About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

Forces are combining to make manufacturers’ product portfolios and value chains more complex. Channels have varying price-point, size, and packaging requirements (for example, discount stores require small packages with lower price points). Individual retailers are seeking competitive advantage through differentiated product offerings and requesting customized SKUs, while also focusing on assortment optimization for their stores (more than 40% of retailers reduced SKUs in 2009). And as 25% of SKUs generate 80% of CPG sales, according to survey responses, manufacturers recognize the value of reducing SKUs and effectively managing complexity.

Our survey revealed that a majority of respondents are using two approaches to address this complexity challenge. Despite broad efforts, only 30% of respondents are able to manage this complexity in an effective manner. Winners are reducing their SKUs below the category average while increasing revenue and achieving category growth by adhering to the following imperatives.

Implement robust SKU optimization. Seventy-eight percent of winners conduct SKU-optimization analyses once a year, while 42% of other players do. In winning companies, marketing and sales lead this analysis; in other organizations, finance and supply more often assume this role. Ideally, SKU optimization should be considered not only from the perspective of the manufacturer but also from that of the retailer and consumer. Winners also take a more strategic approach to this analysis, according greater importance to criteria such as strategic fit, growth potential, and consumer decision trees, as opposed to retailer requests.

Effectively and proactively engage retailers in the SKU-optimization process. Top-performing CPG companies proactively engage retailers in the SKU-optimization process. Survey results show winners are more likely than others to initiate this process with a retailer; others may simply react to a retailer request. Winners are also more likely to apply a targeted approach to SKU optimization, focusing on one category at a time. Finally, winners create a relatively smaller number of customized SKUs for retailers—77% of winning companies tailor less than 10% of their SKUs for individual retailers; 36% of other companies do so.

Take a cross-functional approach to standardization. Our survey reveals that most CPG companies pursue standardization. While standardization initiatives have been implemented in many areas, more than 70% of respondents focus their efforts on supply chain, manufacturing, and marketing and packaging. These players involve a broad range of cross-functional groups in the process of identifying standardization opportunities—including supply, research and development, finance, and marketing. Companies pursuing standardization initiatives usually realize the greatest savings in inventory, raw-material, and packaging costs.

Download a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth,  The 2010 Customer and Channel Management Survey

About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

A new, more collaborative way of working is replacing the often adversarial relationship between manufacturers and retailers. A majority of CPG companies report having recently undertaken multiple strategic collaboration efforts with retailers. The survey defined strategic customer collaboration as joint initiatives between manufacturers and retailers that go well beyond the normal course of business. These initiatives are designed to deliver impact in multiple dimensions: sales lift, cost savings, ROI, and the impact captured by the retailer.

While most manufacturers believe that their collaboration efforts are effective, few deliver winning results; 50% have only modest impact, with category performance at participating retailers slightly better than the baseline, and 30% yield no measurable impact. However, a small group of manufacturers—20%—is realizing the full potential from these collaboration initiatives. Our review of these winning companies suggests that the following leading practices increase the return on collaboration.

Select the right retailers. Winning companies cast a wide net, exploring potential collaboration initiatives with more retailers than other companies do: 50% of these companies have approached ten or more retailers as potential collaborators versus 22% of others who have done so. After the net has been cast, winning companies closely evaluate prospective collaborators, choosing to work only with those with the greatest potential to deliver impact based on sales, profitability, and growth outlook.

Define a bold ambition. Eighty-eight percent of winning companies, versus 62% of others, include 90% of total category sales in collaboration efforts. Top performers also have a proactive rationale to develop strategic collaboration efforts. For example, winners view collaboration as an opportunity to increase access and influence on merchandising and marketing initiatives or to build a “preferred” relationship with retailers, as opposed to reacting to performance issues.

Develop a true strategic alliance. Winners align with retailers on common performance goals at the start of a given initiative. These manufacturers ensure that joint efforts with retailers are mutually beneficial and establish at the outset how benefits will be shared. While retailers commonly share information on store sales, loyalty-card data, and shopper research, winners go a step beyond basic data sharing and provide retail collaborators with information on brand performance, competitor performance, and price elasticity.

