The OC&C/Grocer Global 50 report released this week paints a picture of an fmcg industry under stress. Sales growth has fallen into negative territory for the first time in the report’s 15-year history.
The focus of many of the Global 50 has shifted to the bottom line – and there is no bigger proponent of this approach than 3G Capital. The owner of AB InBev and Kraft Heinz has rapidly improved margins by employing its ruthless ‘zero based budgeting’. Now these healthy returns are being eyed enviously by investors in the rest of the sector, and fmcg stalwarts including Unilever and Nestlé are under pressure to follow suit. There is nothing wrong with the ZBB principle. Every company needs to justify costs. But cost cutting cannot come at the expense of future growth, and the performance of those following the ZBB blueprint is so far decidedly mixed.
A scenario of bottom-line growth and top-line stagnation is at best a temporary fix. The ultimate winners will be those who invest in strategies to keep their brands relevant, not those who prioritise happy investors at the next quarterly update.
OC&C Global 50 2017: Can zero equal hero?
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Does zero-based budgeting work for fmcg? The jury is out