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The Future Of
Consumer Goods:
Moving From Analog
To Digital.
Disrupt With Digital.
Growth In The Future of
Consumer Goods Will Require It.
Digital is blurring the boundaries between consumers,
stores and consumer brands. This holds major opportunities
for consumer packaged goods (CPG) companies prepared to
radically reshape for the digital world—and clear risks for
those who fail to.
From Nairobi to Nanjing to New
York, consumers across the globe
have clearly embraced the digital
world. They have rapidly adapted
to shopping for groceries during
the daily commute; downloading
books, music or films on the move;
or tweeting, pinning and sharing
their purchasing decisions on social
networks. This expectation of
‘anytime, anywhere’ consumption
has grown exponentially, bolstered
by the rise of a mobile, social,
cloud-based era of computing.
The rise of digital technology is
empowering consumers, shifting
power from corporate to the
individual. Consumers and shoppers
have access to a wider range of
products and services—and they

2

use them. Consumers can, and
increasingly do, compare prices,
while seeking and sharing opinions
digitally. Great products are rapidly
amplified across a social media
network, causing spikes in demand.
So too are dreadful reviews, which
can wipe out a new product launch.

The Digital Consumer:1

The pace of change has surpassed
all prior shifts in the nature of an
industry: it took just seven years from
the launch of the internet in the US
for it to become a mass medium,
faster than any prior innovation. Today,
digital is ubiquitous. It crosses all
boundaries: age, geography and stage
of economic development. Kenya, for
example, leads the world in mobile
banking uptake, and Korea has the
world’s fastest broadband network,
while six in ten Japanese consumers
go online with their phones today.2

•	 19% of brand purchase
decisions are made in
store. While 81% are
made from home.

•	 Online sales are growing
rapidly by 18%.
•	 Online grocery shopping
is growing and most
prevalent in Asia.

•	 5 billion apps were
downloaded within 6
months of iPhone’s launch.
•	 eBay® generated over
$400M in sales from
its iPhone app in the
first full year.
CPG Companies Struggling With
Digital Disruption
While CPG companies are usually
adept at exploiting new trends, and
although we are seeing some exciting
innovations in the digital space,
we fundamentally believe that the
CPG industry has not yet grasped
the scale of the change ahead.
Most CPG companies’ experiments so
far are tactical rather than strategic
responses to the challenge of the
digital revolution: digital add-ons to
an existing, analog business. They
are still primarily focused on digital
marketing, and happen in pockets of
the organization, limiting return on
investment. Of course, as the lines
between manufacturer, distributor,
retailer and consumer blur, there has
been much experimentation with
digital, from both consumer goods
companies and retailers. Nespresso, for
example, has successfully introduced its
own brand boutiques to showcase their
coffee machines and capsules, while
closely integrating these with their
online ordering and fulfillment services
for consumers. Supermarket giant Tesco
has created a virtual store in Korea’s
subway system where consumers shop
by scanning QR codes. And Brazil’s
Magazine Luiza has invited consumers
to create social media ‘stores’ on
Facebook, with the company providing
fulfillment and paying ‘storeowners’ a
commission. Over 33,000 consumers
opened Facebook stores in one month.3

We are on the threshold of a dramatic
digital disintermediation. It will
literally re-write the rules of doing
business. It will disrupt existing CPG
relationships, whether they are with
suppliers, retailers, or consumers. It will
affect all aspects of CPG businesses—
how they are structured internally;
how they train employees; how they
engage with their supply chain and
retailers; how they create and market
their products; and how they interact
with consumers and shoppers.

Digital Revolution:
We’ve seen this happen in other
industries: a decade ago, the
shift to digital allowed low
cost airlines to steal a mark
from more expensive rivals by
making passengers print their
own boarding passes and check
themselves in. Today, digital
travel has become the norm.

It’s time to stop dabbling with digital.
It’s time to disrupt with digital!

But if CPG companies are going
to enjoy sustained growth into
the future, they need to take a far
more holistic approach that places
the consumer at the center.

3
Globalization Amplifying The Need
For Digital Capabilities In CPG
Digital strategies are doubly
important when considering the
impact of globalization on CPG
companies. First, the dismantling
of political and trade barriers
around the world brought new
workers, consumers and shoppers
into the global economy. Combined
with rapid falls in transport
and communications costs, this
provided huge opportunities
for businesses of all types to
prosper in a globalized world.
The second factor is the rise of
the emerging market middle-class
consumer (by 2015, there will
be at least one billion), which is
opening up a vast new potential
market. But here many consumers

are in rural areas or communities
lacking modern infrastructure. An
estimated 15 million new retail
outlets would be required to reach
these new consumers, which would
be a significant cost for retailers
(construction, staff and operations),
additional supply chain costs for all,
and many new consumers who will
likely require their localized tastes are
met and very competitive pricing.
Meanwhile, consumers in developed
markets are aging and looking to
live longer, healthier lives, but they
are also cash-strapped, due to the
stagnant economy, and seeking
value. Quite simply, leveraging
digital technology will be the
only economically viable way for
CPG companies to deliver on the

diverse tastes around the world and
profitably compete. Digital technology
is able to bring products and services
to communities that it would be
economically unfeasible to reach
with a physical store, whether that’s
due to the price of real estate, or
a lack of infrastructure and time.
To sustain the business they have
and capitalize on the opportunities
for growth in this digital age, CPG
companies should evolve to a digital
operating model. Leveraging digital
technologies alone will not be
enough. The entire CPG enterprise
needs to have shared digital
strategies and technologies to enable
the necessary agility required of a
true consumer-centric approach.

