Achieving High Performance in the Food and Non-Alcoholic Beverage Industry

The US$2 trillion global market for food and non-alcoholic beverages is complex and highly fragmented. Just four companies meet Accenture's criteria as high-performance businesses and only two of them have managed to outperform across all dimensions of our High Performance Business methodology. Accenture research suggests that the businesses best positioned to take the lion's share of future value will be characterized by a clear focus on a limited number of attractive, innovation-sensitive categories and niches. High performers will seek to dominate these categories by being the first to spot nascent consumer trends, rapidly and continuously innovating against them and rigorously focusing their marketing spend on their most successful products and brands.

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Each organization in our peer set of 13 publicly quoted companies boasted global sales of more than US$5 billion annually. In addition, these companies all derived at least 75 percent of their sales from food and non-alcoholic beverages and 30 percent of these sales were outside their home regions. All provided branded packaged products (rather than food or beverage ingredients). The three companies that emerged from our analysis as high-performance businesses all distinguish themselves on measures of revenue growth, profitability, return on capital and working capital management.

They also deliver superior economic profit, which has allowed them to deliver consistently superior returns to shareholders–more than double the industry average over the past five years. More importantly, their returns on invested capital consistently outstrip those of their competitors, thanks both to higher margins and a higher percentage of sales per invested capital in each of the last three years. Indeed, high-performance businesses have grown nearly twice as fast as the industry average by focusing on high-growth categories and implementing selective acquisitions to round out their portfolios and extend channel and geographic reach. However, only two companies have consistently delivered superior returns to shareholders over both short and long time frames, as well as superior revenue growth and profitability, and high future value expectations.

Accenture defines a high-performance business as one that consistently outperforms its peers through economic and industry cycles, and through changes in leadership. Our extensive cross-industry research has identified three building blocks that underpin high performance in any industry and that all such businesses have mastered.

Market Focus and Position
The industry's complexity has led to the evolution of very different organizational models. Only the high-performance businesses have become successful category specialists, with a presence across most geographies but with a limited portfolio, tightly focused on a handful of categories and power brands. This strategic category domination is key to their status as high-performance businesses. While their peers battle to build brand share and the struggle for shelf space intensifies, high-performance businesses have successfully leveraged their key brands, targeting categories with low private-label penetration and the potential to increase both frequency of purchase and the amount consumed.

Distinctive Capabilities
High-performance businesses in this industry display three distinctive capabilities that set them apart from their peers and are very difficult to replicate:

• Insight-driven marketing—High-performance businesses relentlessly track key consumer trends in strategic geographies using exceptionally rigorous, sophisticated and fact-based business analytics that deliver relevant and insightful data. They then use the data to manage systematically the insights they have gained–not just to manage information. What's more, they make these insights accessible right across the organization to facilitate rapid and well-informed decision-making.
  
  
• Customer and channel management—Simply boosting expenditure on trade promotions does not guarantee better returns, so high-performance businesses go further. Not only do they employ integrated commercial planning to maximize the effectiveness of trade investments; they also use sophisticated analytics to evaluate the performance of past promotions and include the results in the next round of promotional planning–all with an execution mindset worthy of a financial fund manager.
  
  
• Flexible and low-cost operations—High performance is getting harder to achieve as soaring commodity prices and other cost pressures squeeze margins, while the growth of emerging markets extends and globalizes supply chains. Leading businesses focus on streamlining and leveraging economies of scale in all key areas of their supply chain, from long-term commodity planning to outsourcing. Thus, they create a global operations footprint, increase collaboration with both customers and suppliers, and seek to relentlessly drive out costs.

None of these capabilities would be as effective if they did not also rest on the exceptionally robust performance foundations that distinguish high-performance businesses—the sales and marketing, supply chain, finance, IT and HR functions that comprise a fit-for-purpose business infrastructure. Moreover, all three capabilities work together to make high performance possible.

Performance Anatomy
Performance anatomy, like distinctive capabilities, rests on foundation functions, but it also describes a company's mindset. In the food and non-alcoholic beverage industry, performance anatomy describes a unique adaptability. Whether they like it or not, food and non-alcoholic beverage companies are very dependent on external relationships and need to be tightly networked. High-performance businesses are especially good at third-party manufacturing, distribution and low-cost sourcing; their relative dependence on their retail customers also has led to close and highly successful working relationships. Some actually have integrated their supply chains with those of their customers, who run collaborative planning forecasting and replenishment for them.

High-performance businesses have turned category focus, incremental innovation, targeted marketing and R&D investment and ruthless cost control into a continuous cycle to deliver long-term shareholder value. They have achieved this advantageous position by means of rigorous portfolio management and by developing a highly flexible organization with three distinctive capabilities that enable them to seamlessly embrace and execute.

However, there are many challenges to the industry's future value. While consolidation continues, it is likely to be very gradual, as long as local taste and shelf-life issues limit economies of scale and most producers still juggle with the complexity of managing a diverse and often locally customized brand portfolio.

Accenture research suggests that the key to capturing future growth opportunities will remain a relentless focus on premium product categories: foods and drinks that satisfy at least two of the three megatrend demands (convenience, health and indulgence) and ideally all of them. Indeed, the high-performance businesses of the future will stand above their peers as a result of their ability to exploit the megatrends—for "fast and efficient nutrition," "guilt-free indulgence" and "quality convenience."

Contact us to find out more about how companies in the food and non-alcoholic beverage industry can achieve high performance.