There is a new generation of CEOs in global consumer staples. We’ve seen changes at the top at Unilever, Reckitt, Kraft-Heinz, Diageo, Carlsberg, Lindt, BAT, Glanbia and, quite recently, at Danone.
About half are seasoned insiders, but external CEOs are now in place at Unilever, Carlsberg and Danone. In a way, this cohort of leaders can count themselves fortunate they won’t need to navigate the covid pandemic and are now largely on the other side of record inflation.
However, they face myriad new challenges as they establish themselves in their respective hot-seats. We are living in a VUCA (volatile, uncertain, complex and ambiguous) world, in which geopolitical risks are heightened.
While no one can predict the future, it is essential for new CEOs is to undertake more sophisticated ‘scenario analysis’ to really understand how rapid changes in the geopolitical situation could impact their business, where the cracks might form, and – crucially – how resourcing may need to adapt. This requires an organisation that is agile and can make decisions quickly, but is allowed to take calculated risks and sometimes make mistakes. Put simply, the mindset should be: how to disrupt before being disrupted.
Data is king in fmcg, so making the right investments in first-party data, coupled with new technologies such as artificial intelligence, is important to get ahead of where the consumer is going. Aligning finite resources to the correct strategy is key to unlocking value. The right people are also crucial, so one of the first jobs will be to assess the management bench and plug gaps in personnel and capabilities where required. Keeping hold of, nurturing and incentivising talent has never been more important.
Simplification is a much overused phrase in fmcg, but is crucial to success. This includes, but is not limited to, the optimal number of SKUs, manufacturing sites and supply chain effectiveness. Fully digitising supply chains is a key topic at the moment, as is diversifying sourcing to reduce the risk of the huge supply chain disruptions we saw through the pandemic.
While margin growth is important, ultimately fmcg is a topline-driven sector, and consistent volume/mix us a key differentiator. This requires a clear-headed assessment of where growth will come from and what resources, particularly in the form of advertising, R&D and capex, will be required. Careful benchmarking versus peers is required and a good understanding of ROI needed.
Innovation is the lifeblood of fmcg, so CEOs really need to understand where they have a competitive advantage. Consumers are happy to downtrade in commoditised categories, and one of the best ways to avoid commoditisation is through premiumisation.
Once CEOs are happy with the internal organisational structure, the company culture and have a clear growth plan, external communication is important, which requires an effective investor relations team that can communicate the investment case. It sounds obvious, but keeping external expectations below internal expectations is much better than going with lofty guidance that is missed. Creating a ‘meet and beat’ culture over time helps company valuations.
Getting the right balance between short-term delivery and long-term brand building is not easy, especially when you layer in ESG considerations. A growing proportion of assets under management are coming from Article 8 and 9 funds, which have a sustainability overlay, so ESG needs to be front and centre of strategy.
It is crucial to prove that ESG is more than a cost of doing business, but something that will drive better financial performance in the long term. There are plenty of examples in fmcg where putting environmental factors first has saved companies money and improved margins.
Unilever’s new CEO Hein Schumacher will outline his detailed thoughts around strategy later in the year. So far he has outlined four priorities: a focus on its big brands and innovation that moves the needle; a desire to see more of its brands winning versus competition; embedding a new organisational structure and strengthening the performance culture; and a sharpened focus on its sustainability agenda.
At Diageo, Debra Crew is taking the helm as CEO. She has said tequila, scotch and Guinness are priorities. At Carlsberg, Jacob Aarup-Andersen joins as CEO from ISS. The outgoing CEO has said Carlsberg will be thinking hard about its digital capability.
At Danone, CEO Antoine de Saint-Affrique has set out a clear roadmap to restore investment to competitive levels, fix its dairy business in Europe and fuel its winners such as Evian and Aptamil. For Kris Licht, new CEO of Reckitt, he’s been clear he is happy with the portfolio but will focus on improving innovation and product superiority – especially with respect to its hygiene power brands.
As interest rates rise and pricing fades, the winners in the sector will be those who have the most durable volume/mix growth. We expect that to be the big focus for investors in 2024. The new CEOs are in for a baptism of fire as these realities hit home.
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