Dramatic Disintermediation
Emerging Market
Challenge

End of Domininance of
Bricks & Mortar Retail

From Product
Marketing

Digital Media
Ownership

From Product
Innovation

Mass
Customization

From Enterprise
Boundaries

The Collaborative Business
Model—Consumers, Suppliers,
Customers
Geography is no longer the basis
for management and organization

4
The justification for
truly digital operations
Over the last two decades, consumer
goods companies have skillfully
aligned their businesses to a changing
world. This has led them on a
journey from their predominantly
local roots, to boldly reshape their
operating models and become first
regional, and then global, giants.
Their vision has been rewarded:
every stage of the journey has been
accompanied by significant growth.
The first stage of the journey saw
companies extend their operations
regionally and win new consumer
segments in countries adjacent to,
or with similar characteristics to,
their home market. They began to
segment consumers by type as well
as geography, to introduce shared
services and outsourcing, and to
consolidate their manufacturing
and supply chains regionally. All
these measure dramatically reduced
costs and improved margins. The
majority of the industry now runs
a regional operating model.
A few companies have moved to the
next stage, and ‘gone global’. They
focused on global consumer segments,
and developed priority global brands
with target segments stretching
from Tokyo to Turin to Toronto. They
introduced global operating models,
supported by ERP systems, regional
management and supply hubs, and
shared services. They standardized
operations, processes, supply
chains, products and marketing,
thus cutting costs and substantially
increasing revenue and profitability.

One billion
new consumers
by 2015

Newly affluent
emerging
market middle
class

The 15 million
new outlets
needed to
reach them
The next stage of the journey
combined the best of the regional
and global models together to
create “Super Global-Super Local”
companies. The sophistication of
consumer segmentation increased,
and consumer and shopper archetypes
were created to drive product
development and engagement.
At the same time, unique local
products supplemented global
propositions. Only a handful of
companies operate like this today.
This transformational journey is
associated with increased earnings
and profitability in the CPG industry.
Global consumer goods companies
have achieved more than double digit
growth in earnings before interest
and tax in every year since 19954; and
earnings have outpaced sales growth
in all but the last two years. But, by

Leveraging
digital
technology is
the only way it’s
economically
viable to
compete and
win in this
environment

capturing the hearts, and wallets, of
emerging consumers and shoppers
with desirable snacks and drinks,
cosmetics, toiletries and household
goods, CPG companies have grown
revenues by almost 7 percent
CAGR5 in the last two years, despite
depressed global economic growth.
However, many firms are likely
to find that, as globalization
continues and consumer growth
increases, their margins and
business growth will come under
challenge. It is time for them to
radically reshape their existing
business models and strategies
to benefit from the digital world.
Importantly, this isn’t about some
kind of digital façade; it’s a far more
transformational change requiring
new processes and technology.
5
Figure 1: Digital is a fundamental change for CPG companies and is
equivalent to previous macroeconomic changes
Improve Margins
Through Cost
Reduction

Double Size
of Business

00s
New
Consumers

90s
Global
economy

Wherever each company is on its
journey, the digital world will affect
the future of its business profoundly.
The path ahead is challenging. But it
also offers the prospect of stronger
revenues and profitability for those
companies that can successfully
enfranchise new emerging market
consumers and digitize their businesses.

Increase
Profitability

10s
Digital

Market
of One

Margin
Reach

Scale
Leverage

Autonomous

Local

Regional

Global

Super Global/
Digital
Super Local Disintermediation

Fluid

Figure 2: Processes and Technology have to evolve to support the journey in each step

6

Ecosystem Leverage

Consumer Pull

Real Time

None
Interactive

Some
Companies

Archetypes

Most of the
Industry

Consolidated

Fragmented

Very Few
Companies

First
Movers

Enabling Capabilities

Back-end
Package
Driven

Front-end
Process
Driven

Relationship &
Experience
Driven

CPG Push

Few and Far
Between

Local

Regional

Global

Super Global/
Digital
Super Local Disintermediation

Fluid
Evolving To A Digital Operating Model
Moving to a digital operating model will involve a
fundamental rethink of corporate structures, customer and
consumer engagement, product development, supply chain,
marketing and sales.

1

Organize by consumer
and market archetype
rather than geography.

For CPG companies, structuring their
business operations geographically
made sense in a world of high
transport and communications
costs, and limited globalization. In
today’s era, companies will need to
structure their businesses in socially
and economically coherent groups,
such as types of consumer and
route to market, to be successful.
For Consumer Archetypes, this
might include groupings of culturally
similar markets—so Australia grouped
with the UK (similar language and
customs), rather than nearby Indonesia,
for example. More radically, they
should structure themselves and
their propositions around distinct
consumer groups, such as working
mothers, or the recently retired.
When it comes to delivering the
capabilities required to win in the
local market, there is no one size fits
all and not every market requires the
most advanced capabilities in order

to succeed. Given the sheer number
of different markets, it is necessary
to understand where groups of
markets share the same commercial
success model and organize by
these Market Archetypes.
CPG companies can determine the
commercial success model required
to win in each market or markettype, typically through evaluating
capability, channel, and KPIs. Markets
can be grouped according to their
attractiveness (size and growth)
and the complexity inherent in
their route to market structure and
general maturity and stability.
Similar markets and consumer
segments are not always geographically
contiguous. Both these routes will
require fundamental organizational
change. Companies will need to
organize their systems and processes,
supply chains, distribution, sales,
branding and marketing activities
around these archetypes.

