Welcome!

News Feed Item

FMCG Companies Need To Drive Margins As Economy Turns

LONDON, Feb. 25, 2014 /PRNewswire/ -- FMCG has been a safe sector for investors looking for predictable margins and stable returns during the economic crisis. However, as the global economy improves, the growth-challenged industry risks losing investor interest.

With profitability under pressure in both developed and emerging markets, EY's new Margin Unlocked report uncovers how consumer goods companies are going to have to work much harder to deliver value to shareholders.

CP margins demonstrate consistency compared to other sectors
  • Relative to other sectors FMCG margins have been predictable and stable since 2003. This has made the sector highly attractive to investors during the economic downturn.
  • But despite significant productivity programs and cost saving efforts, margin growth has been slow - only 0.6% during the period as a whole and 0.8% since 2009 - the turn of the economic crisis.
  • Since 2009, many other sectors have grown margins more progressively. For example technology has grown margins from 15.2% to 19.4% - an increase of 4.2%.
Low margin growth is impacting share performance
  • FMCG share performance is now lagging other sectors, reflecting investor concern around the sector's profit and growth outlook. This creates potential vulnerability.

"In the last 10 years, consumer products companies have only managed to increase margins by 0.6%", said Richard Taylor, EY Global Consumer Products Advisory Leader. "Although their shares have been something of a safe haven for investors during the downturn, companies are going to have to run much faster to keep their shareholders happy and retain investor interest as the world economy improves and other more volatile sectors potentially begin to out-perform FMCG".

"Consumer products companies are really hurting from what we call the Red Queen effect, where, like in Alice in Wonderland: 'it takes all the running you can do, to keep in the same place.'

Margin improvement is going to be critical to help them speed up their performance over the next 12-24 months," said Andrew Cosgrove, EY Global Consumer Products Lead Analyst.

Barriers to improving margin

Companies identified a variety of reasons why they are failing to grow margin more effectively. According to the report, 39% of companies believe limited margin mindset is the main barrier to improving margins. Other contributing factors include too many locked in fixed costs, insufficient data, a lack of focus from the leadership team, and a lack of margin-related skills and competencies.

Strategies for success that help companies run faster

Sustained improved profitability is one of the most effective routes to retaining investor interest; however consumer goods companies are being challenged from multiple directions. In both developed and emerging markets top-line growth has either slowed dramatically or declined, and continued downward pressure on prices from customers, along with rising input costs, make margin management a complex challenge.

In its Margin unlocked report, EY studied 183 global FMCG companies, including some that have adopted non-traditional margin management behaviours, to find out what makes the difference for high performing companies in the sector.

"On the whole, consumer goods companies recognize that they must apply a more rigorous focus to margin management than has previously been the case", said Gustav Mauer, EY Advisory Director. "The scale of the challenge facing the FMCG sector right now means that companies need a new, company-wide and integrated approach to margin management in order to deliver shareholder value. Our research shows that many consumer goods companies still take a tactical, reactive approach to sustaining or growing margins - making incremental, localized changes focused on a specific part of the profit or loss that fail to deliver sustained, company-wide margin growth."

Three critical success factors identified in research

The report demonstrates there is a considerable range of performance within the industry. Some companies have been able to buck the trend with high performers growing margins from 22.7% to 28.0% - more than seven times higher performance to the rest of the sector.

The report identified three keys to success for FMCG companies looking to outperform in the current environment:

  1. Senior leaders who take an active approach to breaking down barriers across the organization and who apply innovative, non-traditional thinking to improve margin performance
  2. Investment in data to improve business insights that enable better, faster decisions
  3. Managing margin end to end by looking beyond cost reduction and price increases to embed an operating model with margin at its core 

Notes

Copies of the report are available here: www.ey.com/CP-margins

The term "margin" refers to operating margin (operating margin/revenue, or earnings before interest, tax, depreciation and amortization EBITDA as a percentage of revenue).

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over.

We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

Pam Christie   

Michelle Sing

EY Global Media Relations 

Ernst & Young LLP

+44 (0)20 7980 0673

201-872-1362

[email protected]

[email protected]

 

Building a better working world logo.

