Investing for Future Growth Requires Vision and Leadership

Julie Neal is a director and CPG sector specialist at management consultancy, Vendigital.

Boards and investors in the fast-moving consumer packaged goods (CPG) sector are accustomed to meticulously prioritising investment decisions, aligning them with strategic goals and carefully considering prevailing market conditions, risks, and rewards. However, in times of heightened uncertainty, the temptation to focus on near-term priorities by ‘investing for stability’ can easily overshadow the imperative to plan for long-term growth. 

Decision makers across industry sectors are currently grappling with an unprecedented set of challenges – everything from inflationary pressures to supply chain interruptions, geopolitical uncertainty and shifting consumer preferences. With input costs rising and skills shortages taking their toll on resources, many CPG businesses have been forced to cut margins in a bid to prop up sales and maintain their market position. 

With reduced working capital to utilise, making investment decisions has become more challenging and each decision carries a higher risk factor. Key to making the right decisions at the right time is end-to-end data visibility, but in reality, few businesses can pinpoint where cost and value lie in their operating model accurately enough. Despite the existence of crucial data from operational technology (OT) systems and numerous spreadsheets, fragmented IT systems mean this information is rarely consolidated. Its genuine value is often only understood by individuals holding uncodified knowledge, which can lead to critical blind spots for decision-makers and encourage a risk-averse stance. 

While the greater use of innovative AI models in areas such as HR and supply chain management, as well as on the production floor, offers immense potential, managing the data flows and ensuring their integration across the entire operational footprint is crucial to securing end-to-end visibility. 

Investing in AI capability should be a key area of focus for all CPG businesses, due to its potential to speed up processes, unlock efficiencies and deliver a step change in productivity. Instead of taking a top-down approach to AI investment however, some forward-thinking businesses are empowering the workforce to experiment with AI in a controlled way by establishing internal platforms that encourage such activity. Where potential efficiencies can be shown, implementation plans are a natural next step.  

Larger CPG companies are more likely to take an industrialised approach to strengthening their AI capability. Instead of piecemeal investments in pilots, which are too easily overlooked, they are funding large-scale projects that impact the entire value chain simultaneously and deliver a faster return on investment (ROI). Whilst smaller companies might not be able to fund such wholesale changes, they should have an AI investment strategy that is focused on boosting short-term resilience, whilst setting the business on a pathway to long-term growth. 

Justifying capital investment in transformative software, AI, and automation demands a robust, data-driven approach. Comprehensive metrics are indispensable for clearly demonstrating their scalability, projected impact, and establishing a precise timeline for Return on Investment (ROI). Fundamentally, de-risking these crucial decisions and proving their value hinges on a deep understanding of consumer demand – for example, whether it’s driven by emerging trends like healthy eating or the effectiveness of promotional activities. This understanding enables companies to capitalise on insights at the optimal moment. Crucially, this immediate focus on demonstrable ROI and consumer insight must be integrated into a broader, longer-term roadmap that outlines how initial investments will build foundational capabilities, enable iterative development, and foster continuous value creation. Ultimately, this roadmap will ensure sustained competitive advantage and strategic alignment with the company’s evolving future goals. 

With depleted working capital available to them, businesses may wish to consider divesting a group of non-core brands or other assets in order to bolster cash reserves. British multinational consumer goods company, Reckitt, recently announced the sale of its Essential Home division to private equity firm, Advent, for a consideration of £3.6bn, and has already confirmed that it intends to focus on strengthening the market position of 11 core power brands.  

As well as the focus on divestments, more M&A activity is likely as CPG companies look for opportunities to boost their market position at the same time as realising efficiencies and filling gaps in their product offering or operating model. For example, Associated British Foods, which owns Allied Bakeries and the Kingsmill brand, is reportedly in talks with the private equity firm that owns Hovis, Endless LLP, with a view to a potential acquisition as part of a commitment to driving long-term shareholder value.  

In the fast-moving world of CPG, strong and effective leadership, backed by a clear corporate vision, is critical to enable technological advancement and foster an innovative culture of continuous learning and development. Investing in data visibility, harnessing AI capability, software and other productivity-driving technologies, is vital for organisations that want to improve their resilience in the short term and boost their long-term growth potential.