Driving a successful 2024 in consumer products

As 2024 begins, the world is on the edge of uncertainty. Will global conflicts resolve peacefully or spiral out of control? Will economies recover in a “soft landing” or finally be pushed over the cliff into the oft-feared recession? Will government controls ease or will new regulatory and trade stances further hobble consumer products (CP) companies?

Is it any wonder that 61% of CEOs in our 5^th annual AlixPartners Disruption Index worry that their company is not adapting fast enough?

Clearly, CP companies have a lot to consider. Several indicators underline the challenge, including more value-conscious consumers, retailers aggressively pushing for lowered prices, more private label competition from retailers, falling volumes that challenge scale economies, a re-balancing and more complex supply chain, and the rapid advance of generative AI.

Based on our engagement and experience with executives across CP sectors, we present here the set of key actions companies in this industry must take to address these challenges and deliver a successful 2024.

1. Build and execute on a productivity capability to drive consistent cost reduction.

An overwhelming majority of CP companies are refocusing on COGS productivity, given a fairly consistent context: supply chain volatility has subsided; further pricing actions are difficult; the economic environment is challenged; and consumer behavior is shifting. What will differentiate winners is how well they operate the “hardware and software” of a productivity capability:

• Build an aligned, cross-functional view on core themes and where to win. Many companies use a bottom-up approach not linked to where productivity is highest and most needed.
• Lay the multi-year foundation of strategic initiatives, enablers, and sequencing. Over-indexing on current year targets leads to playing a game of catch up.
• Ensure scarce resources are allocated given competing opportunities. Often the opportunity set exceeds the pool of deployable support. 
• Operate the process with rigor through the right forums to facilitate execution. Ensure there is a common language, operating cadence, and single source of truth across the organization.

We advocate an active approach to enhance and accelerate productivity outcomes. Companies must challenge historical assumptions to optimize end-to-end costs, in part through having the right forums to gain an aligned view on core issues and where to win. This creates a clearer view of the full potential across the organizational matrix. It also serves as the basis to build a sequenced, prioritized multi-year roadmap that reflects the return on time and capital invested. Activating a lean, enterprise PMO layer will enable consistency and improve visibility to navigate the difficult choices. 

2. Leverage the full Revenue Growth Management playbook.

Defying the initial expectations of many, consumers stayed resilient throughout 2023, and price increases were still effective in generating revenue growth. However, as we move into 2024, the same sources of concern are coming back.

For example, after higher-than-normal price hikes in 2022 and through most of 2023, at-home food inflation is expected to decelerate in 2024. We may even see price decreases in some food categories.

The pressure to unlock revenue growth in 2024 is mounting. With limited ability to enact broad-based price increases, it’s time to dust off the full Revenue Growth Management playbook.

Here are our top five ideas:

• Embrace “precision pricing.” Analyze demand dynamics at the micro level (e.g., SKUs by geography and/or channel) to identify pricing opportunity with a greater level of granularity.
• Address price leakage. Enhance gross-to-net management and expose sources of price erosion (e.g., customers not meeting minimum volume discounts but still enjoying favorable pricing).
• Make marketing dollars work harder. Assess how productive trade and brand investments are in generating profitable volume lift.
• Enhance customer collaboration. Strengthen data sharing and joint planning with retail and foodservice partners, as limited price headroom will affect both manufacturers and the trade. 
• Adjust the portfolio as economic conditions evolve. There are growing signs of consumers becoming more value conscious, which may trigger down-trading. Consider reshaping your portfolio with value-engineered offers (e.g., smaller pack sizes, economy brands) to capture changing demand while preserving margins.

3. Realign the end-to-end (E2E) supply chain for strategic advantage.

As CP companies work to prop up the topline, there has never been a better time to retrench and review the supply chain strategy. Deciding where to invest and where to cut requires an integrated E2E perspective to balance strategic and economic objectives. For those that plan well, the supply chain can be a competitive weapon. 

We recommend four areas of focus:

• (Re)establish your E2E supply chain strategy. Assess supply chain qualities needed to win in the market and define cross-functional capabilities to deliver these. Siloed functional cost-outs prevent maximizing efficiency and hamstring the supply chain from getting ahead of disruption.
• Get a grip on complexity. Task an integrated commercial and ops team to thoroughly analyze what products, services, and customers really generate EBITDA level profit (not just contribution margin). It will prove surprising where true complexity makes swaths unprofitable.
• Prepare the network to mitigate risk. Detail the network structure to deliver on the strategy, recognizing cost/ risk balancing may require resets of storage and flows into, out of, and within the network; work with commercial to value service levels, especially when considering near/ onshoring
• Drive aggressively on supply strategy savings and risk. Review the multi-tiered supply base to assess risk, take advantage of commodity and transportation price decreases, and look for opportunities to diversify or insource (understanding China sourcing will never be the same). See our Impact on Nearshoring article for more on how to manage shifts in the global supply chain.

4. Automate and incorporate advanced analytics and generative AI for next level efficiencies.

The integration of advanced analytics, automation, and generative AI are crucial for business transformation. This convergence empowers organizations to streamline operations, enhance predictive capabilities, and spur innovation in ways previously unimagined. These technologies are instrumental in unlocking efficiencies, reducing costs, and fostering a culture of continuous improvement. It is imperative for companies to develop a strategic approach in order to excel and lead in the rapidly evolving landscape.

We recommend the following strategies for 2024:

• Use generative AI in product design for innovative solutions. Leverage the ability of AI to generate and evaluate multiple design possibilities, leading to breakthrough development.
• Implement AI-driven personalization to boost customer engagement. Utilize the capabilities of AI to analyze data and dynamically adapt marketing strategies, content, and product recommendations to individual preferences.
• Automate content creation with generative AI for efficiency and consistency. Save time and ensure consistency and creativity in brand communications with automated generation of market materials, product descriptions, and visuals.
• Apply generative AI for predictive supply chain management. Ensure a more efficient and responsible supply chain, using predictive capabilities to forecast demand, optimize inventory management, and enhance logistics planning.

5. Capitalize on a normalizing labor market.

The employment outlook for 2024 promises a more normalized trend after the worst constraints of the pandemic. According to the Wall Street Journal, expectations are that the rate of increase in non-farm payrolls will continue to decline; wage rate increases will get smaller; and unemployment should hover at its 20-year lows. In addition, employee voluntary attrition (or “quit rates”) have returned to pre-pandemic levels, resulting in fewer available positions in which to promote higher-performing talent or inject new talent.

The culmination of these factors will likely facilitate continued SG&A headcount optimization enabled through workload simplification, standardization, centralization, and outsourcing. However, these actions must be carefully considered. 

Advice for 2024:

• Take a holistic approach to organizational design. Design customer-back, fit-for-purpose organizations being careful not to start with, or over-index, on sub-function optimization. 
• Variabilize the cost structure. Adopt greater use of centralization, outsourcing, and digital process enablement to lower cost models. 
• Embrace workplace flexibility. While COVID may be in the rear-view mirror, the learnings are not. Maintaining hybrid workplace options is critical not only to hiring but also retention. 
• Energize employee rotational programs. Employ leadership, functional, and geographic rotational programs to break through organizational stagnation and support talent development in the face of lower attrition at the upper levels.
• Revisit performance management. Link top-down business priorities to individual performance through simple yet transparent KPIs. 

As 2024 begins to play out and the uncertainty resolves, companies who put the work in now and make the hard decisions to prepare, even in the midst of tough times, will prove to be the winners.