Defining Commercial
Success Models:
•	 Capability assessment:
Assesses the importance
of key commercial
capabilities—route to
market, pricing, portfolio,
trade promotion, distributor
management, and marketing
investment—in each market
•	 Channel assessment:
maps out the route to
market in each country
•	 KPI assessment: Highlights
the core KPIs that are
applicable to measuring
performance in specific
markets

9
2

Much of the growth in retail today is
in convenience or impulse shopping
and non-store business—including
online, via mail order, and TV. For
example, Asia has been progressive in
selling outside traditional bricks and
mortar retail—being the first to accept
mobile payments. Although online sales
are still a relatively small part of the
market, their compound annual growth
rates of 18 percent are far outstripping
that of urban retail sectors and
shopping malls.6 With lower costs and
greater flexibility, so-called etailing
will lead the way. But in turn, this will
disrupt the traditional structure of the
industry, as CPG companies discover
new opportunities to sell direct to
consumers, and build relationships
with them, more than ever before.
In the past, CPG companies have
relied on bricks and mortar retailers to
sell their products. But in the digital
world, digital retailers will be king.
Urban retail sectors and malls have
been among the first to feel the sharp
end of digital disruption. Etailers
have come into their market. They
operate without the overhead costs of
physical stores. They carry extensive

10

3

Expand into online
sales—through eRetailers
and/or directly through
eCommerce.
product ranges beyond the capacity
of a physical store. And they have cut
costs and passed some of the savings
on to the shopper in reduced prices.
As a result, they have taken a bite
out of the profits of traditional
retailers. This is why, despite the
rising profits in the CPG industry over
the last decade, profits at bricks and
mortar retailers have stagnated.
This retail revolution is not so much
the disintermediation of retailers, but
the disintermediation of the physical
store. Tesco, for example, has halted
construction on new stores. Retailers
are developing their own online and
virtual offerings, and integrating
them with their stores to drive
traffic and interest across channels.
If retailers can’t insulate themselves
from digital disintermediation;
nor can CPG companies. What is
happening today in retail will happen
tomorrow in consumer goods.
CPG companies need to act now
to adapt their business model.

Ensure integration
throughout the value
chain to enable a seamless
shopping experience.

The integration of physical and virtual
shopping experiences, across the
lifecycle of a product, continues to
develop rapidly. This is making the
previously intangible aspects of how
consumers discover and value goods
far more valuable—from how they are
paid for, delivered, used, and disposed
of. This demands that these fragmented
aspects of the value chain can no
longer be arm’s length processes:
they need to be integrated with the
manufacturer’s brand. Nespresso’s
market strength is partly wrapped up
in its tight integration of all these
aspects, ensuring a seamless consumer
experience from its concept stores,
to its online fulfillment channels,
to its dedicated support lines.
In a survey 7 Accenture undertook
last year into consumer expectations
and habits, 8 out of 10 consumers
said that the ability to pay for their
goods anytime-anywhere-anyhow,
and the ability to arrange delivery
at their convenience, was important
to them. This means that tangential
capabilities—such as payments
processing, and customer order
management and delivery—become
core to the delivery of brands.
4

Build engaging, relevant
and customized brand
relationships with
target consumers.

The moments of truth are
converging, and to achieve the kind
of seamless experience consumers
and shoppers want, CPG companies
will have to have a presence at every
stage of the shopper’s journey—from
initial product discovery, to purchase,
delivery, first usage, and so on. They
will need to engage with and manage
their whole value chain—outside
their enterprise, as well as within it.

Marketing departments have long
been expert in the art of monologue:
endlessly highlighting a brand’s merits
to consumers. Now they need to learn
the art of dialogue; they need to
find the points of intersection between
what they want to say and what a
consumer wants to hear, through
multiple channels. Content needs to be
customized, timely and continuously
relevant to individual consumers.

And the blurring of the boundaries
will also encourage CPG companies
to sell directly to target consumers.
This is a development that lends
itself primarily to upmarket brands,
as consumers and shoppers will have
a limited appetite for shopping for
commodity items from multiple sites.
Direct-to-consumer consolidation sites,
such as alice.com in the US try to get
around this issue. Other manufacturers
are trialing eStores and subscription
services for bulk or repeat purchases.

The digital world enables, and now
demands, engagement through
numerous interconnections between
the consumer or shopper, product,
brand, retailer, digital and social
networks. There’s a great opportunity
here. CPG companies get the chance to
build direct relationships with target
consumers. But there are significant
challenges too. In the digital world,
the consumer and shopper will decide
whether to engage or ‘consume’
any given piece of marketing. If
the content isn’t engaging and
relevant, it will be disregarded.
Achieving a personalized digital
relationship with individual
consumers and shoppers will require
investment in automation, technology
and analytics. They can take
relationships beyond transactional.

