SPECIAL REPORT ACHIEVING GLOBAL GROWTH AND … Foods “Within a big organization, internal support can some-times be the biggest hurdle to unlocking the growth potential in a market.”

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Michael JP ForhezGlobal Vice President, Consumer Markets1WorldSync

“The race will go not just to the sure or swift, but to the true disrupters...”

American Companies Aren’t So American AnymoreU.S. companies are focused more than ever on expanding global growth ver-sus relying, as they have for years, on a domestic economy. Foreign sales now account for 47.8% of S&P 500 revenue. Unilever and Nestlé are great examples of globally branded companies that serve the U.S. consumer, but have busi-ness models and brands designed for whatever market they are in. Mondelez does over 80% of its business outside the United States. Coke, a bit more than 50%, with Pepsi just shy of that. P&G does approximately 65% globally. An iconic example of how the latter creates country specific brands would be for Mr. Clean in the United States and his counterpart, Mr. Proper, in Germany.

Global Super Competition is the New NormalUber, the ride-hailing software startup, now operates in 58 countries and is a poster child for global growth, now dis-rupting the taxi and car rental business in many cities. Uber is a unique brand in that it has essentially no physical assets. No manufacturing plants. No physical products. If Uber has an IPO at its current implied valuation of $50 bil-lion, it will be bigger in market capital-ization than 406 companies on the S&P 500, and it’s only 6 years old! Xiaomi, a Chinese smartphone startup is now the No. 2 selling smartphone in China… the biggest smartphone market in the world. In just six short years Xiaomi has outsold every other global competitor in the Chinese market with the excep-tion of Apple, which, ironically, is made in China, not the United States.Meaningful Disruption Requires a Shift in Strategic Thinking and DoingWhat if customers and capabilities, not the competition, must now take cen-ter stage when developing strategies? What if creating profitable customer value in both goods and services, is shifting from a practice of selling what you can do, to doing what you can sell? What if customer value now determines

ACHIEVING GLOBAL GROWTH AND INNOVATIONI N D U S T R Y L E A D E R S R E V E A L H O W T O I N V E S T I N A N D G A I N P R O F I T F R O M E M E R G I N G E C O N O M I E S

V I S I T W W W . C O N S U M E R G O O D S . C O M / C G E M 1 5 T O L E A R N M O R E !

he consumer goods (CG) industry in North America has seen a significant transition to global expansion, includ-

ing the emerging markets playing field. However, an inter-national transition is not a simple task; companies cannot assume they will be able to replicate products and pro-

cesses and be successful in new markets. That’s why the Con-

sumer Goods Emerging Markets Forum (CGEM) was created, and as a preview to this year’s event, CGT has turned to the experts for help. The 2015 CGEM committee was created, comprised of indi-viduals with real life experiences in these regions. Here, we have tapped into their extensive knowledge banks to help us focus on the tips needed for expansion in the most sustainable manner.

what you can sell and is created through a deep understanding of how to serve customers better than anyone else by recognizing what needs to be done consistently, even brilliantly? In answer to the above, organizational structures will need to shift from the hierarchical to agile, with distinctive capabilities taking hold through a combination of scalable digital intelligence and new tools, pro-cesses, and evolving human knowledge with enterprise information management at the core. The race will go not just to the sure or swift, but to the true disrupters of the disrupters as they seek to serve today and tomorrow. Hail the consumer!

Kathryn E. GramlingPrincipal, Business Advisory ServicesErnst & Young LLP

“The time to value in these markets is much slower than the United States.”

Understanding the route-to-market and your company’s ability to service that

A C H I E V I N G G L O B A L G R O W T H A N D I N N O V A T I O N

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route is an important best practice to consider: Is your supply chain fit for purpose, can you secure the right dis-tribution partners, do you understand consumers versus shoppers in these new markets? Finally what products do consumers want/need/value?