Set up the joint team for success and focus on execution. To support a given collaboration effort and develop comprehensive solutions, winning manufacturers and their retail collaborators dedicate more resources across a broad range of cross-functional experts (for example, those in brand marketing and category management) to work on the joint team. Furthermore, manufacturers and retailers invest more, going beyond the basics (for instance, consumer and shopper research) to address such areas as IT, supply chain, and new product development.

Furthermore, manufacturers and retailers jointly tracked performance metrics and shared incentives, performance routines, and a focus on the bottom line to enable successful execution, which is critical to collaboration efforts.

Obtain a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth,  The 2010 Customer and Channel Management Survey.

About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

From 2008 to 2010, CPG manufacturers faced significant challenges in managing pricing and trade investments. At the start of this period, late 2007 and early 2008, many CPG companies experienced significant increases in commodity input costs, a situation that caused many players to implement price increases that were significantly larger and more frequent than the industry has seen in the past. Then, as the United States economy fell into a deep recession and core commodity prices declined, CPG players encountered considerable downward pressure as volumes declined and consumers, focused on value, began trading down and switching to more value-oriented formats. In order to maintain their competitiveness, retailers responded by pushing for lower prices and greater investments from CPG companies to deliver lower prices and more value to consumers.

However, despite these challenges, the 2010 survey revealed that pricing and trade winners were still able to deliver strong results and outperform their categories. While these winners relied on many traditional industry leading practices, they achieved winning performance in this volatile time period by adapting to the rapidly changing and complex market environment of the past few years more quickly and strategically than their peers.

Pricing. Pricing winners were able to increase prices above those of their categories while increasing category share by developing a deep understanding of the consumer, carefully weighing the effects of market forces, and making  organizational investments to deliver strong results.

Integrate a comprehensive view of market dynamics in pricing strategies. Pricing winners are more likely to focus on external influences when setting prices. For example, they examine shifts in competitor pricing and the ability of retailers to meet their target margins or price points. In addition, recognizing the growth in private labels, winning companies report that private-label prices have become a more important consideration in the development of pricing strategy. Yet, with only 57% of winners and 35% of other CPG companies tracking and managing their price gap relative to private-label products, there is room for improvement in this area for many companies.

Take a broad yet deep view of price elasticity to ensure pricing performance. Winners have a clearer view of overall consumer price sensitivity than do others, and they more often set prices by considering consumer price elasticity at national and regional levels, as well as at the detailed category or brand level. Top-performing CPG players are also more likely to use a “menu” approach to pricing, varying prices depending on the service level requested by a retailer for warehousing, logistics, and back-office services.

Ensure regular and frequent pricing discussions with retailers. Winners continue to engage retailers in pricing discussions at regular intervals (at least once a year), framing these discussions in ways that are relevant to retailers and taking into consideration the market environment and pace of inflation. Winners are also more likely to take a multidimensional approach in pricing discussions, emphasizing retailer profits and product or category investment—not just commodity costs.

Invest in dedicated resources devoted to pricing and integrate pricing and promotion teams. Winning CPG companies invest nearly 50% more, normalized based on sales, in resources devoted to pricing across functions. In addition, winners are two times more likely to have a dedicated revenue-management group to ensure that pricing receives the appropriate level of attention and analytics support.

Winners are also twice as likely to integrate everyday pricing and promotion roles in a team that resides either in an existing centralized function (for example, marketing or finance) or in a revenue-management group at the center. This approach provides multiple benefits to the CPG manufacturer, including alignment of pricing and promotion strategies and the establishment of a single source of accountability for all pricing activities.

Trade investments
In response to the challenges noted above, trade spend as a percentage of adjusted gross sales increased significantly from 2008 to 2009 for all companies. Trade-investment winners, however, were able to differentiate their performance and capture more incremental sales from promotions than others.