From Monologue To Dialogue:8
•	 A Brazilian department
store, C&A Fashion Like,
has created clothes hangers
that display live data on the
number of ‘likes’ a product
receives on Facebook.
•	 Nestle created Marktplatz
in Germany in 2011
allowing shoppers to
rate their products.
•	 Having launched a popular
Stain Solver website for
its Vanish brand, ReckittBenckiser took the concept
a stage further with a ‘tip
exchange’ Facebook page
where users share their top
stain removing tips.

Together, they have the power to
create personalized engagement,
based on a 360° view of consumers’
digital interactions that will allow
companies to anticipate shoppers’
tastes, habits and expectations.

11
5

Expand product ranges
as the constraints set by
physical space decrease.

The size of stores, competition among
CPGs for shelf space, and supply chain
costs has limited product ranges. This
physical constraint will decrease with
the digital revolution. We foresee an
exponential expansion of product
ranges to meet consumers’ diverse
needs and tastes around the world.
Advances in technology will turboboost this trend by making masscustomization of products a reality.

6

Enable consumer
co-creation, allowing
individuals to customize
their chosen products.

Companies used to exploiting the
mass market, will have to learn to
exploit the market of ONE. Focus on
the individual consumer, influencer,
and shopper—they are all digital and
expect specific attention. This could be
highly profitable: we already know that
the more specific a product is to an
individual, the more value they assign
to it, and the more they are willing to
pay for it. As advances in technology
make the mass-customization of
products an economical reality, allow
consumers to specify products to
suit their individual tastes, such as
fragrance, flavor, pack size and color.
Making Sense Of A New Landscape
These trends are blurring the
boundaries in the consumer goods
industry. Product manufacturers are
becoming retailers, distributors and
media operators. On the demandside, consumers are no longer just
passive shoppers: they are critics,
product co-creators, and, in some
instances, even digital storeowners.
Although CPG companies are talking
about the need to digitize their
businesses, they are still a long way
from understanding the scale of
the revolution that is coming. Right
now, too many companies are simply
seeing the digital revolution as a
technology issue: adding another
channel to reach consumers. It is far
more. It is a commercial revolution
that must be addressed strategically
across the enterprise, rather than

14

being led tactically by the IT function.
Internal boundaries between functions
need to come down, blurring the
lines between sales, marketing, R&D,
the supply chain and consumer
service – enabling a holistic view
of consumers, the capabilities to
deliver customized messages and
offers, and the agility to adjust
quickly as consumer needs change.
1	eMarketer, “The Global Media Intelligence
	 Report Asia Pacific”, 2012
2 eMarketer, The Global Media Intelligence Report:
	 Asia-Pacific, September, 2012 pgs. 38,39
3 Retail Planet, Global Trends & Forecasts,
	 2013:Retail Horizons – Looking Forward to
	 2020, December 2012, pages 25,54, 55
4 Planet Retail
5 Captial IQ, FMCG Sales and Profit 1995-2012
6 Planet Retail, “Global Channel Trends”, May 2013
7 Accenture Seamless Retail Study
8 Retail Planet, Global Trends & Forecasts, 2013:
	 Retail Horizons – Looking Forward to 2020,
	 December 2012, page 34

It’s time to disrupt
with a digital
operating model.
Figure 3: The degree of functional change for CPG companies as they evolve through the stages of the journey
As companies expand globally, they evolve to
global brands, and ultimately develop line
extensions to appeal to localized tastes.

R&D

Global Brands
Break down functional silos to
have one holistic view of consumer

Marketing

Regional Brands

Global Brands

Global & Some Local Brands

No longer organize by geography,
and instead by consumer and
market archetype

Sales

Enabling local agility
and service

Creating cost efficiencies

Supply Chain

Regionalize Supply Chain

Route to market through
market archetypes

Some Globalization/
Value Creation

Converge to
Work from
Consumer
Back & Endto-End

Local Fulfillment

Driving global operating
efficiency, innovation and
growth

Eliminating redundancy and
increasing cost efficiency

Finance
Regionalize
Shared
Services

HR

Global
Business
Services
(GBS)

GBS
Service
Line

IT
0% Change
50% Change
100% Change

Local

Regional

Global

Super Global/
Super Local

Digital

15
Contacts for more information:
Fabio Vacirca
Global Consumer Goods
Managing Director
Milan, Italy
fabio.vacirca@accenture.com
+39 (02777) 58483
John Jackson
Managing Director—
Consumer Goods;
Growth & Strategy
London, England
john.jackson@accenture.com
+44 (20) 7844-2779
Keith Barringer
North America Consumer Goods
Managing Director
Atlanta, Georgia, USA
c.keith.barringer@accenture.com
+1 (678) 657-7783
Mark Austin
Europe and Latin America
Consumer Goods Managing Director
London, England
mark.austin@accenture.com
+44 (20) 7844-7193
Rajat Agarwal
Asia Pacific Consumer Goods
Managing Director
New Delhi, India
rajat.agarwal@accenture.com
+91 (11) 429-0185

Copyright © 2014 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered are
trademarks of Accenture.

