As recently as late summer 2008 most economic commentators were focused on rising commodity prices, their impact on inflation and the possibility of further interest rate rises. So much has changed. The bursting of the US housing bubble and spread of sub-prime mortgage based securities through the global financial system meant that banks around the world found themselves holding toxic assets of unknown value. Credit markets locked up and inter-bank lending virtually stopped. Consumers were buffeted by constant bad news about the economy and confidence plummeted. Both large and small businesses were challenged in obtaining short-term financing and the knock-on effect on the real economy gathered pace with rising unemployment in developed economies around the world. Even blue-chip businesses are not immune – many of which are challenged by the perilous state of many of their suppliers.

Major developing economies such as China and other parts of South East Asia have also been severely impacted by the dramatic reduction in consumer led demand for imports into the US and Europe. Growth in China has slowed and there is substantial unemployment in the east coast cities as factories have closed. Key feeder economies in the region are impacted even more severely and a number are forecast to contract markedly this year.

Governments such as those of the US and UK are being very proactive in their attempts to repair the financial system and stimulate economic activity. The path forward for the global economy will depend on how quickly governments can, through these actions, restore the credit markets to normality. Some economists forecast that the US and European economies will begin to recover by the start of 2010, though many think this optimistic. Even then, the recovery in consumer spending is likely to be slow. The US and UK housing markets will, for example, take much longer to recover and the destruction of housing wealth will weaken consumer spending growth for some time to come. Indeed, the structure of the US economy is likely to shift so that more growth will come from exports (something that is already happening) and consumer spending on goods will grow more slowly than the overall economy.

This is part of a wider rebalancing of consumer-led growth from the developed world to the developing world. As this happens, the American consumer will, for example, no longer be the engine of global growth that it represented in the past. Instead, the global economy will have to rely on other sources of growth.

In East Asia, which has been highly dependent on exports to the US and Europe, more future growth will come from domestic consumer spending. For global retailers and their suppliers, this means that we are likely to see a shift in focus for future growth away from North America and Europe toward East Asia and some other emerging economies.

What should consumer products companies do?

In the short run, companies will have to manage their finances carefully and focus on market share and positioning to emerge stronger from the downturn. Achieving top-line growth was relatively easy to do well when the market was growing rapidly. This new environment will test which companies have the right strategies for the long-term.

Consumers will be intensely value-oriented, even more so than in the recent past. We are seeing this already with consumers both trading down in what they buy and in shifting to more price-focused retailers. It's not that consumers have stopped spending, but they are spending differently. Spending on essentials such as food, drink, personal care and household products remains relatively robust. Spending on discretionary items such as new cars, appliances and eating out has however fallen dramatically with severe consequences for manufacturers and retailers focused on these sectors, as well as for the hospitality industry. Right-sizing and cost cutting are common themes across these sectors.

Success in the battle for top-line growth will, however, require something altogether different than simply cutting costs. Retailers and manufacturers will gain market share only if they are clearly differentiated from competitors, possess strong brand equity, have the ability to innovate in order to maintain differentiation, and offer a customer experience that excites consumers. These are the factors that will provide retailers and manufacturers with pricing power. It's about both value and values – providing the value that consumers will increasingly seek while preserving and building on the values of the brand as a platform for future market leadership.

Whatever happened to commodity prices?

Until the recent credit crisis, many analysts were focused on concerns about high and rising commodity prices, but no longer. Since September 2008, commodity prices have dropped precipitously, including energy and food prices. Have the causes of high-priced commodities gone away? No. In the long-run, there are good reasons to expect oil and food prices to resume their upward but volatile path driven by increasing global demand for resources. However, over the next couple of years, commodity prices are likely to remain much lower than the peaks of 2008, though still elevated versus recent history.

At the time of writing, the global economy is on a downward path. The US is in a deep and potentially prolonged recession. Western Europe is also experiencing a downturn in economic activity, with the UK especially badly hit. Nor are emerging markets immune. They are likely to experience at least a slowdown in growth.

Thus, global demand for commodities is quickly weakening and markets are responding by driving down prices. These will remain weak until economic recovery is clearly on the horizon. In the interim, lower commodity prices, especially for oil, will offset some of the negative impact of the credit crunch in oil-importing countries. For commodity exporters, however, the current drop in prices will certainly hurt economic growth. In the longer term, the same forces that drove up prices through most of this decade have not disappeared. As large emerging markets such as China and India continue to grow rapidly, demand for energy will rise accordingly – especially as energy costs are subsidised in these countries – leading to highly inefficient usage. At the same time, the supply of energy will be constrained by failure to invest in new capacity in many emerging markets. Discrimination against foreign investment, political instability, and international conflicts over pipelines will be among the factors that limit investment and, therefore, output. In spite of investments in alternative energy and growing international momentum behind reducing carbon emissions, the result will be high prices for a prolonged period – at least until the existence of such prices spurs energy consumers to radically change their demand patterns. In time, this will happen, but not for several years.