The majority of these winners chose to use increases in trade investment to offset price increases and captured more market share and gross-margin gains from these increased investments.

Conduct rigorous and frequent performance reviews of trade investments. Winning companies make it a priority to evaluate the performance of their trade investments at frequent intervals. Approximately two-thirds of winners conduct such promotional performance reviews at least quarterly. Winners use more metrics on average—specifically, volume and trade investment trends, overall account return on investment (ROI) versus plan, as well as account profitability and growth. By contrast, less than 50% of other players assess their trade investments at least quarterly. A third of other CPG manufacturers have no formal post-promotional review process. Because winning organizations consider these assessments a priority, they more often allocate resources within corporate headquarters to complete these post-promotional analytics, instead of assigning this task to a field analyst or account representative.

A majority of all survey respondents use three sources of data to understand trade promotional performance: syndicated scan data, loyalty- or shopper-card data, and retailer POS data. Winners are using the insights from this analysis to improve chain-level performance and to deepen their understanding of consumer and category dynamics. In the future, winning companies are looking to continue improving these analytics in order to better understand issues such as the incremental value of promotions and the promotions that best drive their brands and expand the category.

Differentiate investments based on past and potential future performance. Top-performing CPG players use both activity- and outcome-based criteria to set trade investments across channels and accounts, and they are more likely to consider projected financial outcomes such as ROI and sales growth at a given retailer in their rate-setting exercise. In addition, these players evaluate the type of activity that their investments will fund.

Work effectively with Walmart. While most CPG companies are increasing their trade investments at Walmart, winning companies are allocating more of their trade spend to non-promotional activities requested by Walmart (for example, sustainable packaging) than others. In return for these investments, winners are able to secure greater cooperation from Walmart in the form of increased distribution, more promotional support, additional secondary placement in stores, and better shelf placement.

Obtain a free copy of the full report: Emerging from the Storm: How Leading Customer Organizations Reignite Growth, The 2010 Customer and Channel Management Survey.

About the Survey:

The 2010 Customer and Channel Management (CCM) Survey provides an up-to-date perspective on the practices of top-performing CPG companies across the following dimensions: sales strategy, pricing and trade investment, strategic customer collaboration, and complexity management. This year’s survey was conducted in spring 2010 and is produced in collaboration with the Grocery Manufactur­ers Association (GMA), McKinsey & Company, and The Nielsen Company. Approximately 220 CPG executives from more than 50 compa­nies with close to $160 billion in U.S. manufacturer sales—in the food, beverage, personal care, and home care categories—participated.

Despite the challenging economic environment in 2008 and 2009, winning CPG companies increased sales faster than their category peers while decreasing selling costs. Winners achieved these results by focusing their resources on high-growth channels such as dollar and discount stores as well as Walmart.

These players also strengthened their go-to-market models, developed winning and highly capable sales leadership teams, and tailored their account teams to address the needs of priority retailers. Last, top-performing companies captured efficiencies in warehousing and transportation that lowered their overall selling costs. The companies that won in sales strategy used multiple strategies to achieve these outcomes and to realize this growth.

Make big, forward-looking bets to unlock growth. The survey revealed that winners are seeking to solidify gains made during the crisis and preparing for even stronger performance coming out of this period; 70% of these top performers (versus 17% of others) are reshaping their go-to-market models. Accordingly, in the next 12 to 24 months, more than half of the winners plan to boost their field sales organizations and merchandising resources, and one-third of winning companies also plan to increase their use of brokers and to combine broker and retailer resources to reach more outlets.

To ensure that their bets are aligned with changing high-growth opportunities, winners continually evaluate resource investments by channel and customer. For example, in the past survey, winners invested heavily in a rejuvenated grocery channel. However, our 2010 survey reveals that winners have stopped expanding grocery resources and instead increased resources in the highest-growth channels of discount, club, and Walmart. For example, in dollar and discount stores 63% of current winners increased customer-facing resources in this channel while over half of others in their categories did not. Similarly, 89% of winners increased customer-facing resources at Walmart Stores, versus 64% of others.

