CRA Insights

The long tail of consumer packaged goods: Are you a stubborn persister or disciplined adapter?

July 30, 2020

The COVID crisis makes the challenges of CPG companies even harder with price-sensitive consumers trading down, customer demands for higher trade, and consumer shifts to lower margin e-commerce. These are but a few from a long list of structural challenges to growth and profitability. The crisis presents an opportunity for CPG companies to restructure portfolios where they have been reticent to do so. 
In our work with CPG companies and research on drivers of CPG performance, among companies that had historically underperformed (generating ~1% TSRs for the 4 years from 2011-14) half of them continued to languish, with TSRs of -2% over the subsequent 4 years from 2015-18. The other half were able to break out and deliver 24% TSRs from 2015-18. One key driver of this was the tendency of companies in the first group to stubbornly persist, pursuing top-line growth at all costs. In contrast, standout companies in the latter group adapted with discipline, including downsizing to a smaller and more profitable core with a better long-term outlook.