Shaping the Future
of High Performance
in Consumer Goods
Our Consumer Goods industry
professionals around the world work
with companies in the food, beverages,
agribusiness, home and personal care,
consumer health, fashion and luxury,
and tobacco segments. With decades
of experience working with the world’s
most successful companies, we help
clients manage scale and complexity,
transform global operating models to
effectively serve emerging and mature
markets, and drive growth through
evolving market conditions. We provide
end-to-end business services as well as
individual consulting, technology and
outsourcing projects in the commercial
and supply chain areas, enterprise
solutions and integrated business
services. To read our proprietary
industry research and insights, visit
www.accenture.com/ConsumerGoods.

About Accenture
Accenture is a global management
consulting, technology services
and outsourcing company, with
approximately 281,000 people serving
clients in more than 120 countries. 
Combining unparalleled experience,
comprehensive capabilities across all
industries and business functions,
and extensive research on the world’s
most successful companies, Accenture
collaborates with clients to help
them become high-performance
businesses and governments.  The
company generated net revenues of
US$28.6 billion for the fiscal year
ended Aug. 31, 2013.  Its home
page is www.accenture.com.

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The CPG Digital Revolution: Moving from Analog to Digital Operating Model

  • 1. The Future Of Consumer Goods: Moving From Analog To Digital.
  • 2. Disrupt With Digital. Growth In The Future of Consumer Goods Will Require It. Digital is blurring the boundaries between consumers, stores and consumer brands. This holds major opportunities for consumer packaged goods (CPG) companies prepared to radically reshape for the digital world—and clear risks for those who fail to. From Nairobi to Nanjing to New York, consumers across the globe have clearly embraced the digital world. They have rapidly adapted to shopping for groceries during the daily commute; downloading books, music or films on the move; or tweeting, pinning and sharing their purchasing decisions on social networks. This expectation of ‘anytime, anywhere’ consumption has grown exponentially, bolstered by the rise of a mobile, social, cloud-based era of computing. The rise of digital technology is empowering consumers, shifting power from corporate to the individual. Consumers and shoppers have access to a wider range of products and services—and they 2 use them. Consumers can, and increasingly do, compare prices, while seeking and sharing opinions digitally. Great products are rapidly amplified across a social media network, causing spikes in demand. So too are dreadful reviews, which can wipe out a new product launch. The Digital Consumer:1 The pace of change has surpassed all prior shifts in the nature of an industry: it took just seven years from the launch of the internet in the US for it to become a mass medium, faster than any prior innovation. Today, digital is ubiquitous. It crosses all boundaries: age, geography and stage of economic development. Kenya, for example, leads the world in mobile banking uptake, and Korea has the world’s fastest broadband network, while six in ten Japanese consumers go online with their phones today.2 • 19% of brand purchase decisions are made in store. While 81% are made from home. • Online sales are growing rapidly by 18%. • Online grocery shopping is growing and most prevalent in Asia. • 5 billion apps were downloaded within 6 months of iPhone’s launch. • eBay® generated over $400M in sales from its iPhone app in the first full year.
  • 3. CPG Companies Struggling With Digital Disruption While CPG companies are usually adept at exploiting new trends, and although we are seeing some exciting innovations in the digital space, we fundamentally believe that the CPG industry has not yet grasped the scale of the change ahead. Most CPG companies’ experiments so far are tactical rather than strategic responses to the challenge of the digital revolution: digital add-ons to an existing, analog business. They are still primarily focused on digital marketing, and happen in pockets of the organization, limiting return on investment. Of course, as the lines between manufacturer, distributor, retailer and consumer blur, there has been much experimentation with digital, from both consumer goods companies and retailers. Nespresso, for example, has successfully introduced its own brand boutiques to showcase their coffee machines and capsules, while closely integrating these with their online ordering and fulfillment services for consumers. Supermarket giant Tesco has created a virtual store in Korea’s subway system where consumers shop by scanning QR codes. And Brazil’s Magazine Luiza has invited consumers to create social media ‘stores’ on Facebook, with the company providing fulfillment and paying ‘storeowners’ a commission. Over 33,000 consumers opened Facebook stores in one month.3 We are on the threshold of a dramatic digital disintermediation. It will literally re-write the rules of doing business. It will disrupt existing CPG relationships, whether they are with suppliers, retailers, or consumers. It will affect all aspects of CPG businesses— how they are structured internally; how they train employees; how they engage with their supply chain and retailers; how they create and market their products; and how they interact with consumers and shoppers. Digital Revolution: We’ve seen this happen in other industries: a decade ago, the shift to digital allowed low cost airlines to steal a mark from more expensive rivals by making passengers print their own boarding passes and check themselves in. Today, digital travel has become the norm. It’s time to stop dabbling with digital. It’s time to disrupt with digital! But if CPG companies are going to enjoy sustained growth into the future, they need to take a far more holistic approach that places the consumer at the center. 3
