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ROUGH SEAS LIKELY AHEADConsumer product companies and retailers face a confluence of rapidly evolving technologies, consumer demographic shifts, changing consumer preferences, and economic uncertainty. These dynamics have the potential to undermine not only historical sources of profitable growth but also historical sources of competitive advantage, and render traditional operating models obsolete. In this rapidly evolving, low-growth, and margin-compressed environment, clear strategic direction and coordinated efforts are not all that should be pursued. Speed of execution and completeness of action are just as important, if not more important, to consider. Because no one knows exactly how marketplace dynamics will eventually play out over the next five years, consumer product companies should be prepared to operate amid uncertainty. Yet preparing for an uncertain future in 2020 is particularly difficult. The undercurrents in play place stress on the consumer product company’s traditional sources of competitive advantage—scale, brand loyalty, and retail relationships—and the operating model that many of these companies are built on. Agreeing on strategic actions while not being able to agree on what the consumer product landscape will likely look like in five years is challenging in itself; concurrently moving rapidly with thoroughgoing actions is even more difficult. The historical profitability of the consumer products industry indicates headwinds impeding performance in a difficult environment. Measured by return on assets (ROA), the consumer product industry’s median profitability has trended downward over the past 30 years (from 5.8 percent in 1980 versus 3.7 percent in 2013).1 While the bottom quartile of consumer product companies has suffered the most (1.9 percent ROA to a negative ROA of -5.6 percent), top performers are also slightly less profitable than they were before: Top-quartile ROA performers’ ROA fell from 9.2 percent to 8.1 percent.2 In other words: Collectively, the industry has lost steam. Furthermore, the US consumer packaged goods market is unlikely to grow beyond the rate of population growth, and small players may be better positioned to take market share from traditional industry leaders. Perhaps the slowdown in return on assets is partially because many companies are neither bold enough in their plans, nor fast enough in their actions. To help consumer product executives prepare for change and uncertainty, this article presents five potential “undercurrents” that may impact the consumer product industry in 2020—marketplace undercurrents whose exact direction and pace, while still unknown, can be broadly identified today—that companies should keep in mind as they try to chart a clear path to 2020 and beyond.
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