Many of the U.S. companies fail on innovation to market. They have taken the products and formulas to these new countries and markets and expected the new growing middle class to ac-cept what Middle America likes. These strategies have and will continue to fail. Lastly, companies need to understand that the time to value in these markets is much slower than the United States — the opportunity is great but market penetration leads to longer lag times.

Most of the beverage companies have found success across the globe. They have been faster to market in tra-ditional trade, they have reformulated or bought local brands, they have changed packaging and pricing faster and have thought through JV for distri-bution and local manufacturing faster than the food companies.

Mark HardingFormer VP, Global Government AffairsDIAGEO Plc

“By all means take the good bits from the emerging market and incorporate them into the fabric of the global company…”

Once a company has been estab-lished in the market for a number of years it may wish to cement its rela-tionship within the country. Initially, companies act through an agent for

distribution and sales, then enter into a joint venture relationship to exploit local knowledge. However, if the na-ture of the product permits then the best way to achieve next level growth is becoming part of the market by set-ting up local production. In addition to the economic benefits, it also may very well provide you a say in how the market develops in the future. For example, as a ‘local’ you have more of a right to enter into dialogue with local government and other organiza-tions to shape the direction of your industry going forward. You can also be part of, and perhaps lead, the lo-cal sector specific trade association, if one exists. If one doesn’t exist, then form one — take the bull by the horns and control your destiny.

All the above said there is one very important proviso. Localize, however don’t go completely native. Never lose sight of the values that your organiza-tion has developed and honed over the years. By all means take the good bits from the emerging market and incorpo-rate them into the fabric of the global company, but don’t allow local manage-ment to adopt all of the local business practices into your business in the mar-ket. A bad local practice may give you a global headache that invariably you will only discover when it is too late.

Paul HardyDirector Emerging MarketsConAgra Foods

“Within a big organization, internal support can some-times be the biggest hurdle to unlocking the growth potential in a market.”

Testing small and a commitment to harvesting data to support your hy-potheses allows you to learn and communicate your findings in a clear and influential way. You should also come in with more than one hypoth-eses and test in parallel wherever possible (don’t put all your eggs in one basket). Within a big organiza-tion, internal support can sometimes be the biggest hurdle to unlocking the growth potential in a market. The key is to develop firsthand knowledge of best practices and trading tactics with retailers, agencies and vendors, local regulatory/government officials and ultimately with your target consumer in each market. From country to coun-try, the risks associated with execut-ing your route-to-market strategy and execution at retail can vary greatly. One experience cannot necessarily be applied to the next. By extending your organization in phases, it allows you to navigate this landscape in a more intelligent way with each successive win or failure building confidence in your future decisions. Gaining first-hand knowledge of your target mar-ket is critical to building a sustainable infrastructure to support your busi-ness long term. A long-term approach (if possible) is ideal as it gives your company the time it needs to test and learn and scale up.

We have experienced the most success in the Philippines with our Swiss Miss hot cocoa business. The Philippines has been exposed to U.S. packaged foods for decades and we had a legacy of brand awareness. We had limited modern trade distribu-tion of a differentiated product with a “right to win” and a fast growing middle class. So, the strategy was pretty simple… to land on Swiss Miss, we first identified category op-portunities and we prioritized based on a combination of our ability to

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differentiate ourselves from the mar-ket leader (right to win), deliver on a unique product experience and our own internal capabilities from a pro-duction/quality perspective.

1. We Started Small: Giving us a rea-son to believe:•Basicconsumerresearchtounder-

stand the category, taste profiles, brand perceptions. Key focus was on barriers to trial.

•Preparedaplantoaddressbarriers:pricing, distribution and consumer awareness.

•Executionwaskey:weincreasedresources locally and globally to support the project.

2. Build on Success: Take it to the next level:•In-depthconsumerresearch,new

products, expanded distribution.•Continuedfocusoninstorevisibility

and trade execution.

3. Disciplined Approach Towards Consumer Brand Building: Apply-ing classical consumer packaged goods (CPG) consumer marketing techniques.

Parag JainHead of Sales — CPGTata Consultancy Services

“Key best practices adopted by leading CG companies generating significant global growth include innovation, operational excellence and better brand building.”

