How Retailers and FMCG Brands Can Overcome Disruption and Achieve Growth
In today’s rapidly shifting market landscape, achieving profitable growth is becoming increasingly complex. As business models and cost structures face unprecedented challenges, brands must adapt to survive. Fortunately, it’s not just about infusing capital; two strategic frameworks can help steer any company toward success: prioritizing economic profit and adopting a holistic view of opportunities. These frameworks are the differentiators between industry leaders and laggards.
The Power of Strategic Thinking
When companies leverage these perspectives to tackle their business challenges, decisions become more informed, enabling effective execution. Let’s delve into two scenarios that exemplify this approach.
Scenario 1: Addressing Declining Grocery Volumes
The Challenge
Many grocers are grappling with a troublesome decline in sales volume, disrupting their unit productivity improvement — a critical factor in funding customer propositions and competitive pricing. The urgent need is clear: costs must be reduced, with savings redirected to invigorate the customer value proposition and stimulate volume growth.
Options for Action
If Capital is Available: Revamping the network strategy can help recalibrate fixed cost ratios. Other options include reconfiguring warehouses, subleasing unused space, or introducing automation for improved planning and productivity.
- If Capital is Constrained: Strategies may involve outsourcing to third-party logistics, making costs more flexible (think adaptable labor contracts), or optimizing product ranges and channel strategies. Collaborating with suppliers on order quantities and stock models is also a viable route.
The Process to Success
To effectively gauge the best course of action, grocers should adopt economic profit as their guiding metric. Applying fully allocated cost and margin models at various levels (site, channel, supplier, SKU) provides invaluable insights. Granular profitability analysis is essential in determining the efficacy of current strategies, ensuring they align with company goals.
Moreover, an end-to-end perspective reveals how initiatives in one area can have far-reaching effects elsewhere. For instance, one grocer discovered that 60% of store labor costs stemmed from decisions made in other departments.
The Risks of Complacency
Choosing not to harness economic profit and a wide-reaching perspective can lead to misguided decisions. Relying on traditional metrics risks underestimating costs and missing out on essential insights, resulting in avoided opportunities and potential setbacks.
Scenario 2: Navigating Market Share Loss Amid Private Label Competition
The Challenge
A brand loses market share in its key categories, facing increased competition from premium private labels. Historically, this brand has thrived on its higher margins and innovative efforts. Now, it must innovate and strengthen its core proposition to compete effectively.
Options for Action
If Capital is Available: Exploring new packaging and ingredient formats, developing adjacent products, or implementing innovative promotions can reinvigorate interest.
- If Capital is Constrained: The brand might need to narrow its focus, reassess target customers, and reposition its marketing strategy to effectively distinguish itself from private-label offerings.
The Process to Success
As in the grocery scenario, committing to economic profit as the primary metric is crucial. Given the high stakes involved — with reputations and jobs on the line — an impartial standard helps guide decision-making.
A comprehensive view of the business will uncover potential impacts across the organization. This includes fostering fast-paced product development while managing the repercussions on supply chain logistics and retailer relationships.
The Risks of Missed Opportunities
Brands that neglect to incorporate these strategic lenses will find themselves leaving significant growth on the table. Without the clarity that economic profit provides, investments may fall short of their true potential, and failing to adopt a holistic perspective can lead to unforeseen challenges and setbacks.
Time for Transformation
As the landscape grows increasingly complex due to rising operational costs, economic pressures, and global volatility, brands and retailers must act decisively. The temptation to wait for better conditions could prove disastrous; inaction amplifies risks and allows competitors to seize the advantage.
In a world where customer satisfaction translates to profits, finding solutions that consistently meet consumer expectations while driving economic success is essential.
At AlixPartners, we specialize in navigating these high-stakes situations. Our team possesses extensive operational experience in enhancing economic profit and accelerating results for both consumer brands and retailers.
Ready to tackle your challenges head-on? Contact us today to start the conversation and discover the transformative strategies that can elevate your business.
To delve deeper into our insights and strategies, please reach out to learn how we can assist your brand in navigating these turbulent waters and emerging victorious. Get in touch.