  • 4. Globalization Amplifying The Need For Digital Capabilities In CPG Digital strategies are doubly important when considering the impact of globalization on CPG companies. First, the dismantling of political and trade barriers around the world brought new workers, consumers and shoppers into the global economy. Combined with rapid falls in transport and communications costs, this provided huge opportunities for businesses of all types to prosper in a globalized world. The second factor is the rise of the emerging market middle-class consumer (by 2015, there will be at least one billion), which is opening up a vast new potential market. But here many consumers are in rural areas or communities lacking modern infrastructure. An estimated 15 million new retail outlets would be required to reach these new consumers, which would be a significant cost for retailers (construction, staff and operations), additional supply chain costs for all, and many new consumers who will likely require their localized tastes are met and very competitive pricing. Meanwhile, consumers in developed markets are aging and looking to live longer, healthier lives, but they are also cash-strapped, due to the stagnant economy, and seeking value. Quite simply, leveraging digital technology will be the only economically viable way for CPG companies to deliver on the diverse tastes around the world and profitably compete. Digital technology is able to bring products and services to communities that it would be economically unfeasible to reach with a physical store, whether that’s due to the price of real estate, or a lack of infrastructure and time. To sustain the business they have and capitalize on the opportunities for growth in this digital age, CPG companies should evolve to a digital operating model. Leveraging digital technologies alone will not be enough. The entire CPG enterprise needs to have shared digital strategies and technologies to enable the necessary agility required of a true consumer-centric approach. Dramatic Disintermediation Emerging Market Challenge End of Domininance of Bricks & Mortar Retail From Product Marketing Digital Media Ownership From Product Innovation Mass Customization From Enterprise Boundaries The Collaborative Business Model—Consumers, Suppliers, Customers Geography is no longer the basis for management and organization 4
  • 5. The justification for truly digital operations Over the last two decades, consumer goods companies have skillfully aligned their businesses to a changing world. This has led them on a journey from their predominantly local roots, to boldly reshape their operating models and become first regional, and then global, giants. Their vision has been rewarded: every stage of the journey has been accompanied by significant growth. The first stage of the journey saw companies extend their operations regionally and win new consumer segments in countries adjacent to, or with similar characteristics to, their home market. They began to segment consumers by type as well as geography, to introduce shared services and outsourcing, and to consolidate their manufacturing and supply chains regionally. All these measure dramatically reduced costs and improved margins. The majority of the industry now runs a regional operating model. A few companies have moved to the next stage, and ‘gone global’. They focused on global consumer segments, and developed priority global brands with target segments stretching from Tokyo to Turin to Toronto. They introduced global operating models, supported by ERP systems, regional management and supply hubs, and shared services. They standardized operations, processes, supply chains, products and marketing, thus cutting costs and substantially increasing revenue and profitability. One billion new consumers by 2015 Newly affluent emerging market middle class The 15 million new outlets needed to reach them The next stage of the journey combined the best of the regional and global models together to create “Super Global-Super Local” companies. The sophistication of consumer segmentation increased, and consumer and shopper archetypes were created to drive product development and engagement. At the same time, unique local products supplemented global propositions. Only a handful of companies operate like this today. This transformational journey is associated with increased earnings and profitability in the CPG industry. Global consumer goods companies have achieved more than double digit growth in earnings before interest and tax in every year since 19954; and earnings have outpaced sales growth in all but the last two years. But, by Leveraging digital technology is the only way it’s economically viable to compete and win in this environment capturing the hearts, and wallets, of emerging consumers and shoppers with desirable snacks and drinks, cosmetics, toiletries and household goods, CPG companies have grown revenues by almost 7 percent CAGR5 in the last two years, despite depressed global economic growth. However, many firms are likely to find that, as globalization continues and consumer growth increases, their margins and business growth will come under challenge. It is time for them to radically reshape their existing business models and strategies to benefit from the digital world. Importantly, this isn’t about some kind of digital façade; it’s a far more transformational change requiring new processes and technology. 5
  • 6. Figure 1: Digital is a fundamental change for CPG companies and is equivalent to previous macroeconomic changes Improve Margins Through Cost Reduction Double Size of Business 00s New Consumers 90s Global economy Wherever each company is on its journey, the digital world will affect the future of its business profoundly. The path ahead is challenging. But it also offers the prospect of stronger revenues and profitability for those companies that can successfully enfranchise new emerging market consumers and digitize their businesses. Increase Profitability 10s Digital Market of One Margin Reach Scale Leverage Autonomous Local Regional Global Super Global/ Digital Super Local Disintermediation Fluid Figure 2: Processes and Technology have to evolve to support the journey in each step 6 Ecosystem Leverage Consumer Pull Real Time None Interactive Some Companies Archetypes Most of the Industry Consolidated Fragmented Very Few Companies First Movers Enabling Capabilities Back-end Package Driven Front-end Process Driven Relationship & Experience Driven CPG Push Few and Far Between Local Regional Global Super Global/ Digital Super Local Disintermediation Fluid
  • 7.
  • 8.