KraftCEOTonyVernonremindedana-lysts and investors last fall, volumes in many ‘center of store’ categories are at best flat or in terminal decline while ‘a weak economy with highly volatile commodity prices is the new normal. ‘What’s most worrisome is that abso-lutely no one has grown volume over the time period’ he added. With stag-nation in consumer demand and an ageing demographic in the western economies, global growth and expan-sion into emerging markets is a stra-tegic imperative for major consumer goods companies. Key best practices adopted by leading CG companies generating significant global growth include innovation, operational excel-lence and better brand building. We will try and address all of these three key imperatives below:

1. Innovation: The new digital economy provides an opportunity for all companies to digitally reimagine every element of their business val-ue chain. In the words of TCS CEO,N Chandra, ‘Digital is Default’ in to-day’s world. The five digital forces of Social, Mobile, Cloud, Analytics and Artificial Intelligence (AI) & Robotics has enabled companies to unlock ef-ficiencies in their operations and cre-ate value which was not considered possible until a few years back. As an example, leading CPG companies are today looking at the possibility of exploiting technologies to automate their supply chain reducing cost, human errors and improving timeli-ness in decision making. Today this is possible through a combination of creating a digitally enabled supply chain coupled with cognitive/neural machine learning, Robotics and AI. P&G, Kimberly-Clark and PepsiCo are today using Virtual Reality to proto-

type and test market new products before launch.

2. Operational Excellence: With shrinking margins, highly price-sensi-tive customers in emerging markets, and volatile commodity prices, this is critical. Smart sourcing decisions and the right partnerships with suppliers is key to unlocking operational effi-ciencies. This includes simplification of the technology landscape, build-ing global shared services and right sourcing of everything from commod-ities to IT services.

3. Better Brand Building: Brands need to be able to connect with to-day’s digitally connected consumers and make agile decisions based on consumer sentiment. A highly intel-ligent consumer analytics engine that feeds and analyzes all consumer data from price sensitivity to product ex-perience is key. In emerging markets like Africa, if CPG companies want to build a regional presence in foods, then it may be good to start by acquir-ing a local brand before introducing the global products especially in cat-egories like dairy, meat or bakery. If a company is not already present in the BRICS countries then it would be very hard to catch up without making a large scale acquisition.

Companies like Unilever and P&G have been very successful in scal-ing their global operations. Unilever, which earns 56 percent of its revenues from emerging markets has a target to scale this to 75 percent of revenues from emerging markets by 2020. Their success in emerging markets is an out-come in some measure of them apply-ing the critical success factors outlined above successfully in their businesses.



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Mark OsbornGlobal Lead, CP Industry Marketing SAP

“CP companies that enable fast and profitable response to local demand dynamics will build better resiliency across varying market conditions.”

Emerging markets can be excitingprospects for consumer product (CP) companies. In order to be successful, companies must develop strategies to meet market needs while being flexi-ble enough to handle challenging con-straints these regions may present.

First, companies must develop a strong understanding of the market before expansion begins. Key consider-ations include the state of the region’s existing retail and commerce base, in-frastructure maturity for transportation and telecommunications, specific local regulatory and financial compliance requirements, and the ability to source materials to consistently meet demand.

With these considerations in mind, companies should leverage extended business networks to facilitate busi-ness network collaboration, ensure compliance, and to leverage local sup-pliers. This enables companies to ramp up business at the lowest possible cost while minimizing risk.

Additionally, CP companies that en-able fast and profitable response to lo-cal demand dynamics will build better resiliency across varying market con-ditions. Operating practices such as in-tegrated business planning offer both a unified view of global demand along with the specificity required to balance

the volume and scale of mature mar-kets with the tailored requirements of emerging markets. Implementing these practices enables companies to respond to supply and demand ques-tions quickly, and drive sustainable, profitable long-term growth.

Unilever has had huge success bal-ancing the requirements of serving an existing mature market while growing into emerging markets. The company currently operates in more than 190 countries and manufactures more than 400 brands.