What does this mean for consumer products companies in the longer term? High energy costs influence these companies at both the demand and the supply end of the equation. On the demand side, relatively high energy prices mean a shift in consumer behaviour. In the US and Canada, it will likely mean the purchase of smaller, more fuel-efficient vehicles. Globally, it will mean greater consumer sensitivity to distance when planning shopping and leisure trips. And it will mean more expenditure on products that improve energy efficiency in the home.

On the supply side, higher energy prices could change the nature of supply chains. In the past two decades, global supply chains have evolved to take advantage of low transport costs and low wages in emerging countries such as China. In the long run, when transport costs increase and wages rise in China, it will make sense for retailers and their suppliers to maintain more diverse supply chains. Some production will, for example shift out of China and other parts of South East Asia toward locations closer to end consumers.

Developed markets

Developed markets such as the US, Europe and Japan are experiencing unprecedented times and face a deep prolonged recession from which they will most likely emerge only slowly. Banks were caught holding the troubled assets which necessitated write-downs that reduced capital and caused a decline in the availability of credit. The cost of credit dramatically increased, if available at all, for both businesses and consumers.

The confidence of consumers, many of whom are heavily indebted, is at an all time low. This has resulted in plummeting consumer spending, especially for bigticket items, rendering many retailers and their suppliers in a catastrophic condition. Spending in this arena has also shifted toward discounters and private labels, with prices dropping and overall inflation falling.

The large fiscal stimulus planned by Governments such as those in the the US and UK will boost demand, but will not have a lasting impact absent repair of the global financial system. The outlook is difficult to predict and it is unclear how quickly normal credit conditions will be restored or how much more government intervention will be necessary. What's clear is that until confidence is restored the crisis will have a substantial impact on overall economic activity.

Developing markets

Over the past decade the leading emerging markets of the world have been developing at a rapid rate. Russia's economy has, for example, been driven by high commodity prices, especially oil. China's economy has been driven by industrial development.

The Indian economy has been more services focused. Brazil's development has been encouraged by enlightened economic policies and substantial inward investment. In all four cases, we have seen the growth of a middle class of consumers with disposable income that has encouraged the development of the retail and consumer products sectors.

All this has changed. There is a saying in international economics that, "If the US sneezes, the world catches a cold', meaning that if the US economy were to slow down, a number of economies around the world would feel the effects.

Even China's economy is slowing. Export growth has stopped due to the slowing US and European economies and the rising value of the Chinese currency. As a consequence, industrial production is decelerating. The end result will be slower growth and possibly a recession. In addition, while exports will suffer, consumer spending will slow down but not drop precipitously. In the medium-term, China's economy will return to growth, this time more strongly led by domestic consumer demand.

India also faces a slowdown in growth with a drop in equity prices, a drop in confidence, and substantial decline in foreign investment. The result of these actions will be an economic slowdown but not necessarily a recession. India will likely grow more rapidly than its historical pattern, thereby fuelling strong growth in the number of domestic middle-class shoppers and creating substantial opportunities for consumer products companies.

Russia's recovery, however, will depend on restoring investor confidence and a stabilisation of oil prices. In the longer term, failure to invest in non-energy industries could stifle or even de-stabilise Russia's economy.

For the near term, it appears that Brazil's economic growth will slow. A combination of declining overseas demand, declining commodity prices, and tightening monetary policy will see to that. Once the global economy eventually recovers, Brazil will likely resume moderate growth.

Challenges facing consumer products companies

New consumer mindset

Against this global backdrop, many households, like businesses, will need to rebuild their balance sheets. That means reducing debts and increasing savings. But doing so in an environment of declining real incomes, reduced credit availability, falling housing prices, and rising unemployment will be challenging – and the rebalancing process will take some time. Accordingly, consumer spending is likely to take much of the strain. In particular, big-ticket spending, from home improvements to cars, is coming under the greatest pressure.

These and other factors have created an environment in which spending by already indebted consumers is being affected by a dramatic fall in confidence. Not surprisingly, people are trying to save money by eating out less, trading down to lower-price products and services, and spending less in general. All consumer sectors have been affected to some extent, but apparel, hard goods and luxury goods have been hardest hit as consumers cut back on discretionary spending. Although some sectors will continue to suffer bigger declines than others, overall consumer spending is forecasted to contract significantly in 2009. Little of this is new news. It is certainly not good news for consumer products companies and their value chain partners.

With consumers' disposable income squeezed by the reduced availability of cheap credit, and their desire to spend impacted by falling confidence, it is not surprising that shopping habits are changing. This is manifested in different ways. Convenience, quality, well-being, and environmental and ethical concerns have not gone away. But price and value are becoming increasingly central to the choices that consumers make about where to shop and what to buy.

