P&G taps into popularity of heavier scents,” Financial Times, October 20, 2010
  • The decade ahead: Trends that will shape the consumer goods industrysharp increase in the global volatility of Exhibit 5commodity input prices. Global supply Increasing global concentration of commodity inputs—sugarcanechains that have created so much value 5 Exhibit Million tonsin the past could be exposed to higher Global sugarcane supplyvolatility in the future. % of total tonnes produced 100% = 993 1,276 1,743The increasingly concentrated productionof several key commodities illustrates 26 27 37this trend. For example, 57 percent of the Brazilworld’s sugarcane is now produced in 20 22Brazil and India (Exhibit 5), while China 20 India 6 7and Russia together account for close to 3 3 4 4 7 Chinahalf of the world’s aluminum production. 4 4 Thailand Pakistan 42 36A natural disaster or political crisis in 28 All othersany one of these countries could causesevere disruption to global supply chains. 1988 1998 2008Indeed, the 2010 earthquake in Chile had % produced in 58 64 72 top 5 countriesjust this effect on the global pulp market,cutting supply by 8 percent and triggering Source: Food and Agriculture Organization of the United Nations (FAOSTAT)a spike in prices. Similarly, in late 2009,a fire at one acrylic acid plant in Texas,combined with mechanical issues on one volatility—including the price they are The increasingly concentrated production of severalgauge and protect the value at them to key commoditiesDow Chemical asset, created a global willing to pay totrend. For example, 57 percent of from such trends and to scope the illustrates this secure long-term supply risk the world’s sugarcaneshortage in superabsorbent polymer, the stability, how to reduce commodity (Exhibit 5), while China and Russia is now produced in Brazil and India huge value-creation opportunities theykey ingredient in diapers, feminine-care and natural-resourceclose toacross the world’s aluminum production.articles, we together account for inputs half of the represent. In forthcomingproducts, and adult-care products. product line, and how to build flexibility will share our perspectives on how CPG into their supply chains. Navigating in any one of these countries couldstrategies to A natural disaster or political crisis companies can develop the causePotential natural-resource shortages— exposure to this volatility requires a new Indeed, the 2010 earthquake severe disruption to global supply chains. seize those opportunities.notably, ever-increasing stress on the paradigm in risk management. the global pulp market, cutting supply by in Chile had just this effect on 8 percent and triggering a spike in prices. Similarly, in late 2009, a fire atglobal water supply—further increase one acrylic acid plant in Texas, combined with mechanical issues on one Dow * * *volatility. As populations grow and urban Chemical asset, created a global shortage in http://csi.mckinsey.com the key superabsorbent polymer,areas expand, the United Nations predicts ingredient in diapers,CPG companiesproducts, and adult-care products. In the coming decade, feminine-carewater withdrawals will increase 50 percentby 2025 in developing countries and 18 will encounter structural shifts from Potential natural-resource shortages—notably, ever-increasing stress onpercent in developed countries.14 As water both the demand and supply sides that the global water supply—further increase volatility. As populations grow in the Ishan Chatterjee is a consultantshortages affect manufacturing centers for are likely to be more disruptive than any and urban areas expand, the United Nations predicts water withdrawals Christian London office. Jörn Küpper andCPG inputs, price increases could spread they have seen in recent history. Is your will increase 50 percent by 2025 in developing countries and 18 percent in company ready? Mariager are directors in the Cologne andquickly across the supply chain. developed countries.14 As water shortages affect manufacturing centers for New Jersey offices respectively. Patrick CPG inputs, price increases could spread quickly across the supply chain. The analytical approach described in Moore is a principal in the Atlanta office,CPG companies face some tough strategic this article allows executives to assess where Steve Reis is a consultant. CPG companies face some tough strategic questions as they ponder howquestions as they ponder how best tomanage risk in light of this increased the business impact of future trendsincreased volatility—including the best to manage risk in light of this in a fact-based,are willing to pay to secure long-term supply stability, how to price they quantified way. It also enables reduce commodity and natural-resource inputs across the product line, and how to build flexibility into their supply chains. Navigating exposure to this volatility requires a new paradigm in risk management. 14 UN Environment Programme, Global Environment Outlook: Environment for Development, 200714 UN Environment Programme, Global Environment Outlook: Environment for Development, 2007