Unilever’s global success can be attributed to its multinational exper-tise and the technology leveraged to streamline processes for handling large data volumes. To standardize operations while building flexibility and resiliency across multiple chan-nels, suppliers and geographies, the company has significantly accelerated global planning and analyses across supply chain, finance and marketing while simultaneously streamlining supplier engagement by automating invoice processing among its global network of 380,000 suppliers.

Radha REVP – Retail, CPG and ManufacturingMindtree

“CPG companies will need to use data and analytics in new ways to reach the right consumers with the right products...”

The CPG industry is on the verge of massive global growth. According to McKinsey, the sector will almost double in size (from $8 trillion to $14

trillion) in the next ten years. But capturing these new dollars will be a complex undertaking. It will not come merely from geographical expansion. With intense competition and new ways of doing business, CPG com-panies will need to use data and ana-lytics in new ways to reach the right consumers with the right products at the right time. Doing so will require a deep understanding of the markets at a very granular level. Given that each growth market is actually comprised of many unique micro-markets, iden-tifying the right assortments and pro-motions requires a comprehensive understanding based on many sourc-es of data, both internal and external, offline and online, coming in batches and in real-time. What’s needed is a demand signal repository with ana-lytical and visualization capabilities. Likewise, evaluating the right promo-tions mix, sales lift and ROI for pro-motional tactics requires a rare mix of data warehousing skills, business problem and data intimacy, and ana-lytical tools and experience.

A consumer goods giant that want-ed to boost its sales execution across eight different countries, has used big data, analytics and mobility to boost sales. The results have been smash-ing: $40 million in incremental revenue thanks to smart cross-sell recommen-dations at the store level, 17 percent increase in repeat purchase rate, 4.5 million out of stock recommendations and 26 percent increase in unique lines sold per store. Another CPG manufac-turer wanted to identify the effect of promotion on sales and build a road-map for trade promotion analytics. It built a data hub to analyze its promo-tion performance across various di-mensions. Now the CPG company is looking to align its business strategy and focus on building a predictive ana-lytics engine for post-event analytics.


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Thierry SoudeeCEO UpClear

“Find the right mix between central governance and local expertise to correctly address emerging markets challenges and opportunities.”

In an increasingly competitive glob-al environment, CPG manufactur-ers have to re-define their business strategies to unlock the potential of emerging markets. In the past, efforts were focused on new markets pen-etration and increased market share to drive revenue and profitability growth. Today, as growth in emerging markets decelerates, companies need to change their operating model for growth to be profitable. This growth requires several enablers:

1. Clear visibility on profitability — Un-derstand what drives value and how to get the right information to the right people at the right time.

2. Innovation and collaboration for tools and people — Replace multi-step processes with seamless integra-tion, intuitive design and flexibility to adapt in diverse markets, creating real-time opportunities for growth.

3. Transparency within supply chain — Overcome a growing concern caused by the lack of mature technol-ogy, governance, and strategy.

4. Organizational balance — Rely on local experts for different markets. Find the right mix between central

governance and local expertise to cor-rectly address emerging markets chal-lenges and opportunities.

Over the past 15 years, most global CG manufacturers have shifted invest-ments towards the markets driving global growth: Asia and Africa.

The companies that have achieved success in China and other key emerg-ing markets have managed to sustain global growth, as shown with the ex-ample of Apple able to successfully penetrate the Chinese market.

In CPG, Danone or Unilever have had good successes in Africa through recent market acquisitions, or by intro-ducing new products and a lower cost structure to stay more competitive.

However, the slower growth in the most recent years in Asia and South America is creating new challenges for growth and profitability, and only com-panies with solid presence will be able to retain their shares.

Stephan Waechter Director of Project Management Organization (PMO)McCormick & Co., Inc.

“Success comes from global integration combined with a local empowered workforce.”

