Holistic transformation in a digital world: it’s the only way the consumer goods industry can survive

November 16th, 2021

Holistic transformation in a digital world: it’s the only way the consumer goods industry can survive

When Alan Greenspan, renowned chairman of the Federal Reserve, identified in the early years of the millennium the digital explosion as the main reason why the American economy had grown faster than expected, he had a job persuading other economists that he was right.

Nobody disagrees with him now, especially those in the UK consumer goods industry who are battling with tectonic, digitally-led trends that are roiling their markets. Even before Covid turned the industry upside down, consumer goods were in turmoil but the pandemic served to accelerate the disruption and threaten the profitability of thousands of companies that not so long ago could count on reasonably assured markets.

This is a worldwide phenomenon. “The pandemic has only accelerated the decline of the fast-moving consumer goods sector,” warns Boston Consulting[1], painting a fraught picture. “Looking forward, incumbents will for the first time be hit by multiple disruptions simultaneously, including a radical reshaping of shopping and channels, further erosion of scale advantages, and a heightened focus on social impact and purpose.”

For good measure, Boston Consulting also cites the rapid emergence of artificial intelligence as another potentially revolutionary tool that the industry must embrace.

And none of this is going away. As McKinsey[2] reported in June this year: “This disruption is poised to continue, caused by a number of ongoing trends such as the ubiquity of digital technologies, the growing power of e-commerce giants combined with price pressure, the shift in consumer preferences (particularly among younger generations), and the so-called explosion of small brands that has captured most of the growth in recent years.”

Next-generation productivity

So, what’s the answer? McKinsey is in no doubt that profitability – and perhaps survival – will require a “holistic transformation” of the entire business model. Nothing if not comprehensive, this would involve a rethink of markets, development of a whole new set of skills such as data-driven marketing, digital sales and ‘next-generation productivity.’ In other words, technology-driven techniques to improve margins.

In short, in McKinsey’s estimation, what’s needed is a “radical change in execution” rather than the incremental improvements that sufficed in the pre-digital age. However, the evidence shows this is no easy task, with only a third of the ten global consumer goods companies hitting their transformation targets since 2015.

Down on the high street though, how does it look? Paul Cocker, co-founder of True, a private equity firm that specializes in retail, consumer and leisure goods, has observed unusual levels of movement in the aftermath of the pandemic. “The market is way more volatile than it’s been before and quite short-term led,” he told us.

So far, so predictable given the vagaries of the pandemic. However, one trend that True’s co-founder has registered during 2020 and 2021 is a trend towards localization as workers – and especially commuters – opt to spend more time out of the office. “We might go back to the office two or three days a week, but it’s unlikely to be the four and a half days previously,” he says, suggesting society will revert to a “more hybrid situation.”

Accurate forecasting has so far been fundamental to True’s successful business model that is based on taking influential minority or majority investments of up to £40m in businesses with bright futures. And Cocker could be on the right track. A broad consensus of business leaders, consultants and researchers believe that the pandemic has accelerated a movement away from the cost and discomfort of commuting in favour of the attractions of the neighbourhood, with all that means for the consumer goods industry. In short, a hybrid situation.

The high street catches up

There is no argument, though, about the massive shift towards digitization as smaller brands respond to the historic inroads made by Amazon and other online specialists such as Wiggle, Sports Pursuit, Asos, e-Bay UK, Forever21 and Boohoo. Having seen the threat, legacy brands such as M&S and John Lewis are rapidly following suit. And so, incidentally, is True which has been investing for more than a decade in what retailers call the digital path with highly profitable results.

Although the consumer goods industry is emerging from the pandemic with supply-chain problems and, in some sectors, a shortage of talent, as a late 2021 survey of UK CFOs by Deloitte[3] revealed, it does not change the fact that it’s a digital future. Ultimately, the digitalization path is an example of the “creative destruction” that Austro-American economist Joseph Schumpeter originally espoused (and subsequently, Alan Greenspan).

And companies that do not go down that route will suffer. McKinsey is in no doubt: “A next generation transformation is an ambitious effort but well worth it. The post-pandemic landscape will require consumer goods to have a different set of capabilities to thrive [and] the winners will be those that simultaneously pursue moves to capture growth and cost savings.”

In short, the customer is king and the digital connection is the best route to the palace.


Kate Trowbridge
Partner, Consumer & Leisure


[1] https://www.bcg.com/industries/consumer-products-industry/fast-moving-consumer-goods

[2] https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/seeking-renewal-at-scale-holistic-transformation-in-the-consumer-goods-industry

[3] Deloitte CFO Survey Q3 2021


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