In CPG, Can Big Still Be Beautiful?

Something interesting happened to the global consumer goods market in the last decade. It got smaller. Of course, the size of the market hasn’t shrunk. But, as new research from Accenture shows, the growth has gone disproportionately to smaller brands and companies.

In fact, since 2010 — up until the start of the pandemic — small innovative brands have captured two-thirds of all industry growth. And the traditional industry giants saw their collective stake in the market drop from 42% in 2010 to 37% in 2019. 

The change is particularly stark in consumer goods ecommerce. Innovative companies now have twice the share of this market (54%) than their more traditional competitors (24%). How did they achieve this? One answer is that they had the technological innovation and organizational agility to redefine industry boundaries rather than simply try to excel within them.

As such, innovative and agile consumer goods companies have been able to leverage digital platforms to deliver next-level convenience, new kinds of discovery, and hyper-personalization. 

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Take Beauty Pie, a direct-to-consumer membership platform for luxury beauty products. Members sign up for an all-access pass to the products they want, bypassing the middlemen, and the markups that come with them. The company has seen year-on-year growth of 100% as a result.

Time for a Business Model Portfolio?

Clearly, big consumer goods companies need to respond. And most large companies in this industry know what they need to do: Invest in the new business models that will accelerate growth. It’s just such a huge departure from the way they built their massively successful brands, it’s genuinely hard for large organizations to do this in practice. 

One solution is to consider a business model portfolio. That is, a growth strategy that acknowledges that paths to growth differ from category to category. And so, the business model for each may need to be different, whether it’s direct-to-consumer, indirect via traditional retail intermediaries, or a platform-enabled model.

A business model portfolio like this helps big consumer goods companies protect the core business while simultaneously moving into adjacent and breakthrough areas. The key to making it work is to be smart about the business models targeted—making sure each meets emerging consumer needs in its category and adopting a risk-based, opportunity-focused approach to allocating resources.

What to Focus on First? 

While developing a business model, there are three key questions to ask and three key pitfalls to avoid. 

The first question is, where will your company’s future growth come from and how will it split across the existing core — versus adjacent and breakthrough — business models? The second is, do existing investment programs and capital allocation align with this analysis? Lastly, where are the “must-win” battlegrounds for the business over the next five years? 

The answers can then be used to define the target business model portfolio. But it’s important to avoid the pitfall of valuing each business model purely in financial terms. The models should also be assessed on the broader value it can support — in sustainability, in customer experience, in social responsibility, and so on.

It’s also imperative not to think of each new model merely as a new channel. Instead, it should be seen for what it is: a new business that will drive growth. That’s especially true when it comes to developing the customer stickiness that’s so important in direct-to-consumer models.

P&G offers a great example of the right way to approach this. In transforming one of its best-selling detergent brands, the company partnered with an ecommerce platform to offer a “collect and recycle” subscription service. It’s also since launched a completely new direct-to-consumer laundry service.

Finally, it’s important to think carefully above organic versus inorganic growth. Yes, acquisitions can offer a fast-track to new capabilities. But integrations are rarely as straightforward as they seem on paper. And eventually big players will need to build this innovation “muscle strength” for themselves. 

That needs a clear strategy, proper resource allocation, and organizational autonomy. Some are already doing this well. L’Oréal Paris, for example, launched an online concierge that provides live help from hair colorists, virtual try-on tools, inspiration articles, and other services. And Nestlé Health Science has Persona, a direct-to-consumer subscription service that provides customers in 60 countries with customized vitamins and supplements based on a proprietary algorithm.

Big Can Still Be Beautiful

Can the big CPG recapture the growth lost to agile innovative competitors? Absolutely, yes. But it will need a new growth strategy. And a new, more diversified approach to business model innovation. 

The first step is to create a growth portfolio matrix. That will reveal existing gaps and opportunities. It will spur an entirely different conversation about growth. And it will be invaluable in grounding future resource allocation and risk adjustment decisions. 

The ultimate driver here is the fact that the consumer goods market and customer expectations have both changed dramatically over the past ten years. The winners in the next decade will be those who can adapt their business models and growth strategies accordingly. 

Ankur Sabharwal, Managing Director, and Will Livesey, Senior Manager in the Consumer Goods and Services Industry Group, Accenture