  • 9. Evolving To A Digital Operating Model Moving to a digital operating model will involve a fundamental rethink of corporate structures, customer and consumer engagement, product development, supply chain, marketing and sales. 1 Organize by consumer and market archetype rather than geography. For CPG companies, structuring their business operations geographically made sense in a world of high transport and communications costs, and limited globalization. In today’s era, companies will need to structure their businesses in socially and economically coherent groups, such as types of consumer and route to market, to be successful. For Consumer Archetypes, this might include groupings of culturally similar markets—so Australia grouped with the UK (similar language and customs), rather than nearby Indonesia, for example. More radically, they should structure themselves and their propositions around distinct consumer groups, such as working mothers, or the recently retired. When it comes to delivering the capabilities required to win in the local market, there is no one size fits all and not every market requires the most advanced capabilities in order to succeed. Given the sheer number of different markets, it is necessary to understand where groups of markets share the same commercial success model and organize by these Market Archetypes. CPG companies can determine the commercial success model required to win in each market or markettype, typically through evaluating capability, channel, and KPIs. Markets can be grouped according to their attractiveness (size and growth) and the complexity inherent in their route to market structure and general maturity and stability. Similar markets and consumer segments are not always geographically contiguous. Both these routes will require fundamental organizational change. Companies will need to organize their systems and processes, supply chains, distribution, sales, branding and marketing activities around these archetypes. Defining Commercial Success Models: • Capability assessment: Assesses the importance of key commercial capabilities—route to market, pricing, portfolio, trade promotion, distributor management, and marketing investment—in each market • Channel assessment: maps out the route to market in each country • KPI assessment: Highlights the core KPIs that are applicable to measuring performance in specific markets 9
  • 10. 2 Much of the growth in retail today is in convenience or impulse shopping and non-store business—including online, via mail order, and TV. For example, Asia has been progressive in selling outside traditional bricks and mortar retail—being the first to accept mobile payments. Although online sales are still a relatively small part of the market, their compound annual growth rates of 18 percent are far outstripping that of urban retail sectors and shopping malls.6 With lower costs and greater flexibility, so-called etailing will lead the way. But in turn, this will disrupt the traditional structure of the industry, as CPG companies discover new opportunities to sell direct to consumers, and build relationships with them, more than ever before. In the past, CPG companies have relied on bricks and mortar retailers to sell their products. But in the digital world, digital retailers will be king. Urban retail sectors and malls have been among the first to feel the sharp end of digital disruption. Etailers have come into their market. They operate without the overhead costs of physical stores. They carry extensive 10 3 Expand into online sales—through eRetailers and/or directly through eCommerce. product ranges beyond the capacity of a physical store. And they have cut costs and passed some of the savings on to the shopper in reduced prices. As a result, they have taken a bite out of the profits of traditional retailers. This is why, despite the rising profits in the CPG industry over the last decade, profits at bricks and mortar retailers have stagnated. This retail revolution is not so much the disintermediation of retailers, but the disintermediation of the physical store. Tesco, for example, has halted construction on new stores. Retailers are developing their own online and virtual offerings, and integrating them with their stores to drive traffic and interest across channels. If retailers can’t insulate themselves from digital disintermediation; nor can CPG companies. What is happening today in retail will happen tomorrow in consumer goods. CPG companies need to act now to adapt their business model. Ensure integration throughout the value chain to enable a seamless shopping experience. The integration of physical and virtual shopping experiences, across the lifecycle of a product, continues to develop rapidly. This is making the previously intangible aspects of how consumers discover and value goods far more valuable—from how they are paid for, delivered, used, and disposed of. This demands that these fragmented aspects of the value chain can no longer be arm’s length processes: they need to be integrated with the manufacturer’s brand. Nespresso’s market strength is partly wrapped up in its tight integration of all these aspects, ensuring a seamless consumer experience from its concept stores, to its online fulfillment channels, to its dedicated support lines. In a survey 7 Accenture undertook last year into consumer expectations and habits, 8 out of 10 consumers said that the ability to pay for their goods anytime-anywhere-anyhow, and the ability to arrange delivery at their convenience, was important to them. This means that tangential capabilities—such as payments processing, and customer order management and delivery—become core to the delivery of brands.
  • 11. 4 Build engaging, relevant and customized brand relationships with target consumers. The moments of truth are converging, and to achieve the kind of seamless experience consumers and shoppers want, CPG companies will have to have a presence at every stage of the shopper’s journey—from initial product discovery, to purchase, delivery, first usage, and so on. They will need to engage with and manage their whole value chain—outside their enterprise, as well as within it. Marketing departments have long been expert in the art of monologue: endlessly highlighting a brand’s merits to consumers. Now they need to learn the art of dialogue; they need to find the points of intersection between what they want to say and what a consumer wants to hear, through multiple channels. Content needs to be customized, timely and continuously relevant to individual consumers. And the blurring of the boundaries will also encourage CPG companies to sell directly to target consumers. This is a development that lends itself primarily to upmarket brands, as consumers and shoppers will have a limited appetite for shopping for commodity items from multiple sites. Direct-to-consumer consolidation sites, such as alice.com in the US try to get around this issue. Other manufacturers are trialing eStores and subscription services for bulk or repeat purchases. The digital world enables, and now demands, engagement through numerous interconnections between the consumer or shopper, product, brand, retailer, digital and social networks. There’s a great opportunity here. CPG companies get the chance to build direct relationships with target consumers. But there are significant challenges too. In the digital world, the consumer