Winners also report that they perceive higher-growth retailers such as Dollar General, Costco, and Kroger are more willing to collaborate with them. Moreover, top-performing CPG manufacturers pull multiple levers to build stronger relationships with key retailers. Not only do they make a greater resource investment in priority retailers, they also take a collaborative approach to growing a category or solving business issues, sharing mutually beneficial insights and data with their retail collaborators.

Build a strong sales leadership team, next-generation capabilities, and cross-functional collaboration. Winners ensure that they staff the right sales leadership resources to ensure future growth, emphasizing deep category expertise, customer knowledge, and a strong strategic perspective. Our survey also revealed that winning companies are constantly improving their team’s capabilities by investing in customer profit and loss (P&L) management, pricing analytics, and strategic collaboration. In contrast, their category peers are still working on improving basic capabilities such as financial analysis and marketing knowledge. In addition, winning CPG organizations report a high level of internal collaboration and more effective relationships between sales and other key functions including marketing, finance, and supply chain. In particular, collaboration between sales and marketing appears to be critical to winners.

Create customer-focused account teams as part of a winning sales organization. While all survey respondents deploy sales teams of similar sizes, winners’ teams have a high percentage of customer-aligned functional experts in areas such as pricing, category management, and trade marketing versus their category peers. As we have seen in the past, winners also tailor their customer teams to the unique needs of each priority retailer. In addition, winning CPG organizations report a high level of collaboration and more effective relationships between sales and other key internal functions including marketing, finance, and supply chain. In contrast, in the grocery channel, winners deploy more of these functional experts to support their retailers.

Obtain a free copy of the full report:  Emerging from the Storm: How Leading Customer Organizations Reignite Growth.

Last week, my colleague Tom Pirovano wrote about how the economic downturn has slowed the growth of organic products to almost a standstill.   Looking at the broader health and wellness category, we are seeing similar patterns.  Grouping health and wellness claims Nielsen tracks through its LabelTrends service into three tiers based on annual growth rates, retailers and manufacturers will notice some interesting developments.

Tier 1 (15% to 26% annual sales growth): Just one claim – omega – showed any dollar growth in the last four weeks, racking up a more than 30 percent increase.  On a unit basis, products with flax or hemp seed, plant sterol, less sugar claims and probiotic claims showed poor performance in the last four- and thirteen week periods.

Tier 2 (8% to12%): There were less severe declines in this group, and with the exception of antioxidants, all of the categories continued to show growth, albeit more slowly, with “No MSG” leading the way with dollar growth of 12 percent in the last four weeks.

Tier 3 (-4% to 8%): Versus the other tiers and average food department growth rates, Tier 3 generally made up the worse performers.  Only products with reduced calorie claims performed better than average on dollar and unit terms, while cholesterol, soy and GMO-free products showed the sharpest declines.

With continued disturbing news about obesity in the U.S., as well as an aging population, health and wellness products should not be viewed by consumers as a luxury affordable only during strong economies.  The challenge for manufacturers and retailers is to drive sales and value messaging in addition to health claims to at the very least retain existing consumers and hopefully win new converts as well.

After several years of 20% to 30% sales growth, U.S. sales of organic products are showing the first signs of slowing.

While 52-week dollar sales of UPC-coded organics are up 21% vs. last year, the most recent four-week period ending October 4, 2008, shows growth of only 11.2%.  Last year, organics saw 27.1% sales growth during the comparable four-week period ending October 6, 2007.

Meanwhile, in Great Britain, organics sales growth has also slowed — to just 4%, year over year, for the most recent year, ending September 6, 2008.  In comparison, during the year ending September 8, 2007, organic products saw 18% sales growth in Britain.

Organic products are clearly here to stay, but the days of boundless growth may be over.

Read coverage of Nielsen’s findings in The New York Times.