Photo: http://photos.prnewswire.com/prnh/20140225/NY68031-INFO-a
Photo: http://photos.prnewswire.com/prnh/20140225/NY68031-INFO-b
Logo:  http://photos.prnewswire.com/prnh/20130701/NY40565LOGO-b 

SOURCE EY

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Why do your mobile transformations need to happen today? Mobile is the strategy that enterprise transformation centers on to drive customer engagement. In his general session at @ThingsExpo, Roger Woods, Director, Mobile Product & Strategy – Adobe Marketing Cloud, covered key IoT and mobile trends that are forcing mobile transformation, key components of a solid mobile strategy and explored how brands are effectively driving mobile change throughout the enterprise.
SYS-CON Events announced today that delaPlex will exhibit at SYS-CON's @CloudExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. delaPlex pioneered Software Development as a Service (SDaaS), which provides scalable resources to build, test, and deploy software. It’s a fast and more reliable way to develop a new product or expand your in-house team.
In his General Session at 17th Cloud Expo, Bruce Swann, Senior Product Marketing Manager for Adobe Campaign, explored the key ingredients of cross-channel marketing in a digital world. Learn how the Adobe Marketing Cloud can help marketers embrace opportunities for personalized, relevant and real-time customer engagement across offline (direct mail, point of sale, call center) and digital (email, website, SMS, mobile apps, social networks, connected objects).
Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value. In his session at 20th Cloud Expo, Ed Featherston, director/senior enterprise architect at Collaborative Consulting, will discuss the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine.
Tintri VM-aware storage is the simplest for virtualized applications and cloud. Organizations including GE, Toyota, United Healthcare, NASA and 6 of the Fortune 15 have said "No to LUNs." With Tintri they manage only virtual machines, in a fraction of the footprint and at far lower cost than conventional storage. Tintri offers the choice of all-flash or hybrid-flash platform, converged or stand-alone structure and any hypervisor. Rather than obsess with storage, leaders focus on the business app...
Information technology (IT) advances are transforming the way we innovate in business, thereby disrupting the old guard and their predictable status-quo. It’s creating global market turbulence. Industries are converging, and new opportunities and threats are emerging, like never before. So, how are savvy chief information officers (CIOs) leading this transition? Back in 2015, the IBM Institute for Business Value conducted a market study that included the findings from over 1,800 CIO interviews ...
"Matrix is an ambitious open standard and implementation that's set up to break down the fragmentation problems that exist in IP messaging and VoIP communication," explained John Woolf, Technical Evangelist at Matrix, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Some people worry that OpenStack is more flash then substance; however, for many customers this could not be farther from the truth. No other technology equalizes the playing field between vendors while giving your internal teams better access than ever to infrastructure when they need it. In his session at 20th Cloud Expo, Chris Brown, a Solutions Marketing Manager at Nutanix, will talk through some real-world OpenStack deployments and look into the ways this can benefit customers of all sizes....
"A lot of times people will come to us and have a very diverse set of requirements or very customized need and we'll help them to implement it in a fashion that you can't just buy off of the shelf," explained Nick Rose, CTO of Enzu, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Web Real-Time Communication APIs have quickly revolutionized what browsers are capable of. In addition to video and audio streams, we can now bi-directionally send arbitrary data over WebRTC's PeerConnection Data Channels. With the advent of Progressive Web Apps and new hardware APIs such as WebBluetooh and WebUSB, we can finally enable users to stitch together the Internet of Things directly from their browsers while communicating privately and securely in a decentralized way.
SYS-CON Events announced today that CA Technologies has been named “Platinum Sponsor” of SYS-CON's 20th International Cloud Expo®, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY, and the 21st International Cloud Expo®, which will take place October 31-November 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. CA Technologies helps customers succeed in a future where every business – from apparel to energy – is being rewritten by software. From ...
Ayehu provides IT Process Automation & Orchestration solutions for IT and Security professionals to identify and resolve critical incidents and enable rapid containment, eradication, and recovery from cyber security breaches. Ayehu provides customers greater control over IT infrastructure through automation. Ayehu solutions have been deployed by major enterprises worldwide, and currently, support thousands of IT processes across the globe. The company has offices in New York, California, and Isr...
Zerto exhibited at SYS-CON's 18th International Cloud Expo®, which took place at the Javits Center in New York City, NY, in June 2016. Zerto is committed to keeping enterprise and cloud IT running 24/7 by providing innovative, simple, reliable and scalable business continuity software solutions. Through the Zerto Cloud Continuity Platform™, organizations can seamlessly move and protect virtualized workloads between public, private and hybrid clouds. The company’s flagship product, Zerto Virtual...
All organizations that did not originate this moment have a pre-existing culture as well as legacy technology and processes that can be more or less amenable to DevOps implementation. That organizational culture is influenced by the personalities and management styles of Executive Management, the wider culture in which the organization is situated, and the personalities of key team members at all levels of the organization. This culture and entrenched interests usually throw a wrench in the work...
DevOps is often described as a combination of technology and culture. Without both, DevOps isn't complete. However, applying the culture to outdated technology is a recipe for disaster; as response times grow and connections between teams are delayed by technology, the culture will die. A Nutanix Enterprise Cloud has many benefits that provide the needed base for a true DevOps paradigm.