Therefore I thought I would take the opportunity this week to share some of the findings from a new survey from KPMG International called CFO Insights: A Global Survey of Consumer Markets Executives which recently canvassed the opinions of almost 300 senior finance executives from across the globe.
According to the survey, UK consumer businesses expect to see an increase in their company’s financial performance this year but their confidence is lower than the global trend, with 52 percent of UK consumer businesses – which includes retailers and manufacturers of consumer products – believing that their performance will improve in 2011, compared to 76 percent of businesses in the sector across the globe.
At the same time, UK consumer business leaders also have a lower expectation of the level of consumer spending: 45 percent predict an increase in their target markets, compared with 76 percent globally, but with the current squeeze on disposable income in the UK it’s perhaps not surprising we’re seeing this lower trend. However, even while we experience an erosion of consumer spending and the market remains in a state of flux, it is encouraging to see an element of cautious optimism from our survey respondents.
Also on an encouraging note, while the economic downturn has had a significant impact on profits and growth for many UK consumer businesses over the last three years, those that have weathered the downturn have emerged fitter and leaner. Nearly 46 percent of executives say they have stronger relationships with suppliers; 41 percent report better prospects for growth; and 28 percent highlighted improved cost structures.
A strong focus on cost management going forward remains critical and the management disciplines that consumer businesses adopted throughout the downturn made many of them leaner and more efficient, creating a stronger base from which to pursue growth. Success for consumer companies that have weathered the recession will depend on their ability to maintain their cost and supply chain efficiencies as well as to source and/or create innovative products and business models to grow the top line. Improvements in supply chain efficiency are critical to growth strategies with over 50 percent of respondents intending to improve distribution structure, invest in technology, decrease inventory and consolidate suppliers.
IT investment also plays a significant role in both cost and strategic growth initiatives. Over 70 percent of respondents say their companies will invest in IT systems for customer relationship management, enterprise resource planning, business intelligence and forecasting.
When asked about growth the highest number of respondents to a question about existing geographic markets – some 38 percent – are planning to grow through M&A, with a further 21 percent opting for a mixture of organic growth and M&A. Only 17 percent stated they were not looking to enter new geographic markets this year, with those that are aiming to do so through new store openings, additional distribution channels and M&A. Clearly with significant challenges in the home market, many businesses are turning their attention to the growth opportunities overseas. Finding the right local partners, getting the market entry strategy right as well as ensuring the product and proposition is right will be key and often turns out to be much harder than anticipated at the outset.
But clouds remain on the horizon and the survey also highlights the challenges for consumer businesses. Thirty-nine percent of respondents said that maintaining profit margins will be a challenge due to rising input costs, inventory carrying costs, discounting, and decreased sales volumes. Moreover, 62 percent believe that they will have difficulty raising prices and when asked about market share, 48 percent said this will be difficult to grow in 2011.
I think the overriding message is that cautious optimism remains. There’s plenty of work to do to keep a clear focus on the many challenges which remain, whilst ensuring that the benefits of the good work carried out to survive during the economic downturn are not lost.