In brief

In brief

  • Small CPGs have not only captured 67% of industry growth since 2010, they are now dominant market players.
  • In contrast, many large global CPG companies have not sufficiently changed in order to meet rapidly-evolving consumer needs.
  • They need to move beyond core products to be relevant and differentiated. In fact, VC investments show new business models are key to future growth.
  • The imperative for change is clear. Large, global CPGs must create their business model portfolio—starting now.


Redefining industry boundaries

The way consumers think, behave and shop has changed dramatically, especially over the past year. However, the new business models of many big, global brands have remained largely unchanged over the past decade.

In contrast, small CPGs are meeting consumer needs by moving beyond traditional business models. The highest growth CPG brands are those that deliver new forms of convenience, discovery, purpose and personalization.

Putting money where the future is

To further understand, we looked to venture capital (VC) investments. Our analysis shows 85% of VC funding in CPG went to direct or platform-enabled business models. A small minority went to core products.

Investors see the growth potential of adjacent and breakthrough areas. In contrast, 80%+ of revenue for the large, global CPGs still comes from the core. Breakthrough areas are still often relegated to “passion projects” and small pilots.

Small CPGs are capturing growth. Of total global CPG growth between 2010-2019...

9%

Large CPGs only captured 9% of the industry growth

24%

Medium CPGs captured 24% of the industry growth

67%

Small CPGs captured 67% of the industry growth

85% of the $20 billion in global VC funding in the CPG industry between 2014 and 2020 went to direct or platform-enabled business models.

It’s time for a business model portfolio

Most big CPGs know they need to invest in new business models to accelerate growth. However, it represents a big departure from the way they built their billion-dollar brands.

What’s needed now is a growth framework that includes new business models: a business model portfolio. We show the consumer goods industry business portfolio below.

Consumer goods pathways to growth

Growth through new business models may follow different paths for different categories.

A business model portfolio is critical for large, global CPGs to protect the core business while moving into adjacent and breakthrough areas. The key is to meet emerging consumer needs by adopting a risk-adjusted, opportunity-focused approach to allocate resources toward areas with the most growth potential.

Key questions to ask about your path to growth:

  • Where will your future growth come from across core, adjacent and breakthrough models?
  • How does your investment footprint compare to this?
  • Where do you see your “must-win” battlegrounds over the next five years—and what is your target business model portfolio?

Moving from pilot to performance

Some large, global consumer goods companies have experimented with new business models. Yet too often, their efforts at building a business model portfolio have ended as just that—experiments. To avoid this fate, watch out for these common pitfalls: Define value narrowly, think of this as merely a new channel, or only acquire growth through M&A. Instead…

Take a holistic view

Consider the broad value that your new business model can deliver for all stakeholders: the business, consumers, investors, partners and the planet.

Think of new business

Don't see a new business model as just a new channel. New business models must create stickiness by delivering a unique brand experience.

Build growth capabilities

Go beyond inorganic growth strategies to develop new business models. Large, global CPGs need to build this muscle themselves.

The first step to get started

Create a growth portfolio matrix for your company. It will reveal gaps and opportunities, spur an entirely different conversation about growth in the business, and ground future resource allocation and risk adjustment decisions.

Ankur Sabharwal

Managing Director – Consumer Goods and Services


Will Livesey

Senior Manager – Consumer Goods and Services

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