McKinsey industry white paper The new model for consumer goods

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cpg accounting

In the past 20 years, SG&A cost reductions came from doing the mess for less, making operations cheaper but not better. CPG companies also need to evolve their routes to market as the trade changes. In emerging Asia, e-marketplace/online-to-offline (O2O) giants will continue to lead, while digital enablement of the fragmented trade will strengthen that format, leaving less room for Western-style modern trade.

Where Are Consumer Packaged Goods Sold?

cpg accounting

Secondly, efficient processes enable quicker decision-making in purchasing inventory or sourcing raw materials which eventually enhances supply chain management for a more efficient production process. This allows companies to meet customer demands faster while keeping track of inventories accurately. Streamlining both accounting and procurement processes also allows for greater transparency within an organization by providing all stakeholders with real-time information about financial transactions. This makes it easier to work collaboratively across departments towards shared goals. Effective procurement processes are equally critical as they ensure that your company has access to the materials needed for production at the right time and cost.

  • A CPG business has five main levers where your margins can change, and your COA should be organized to make those levers obvious and apparent.
  • During the chaos of the pandemic, CPG companies often found themselves reacting to external forces because they did not have time to pause and rethink their strategy.
  • For other categories, D2C propositions may still be worthwhile to acquire proprietary consumer data and create a test-and-learn opportunity.
  • One CPG company, for example, identified mission-critical tasks in marketing and organized cross-functional teams in six-week sprints around each task.

Bottom line: Understanding FMCG and CPG is key

During the economic downturn from the 2008 recession, sales of nail polish went up as consumers “splurged” on at-home nail treatments instead of pricey salon manicures. In 2009, though consumer spending on cosmetics overall declined, nail polish sales grew by 14.3%. Although https://www.bookstime.com/ CPG makers generally enjoy healthy margins and robust balance sheets, they must continuously fight for shelf space in stores. Even well-known companies must continuously invest in advertising in an ongoing effort to increase brand recognition and stimulate sales.

  • In all cases, evergreen brands must shape the execution of their categories in their relevant channels.
  • This surge effectively catapulted the CPG sector three years into the future — and jump-started the previously nascent efforts at direct-to-consumer (DTC) growth strategies.
  • Next, establish clear communication channels between your accounting and procurement teams to ensure that everyone is on the same page regarding budgets and spending.
  • Therefore, most CPGs need to strengthen four digital-driven commercial capabilities.
  • Channel strategies will need to be even more customized to each country and category trend.
  • Consumers can customize avatars with PacSun clothing and accessories available for sale in the virtual marketplace.

Building brands and distribution in developing markets

Participating in developing markets of course requires deep local consumer understanding. Companies need to rebuild entrepreneurial, dedicated local organizations that can execute impactful global marketing campaigns in locally relevant ways. Many CPG cpg accounting companies have been renovating the brand equity of their large brands, imbuing them with more purpose, more originality, and more relevance. Particularly in the context of COVID-19, delivering on the brand’s promise is necessary but not sufficient.

These questions are centered on good behaviors in tracking the cash flow of a CPG business. While cash flow is important in any industry, it is particularly important in CPG because these companies sell to large powerful companies like Walmart and Costco, who will be aggressive in setting the terms for their contracts. Below are profit margins for the eight largest CPGs in the S&P 100 as of March 2020. The consumer packaged goods industry is one of the largest sectors in the U.S. economy. Consumers continue to purchase consumer packaged goods even during economic downturns, though they may hold off on buying durable goods during the same time.

The real value lies in the ability to forecast each activity and understand spend to guide proper accruals that lead to accurate financials. Without the deep knowledge, you could be spending too much or too little or not have an awareness in a shift in these expenses. As mentioned, profit margins are always a key part of income statement analysis, but profit margins in CPGs can be unique. This is because many CPG companies have developed streamlined production facilities with the advantage of economies of scale to lower the overall cost of goods sold and create a higher gross profit margin.

For a consumer

After a period of disruption intensified by the COVID-19 crisis, the CPG industry is entering a new era. CPGs that prosper in the 2020s will make “where to play” choices that strengthen their portfolios and get their categories and brands on the right side of the disruptive trends. These shifts will help industry leaders unlock growth with brands and business models, old and new. Getting evergreen brands on the right side of marketing and sales trends is also vital. Marketing must be tailored by audience, delivering relevant messages through relevant channels in a granular way, while the product line of the evergreen brand remains appropriately streamlined. Evergreen brands must also embrace high-growth sales channels and retail formats, even when they require a different commercial model than grocery.

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