KPMG International and CFO Research Services commenced a two-phase survey to examine the outlook and perspectives of senior finance executives in the retail, food, drink, and consumer goods sectors, on the key issues affecting their industry.
Consumer companies around the globe are showing a surprising resilience and guarded optimism about prospects for growth in 2011, even amid continued market volatility and changing demographic trends, according to the survey.
“An element of cautious optimism is evident but we remain in a state of flux,” said Willy Kruh, Global Chair of KPMG’s Consumer Markets practice. “We’re still experiencing an erosion of spending as people are simply spending less, so the focus on cost management going forward is still critical.
“Moreover, the fundamental issues underlying Standard and Poor’s revised outlook on the US as well as the threat of rising inflation in China could have repercussions on consumer spending in both North America and China, although it’s still too soon to tell.”
Three-quarters of the consumer executives surveyed report that they anticipate an increase in consumer spending in their target markets and in their own companies’ financial performance in 2011 compared to 2010.
“The management discipline that consumer businesses adopted throughout the downturn made many of them leaner and more efficient, creating a stronger base from which to pursue success,” Mr. Kruh said.
Sixty-four percent believe that the ongoing situations in Japan and the Middle East will have little or no impact on their business operations in the long-term, although for
Asia Pacific specifically, 80 percent of all respondents expect a sustained impact on economic growth over the next six to 12 months. Respondents worldwide were most likely to see energy price volatility as the most enduring impact of these crises, as 51 percent of respondents anticipate a short-term impact on energy price volatility and 40 percent see a long-term impact.
An Eye on Cost and Growth
While the economic downturn has had a significant impact on profits and growth for many consumer businesses over the last three years, those companies that have sustained the downturn have emerged stronger: nearly 50 percent of executives say they have better cost structures, prospects for growth and improved relationships with suppliers.
“We’re witnessing the beginnings of a cost-to-growth agenda in the consumer sector,” said Mark Larson, KPMG’s Global Head of Retail. “We’re moving into a new paradigm characterized by a renewed focus on growth, while preserving margins and investing in IT. The sector has learned the hard way that it can’t take its eye off the ball of cost management.”
Seventy-five percent of respondents worldwide expect a rise in consumer spending in 2011 compared to 2010. Elsewhere in the survey, respondents were especially likely to identify emerging markets such as Asia, India, and Latin American as strong regions for growth and that the growing consumer base and expanding middle class in emerging markets—as well as consumers’ adoption of technology—will have a positive impact on their businesses.
In North America and Europe, however, outlooks are more measured. Consumer trends in these regions point to a stronger consumer focus on savings; a heightened interest in safety, health and sustainability; lower consumption of luxury goods, and an aging population.
Over 40 percent said that maintaining profit margins will be a challenge due to rising input costs, discounting, regulatory compliance and foreign exchange variability. Moreover, 60 percent believe that they will have difficulty raising prices.
Careful Positioning for Growth
A majority of respondents say they will increase market share mainly through organic growth: 74 percent plan to enter new geographic markets –through opening new stores, adding distribution channels, or other maneuvers.
Respondents from the US and Canada intend to employ organic growth methods as their primary tool for increasing market share. Executives from Asia-Pacific, Latin America and Europe say they will also pursue organic strategies but will supplement their growth with M&As.
And in a global economy where volatility may be the new norm – economically, environmentally and politically – 42 percent of respondents, when polled about the impact of the Middle East and Japan crises say they will most likely address changes to their risk management policies, and 40 percent intend to adjust their supplier programs.
Improvements in supply chain efficiency are critical to growth strategies with over 50 percent of respondents intending to improve distribution structure, invest in technology, decrease inventory and consolidate suppliers.
Information technology (IT) investment also plays a significant role in both cost and strategic growth initiatives. Over 70 percent of respondents say their companies will invest in IT systems for customer relationship management, enterprise resource planning, business intelligence and forecasting.
“Success for consumer companies that have weathered the recession will depend on their ability to maintain their cost and supply chain efficiencies as well as to create innovative products and business models to grow the top line,” Mr. Kruh said.
“In the face of such volatile market conditions--continuing economic risks compounded by the impact of other social and environmental trends--retailers and manufacturers will need to consider how they can develop contingency plans and adapt their operations and strategies to quickly respond to these dramatic changes.”
To download the full report “The CFO Insights: A global survey of Consumer Markets executives” click on the link.