McCormick & Co., Inc. is growing sales in three ways:

1. Growing our base business: We put the same intensity into our market-ing as we do in creating and innovat-ing our products. We communicate the value of our brands by inspiring and connecting with consumers wherever

they discover, create, consume and share flavor.

2. Driving innovative products: New products launched in the past three years accounted for 8 percent of sales in 2012, and we expect to grow that to at least 10 percent by 2015. Our global strategy councils have targeted local product successes with universal appeal, plus we’re devising innovative ways to drive regional sales. We have created new products for our industrial customers, who are turning to us more and more to help them incorporate natural ingredients and other healthy attributes into their products.

3. Acquiring leading brands: In both developed and emerging markets, we are financially disciplined when as-sessing value, and diligent in planning how we integrate new brands into our existing business and making sure they complement our products and grow our sales. By 2015 we expect emerging market sales to grow to 20 percent of our portfolio.

McCormick has always been a global oriented company due to the products we procure. Since 1947 McCormick has looked at international expansions as a way to grow. As stated in our best practices above this is achieved by growing our base business in partner-ship with our customers expansion globally, acquiring leading brands and driving innovative products. Initially thefocuswasonEuropewithkeyac-quisitions in the UK, France, Nether-lands and Poland. Today our greatest potential is in emerging market sales led by our expansion into China and India. From my personal experience it is critical to develop a clear inte-gration strategy (people, process and systems) for new acquisitions. Mc-Cormick’s approach is to maintain the


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strength of the local brand, integrate the local workforce (McCormick’s 5 pillars of success: Passion for Flavor, Power of the People, Taste you Trust, Inspiring Healthy Choices, Delivering High Performance) and drive benefits from the integration. Success comes from global integration combined with a local empowered workforce.

Thomas WrobleskiExecutive Vice PresidentChainalytics

“Success in emerging markets very much depends on local knowledge and “feel” for how best to serve the end consumer.”

The best “leading practice” that we have seen for driving profitability in emerging markets is the dedication of a centralized team to focus on profit-ability levers once the organization has established its operations. This is a team dedicated to visiting and review-ing each market performance across all business functions. Whether it’s in Af-rica,Asiaor theMiddleEast,applying“lessons learned” for efficiency gains in areas such as go-to-market models

(distributors versus in-house, etc.), lo-calization and/or postponement of re-gionally specific marketing and packag-ing, and optimizing safety stock levels at various nodes within the value chain, is critical to drive profitable growth.

Success in emerging markets very much depends on local knowledge and “feel” for how best to serve the end consumer. However, in some cases we have seen that companies can let the local team get too far separated from the parent and flounder a bit. Keeping an eye on these critical profit levers is always a great reminder to the team in the field that moving from an invest-ment phase to a positive profit phase is the key mission of that business!

Michael JP Forhez Global Vice President, Consumer Markets 1WorldSync

Kathryn E. Gramling Principal, Business Advisory Services Ernst&YoungLLP

Mark Harding Former VP, Global Government Affairs DIAGEOPlc

Paul Hardy DirectorEmergingMarkets ConAgra Foods

Justin Honaman Managing Partner – Americas Business Consulting Teradata

Parag Jain Head of Sales – CPG Tata Consultancy Services

Robert Oh Vice President of IT & CIO Liberty Hardware

Mark Osborn Global Lead, Consumer Products Industry Marketing SAP

Cheryl Perkins Founder&CEO Innovationedge

Radha R EVP–Retail, CPG and Manufacturing Mindtree

Thierry Soudee CEO UpClear

Stephan Waechter Director PMO McCormick & Co., Inc.

Kirk Wheeler EVP/GMCPGPractice Manthan

Tom Wrobleski EVP, Industry Supply Chains Chainalytics

Filiz Yavuz SVP Business ProcessEngineering PerryEllisInternational

CGT Would Like to Thank the 2015 CGEM Committee Members:

Documents

SPECIAL REPORT ACHIEVING GLOBAL GROWTH AND … Foods “Within a big organization, internal support can some-times be the biggest hurdle to unlocking the growth potential in a market.”