and shopper will decide whether to engage or ‘consume’ any given piece of marketing. If the content isn’t engaging and relevant, it will be disregarded. Achieving a personalized digital relationship with individual consumers and shoppers will require investment in automation, technology and analytics. They can take relationships beyond transactional. From Monologue To Dialogue:8 • A Brazilian department store, C&A Fashion Like, has created clothes hangers that display live data on the number of ‘likes’ a product receives on Facebook. • Nestle created Marktplatz in Germany in 2011 allowing shoppers to rate their products. • Having launched a popular Stain Solver website for its Vanish brand, ReckittBenckiser took the concept a stage further with a ‘tip exchange’ Facebook page where users share their top stain removing tips. Together, they have the power to create personalized engagement, based on a 360° view of consumers’ digital interactions that will allow companies to anticipate shoppers’ tastes, habits and expectations. 11
  • 12. 5 Expand product ranges as the constraints set by physical space decrease. The size of stores, competition among CPGs for shelf space, and supply chain costs has limited product ranges. This physical constraint will decrease with the digital revolution. We foresee an exponential expansion of product ranges to meet consumers’ diverse needs and tastes around the world. Advances in technology will turboboost this trend by making masscustomization of products a reality. 6 Enable consumer co-creation, allowing individuals to customize their chosen products. Companies used to exploiting the mass market, will have to learn to exploit the market of ONE. Focus on the individual consumer, influencer, and shopper—they are all digital and expect specific attention. This could be highly profitable: we already know that the more specific a product is to an individual, the more value they assign to it, and the more they are willing to pay for it. As advances in technology make the mass-customization of products an economical reality, allow consumers to specify products to suit their individual tastes, such as fragrance, flavor, pack size and color.
  • 13.
  • 14. Making Sense Of A New Landscape These trends are blurring the boundaries in the consumer goods industry. Product manufacturers are becoming retailers, distributors and media operators. On the demandside, consumers are no longer just passive shoppers: they are critics, product co-creators, and, in some instances, even digital storeowners. Although CPG companies are talking about the need to digitize their businesses, they are still a long way from understanding the scale of the revolution that is coming. Right now, too many companies are simply seeing the digital revolution as a technology issue: adding another channel to reach consumers. It is far more. It is a commercial revolution that must be addressed strategically across the enterprise, rather than 14 being led tactically by the IT function. Internal boundaries between functions need to come down, blurring the lines between sales, marketing, R&D, the supply chain and consumer service – enabling a holistic view of consumers, the capabilities to deliver customized messages and offers, and the agility to adjust quickly as consumer needs change. 1 eMarketer, “The Global Media Intelligence Report Asia Pacific”, 2012 2 eMarketer, The Global Media Intelligence Report: Asia-Pacific, September, 2012 pgs. 38,39 3 Retail Planet, Global Trends & Forecasts, 2013:Retail Horizons – Looking Forward to 2020, December 2012, pages 25,54, 55 4 Planet Retail 5 Captial IQ, FMCG Sales and Profit 1995-2012 6 Planet Retail, “Global Channel Trends”, May 2013 7 Accenture Seamless Retail Study 8 Retail Planet, Global Trends & Forecasts, 2013: Retail Horizons – Looking Forward to 2020, December 2012, page 34 It’s time to disrupt with a digital operating model.
  • 15. Figure 3: The degree of functional change for CPG companies as they evolve through the stages of the journey As companies expand globally, they evolve to global brands, and ultimately develop line extensions to appeal to localized tastes. R&D Global Brands Break down functional silos to have one holistic view of consumer Marketing Regional Brands Global Brands Global & Some Local Brands No longer organize by geography, and instead by consumer and market archetype Sales Enabling local agility and service Creating cost efficiencies Supply Chain Regionalize Supply Chain Route to market through market archetypes Some Globalization/ Value Creation Converge to Work from Consumer Back & Endto-End Local Fulfillment Driving global operating efficiency, innovation and growth Eliminating redundancy and increasing cost efficiency Finance Regionalize Shared Services HR Global Business Services (GBS) GBS Service Line IT 0% Change 50% Change 100% Change Local Regional Global Super Global/ Super Local Digital 15
  • 16. Contacts for more information: Fabio Vacirca Global Consumer Goods Managing Director Milan, Italy fabio.vacirca@accenture.com +39 (02777) 58483 John Jackson Managing Director— Consumer Goods; Growth & Strategy London, England john.jackson@accenture.com +44 (20) 7844-2779 Keith Barringer North America Consumer Goods Managing Director Atlanta, Georgia, USA c.keith.barringer@accenture.com +1 (678) 657-7783 Mark Austin Europe and Latin America Consumer Goods Managing Director London, England mark.austin@accenture.com +44 (20) 7844-7193 Rajat Agarwal Asia Pacific Consumer Goods Managing Director New Delhi, India rajat.agarwal@accenture.com +91 (11) 429-0185 Copyright © 2014 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. Shaping the Future of High Performance in Consumer Goods Our Consumer Goods industry professionals around the world work with companies in the food, beverages, agribusiness, home and personal care, consumer health, fashion and luxury, and tobacco segments. With decades of experience working with the world’s most successful companies, we help clients manage scale and complexity, transform global operating models to effectively serve emerging and mature markets, and drive growth through evolving market conditions. We provide end-to-end business services as well as individual consulting, technology and outsourcing projects in the commercial and supply chain areas, enterprise solutions and integrated business services. To read our proprietary industry research and insights, visit www.accenture.com/ConsumerGoods. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than 120 countries.  Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments.  The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013.  Its home page is www.accenture.com.