There is evidence that people are making fewer but more planned trips to retail stores and to the supermarket. More careful consumers are also shopping around for commodities in one store, and luxuries in another. Understandably, sales of private label products are rising in several categories. In general, these are signs that shoppers are "redefining need" when it comes to the kinds of products they buy.

Cost control and pricing

A recent food and beverage industry survey by Deloitte UK indicated that many businesses will be focusing on cost and price-related factors over the coming year as they face up to the challenges of the economic downturn and changing consumer purchase behaviour. The situation in many other countries is similar. Cost reduction will be the top priority for a majority of consumer products businesses in 2009. Cost-cutting efforts are the result of not just economic factors and changed consumer patterns, business leaders report that many companies have experienced substantial input cost rises during the previous year, yet some businesses are not able to implement corresponding price increases to match this rise in input costs. At present, a very real gap exists between the input cost increases companies have faced and the extent to which they have been able to recover them. Pricing strategy is key area of focus to protect and improve trading performance.

Communication and information

Often, the most significant decision consumers make can be whether to visit a particular store at all. This choice may have been made in the past more on the basis of convenience of location or habit. But value, price and, in particular, information about promotions, are now becoming more important to consumers. Retailers, together with their suppliers, must look ever more carefully at how they reach their target market and entice the shoppers they want.

The link between communication strategies outside the store and activation in the store is crucial. In retail, research shows that shoppers, by and large, "sleepwalk" through a store paying little attention to information that could inform the product choices they make. New labelling schemes have sprung up in recent years providing details of products' nutritional composition, provenance, carbon footprint, and more besides. However, in the modern grocery market, while consumers increasingly expect more and more information about products to be available, the reality is that outside of specific dietary and related needs timepressed shoppers make very limited use of written information to inform product selection, being strongly influenced by simple visual triggers.

It is vital therefore for brand owners, retailers and foodservice companies to implement effective strategies to connect with consumers and shoppers, differentiate their brands and create drivers for purchase in the face of changing consumer behaviour. Retailers are becoming increasingly aware of the need for integration of messaging outside the store and in-store. But in today's increasingly outlet and shopper-centric marketing environment, branded manufacturers also need to break down the barriers between marketing and sales, combining consumer and shopper insight to provide a strong integrated value proposition to the retailer, wholesaler, food service operator and individual.

Collaboration with channel partners will therefore be increasingly central to branded manufacturers' brand development and communication strategies.

Food safety

Food safety, and its importance to brand reputation, should not be forgotten. In the past, high food prices have on occasion provided a financial incentive for unethical intermediaries to allow food unfit for human consumption to re-enter the food chain. The big rises in the cost of commodities have taken food safety issues off the front pages for a while, but not off the agendas of senior executives in the industry who appreciate the risks only too well. In the 2008 CIES Top of Mind survey of food retailers and manufacturers, food safety rose from number eight to number two in a ranking of senior executives' priorities and has maintained its position in the recently released 2009 survey. With ever more global patterns of food supply, it remains critically important for businesses to ensure the end-to-end integrity of the supply chain in which they operate in the interest of protecting consumers and protecting the brands they trust. We should not be complacent. Recent example such as melamine in various foods in China, demonstrates that this issue deserves even greater focus within most food businesses.

Tough times ahead

Ultimately, the successful brands in the future will be those which track and anticipate changing consumer needs and preferences and engineer the right value proposition, recognising that not all consumers are alike. Success will depend on being more granular in understanding how the market is changing and in targeting different consumer groups accordingly. This will have to be done against a backdrop of significant challenges. Most consumers will feel less well-off for the foreseeable future. Health and wellness will continue to be important but will need to be affordable. Effective management of food safety risk is crucial. Environmental and ethical issues will be essential to brand relevance but price premiums versus alternative products will need to be well justified. Success in the future will be about providing value to the consumer, while at the same time sticking to and communicating core brand values.

Communicating these brand values has, however, become more challenging. It is no longer simply a case of investing in conventional advertising. Consumers now use a variety of different sources, such as the Internet, digital television, mobile phones, celebrities, and their own personal network to help them make choices about where to shop and what to buy.

There has been a consequent decline in the influence of "push" media, such as traditional television, radio, and print-over whose content the public has little control. Rather, "pull" media such as the Internet, on-demand cable and satellite channels, and social networking sites have grown in stature as consumers take control over what they watch, when and how. Businesses must grapple with this changing dynamic to ensure they don't lose touch with their customers, especially with the economic downturn making them even more price and value-conscious than before.

As for the immediate and near-term future, most consumer products companies face tough times ahead or at least a period of no growth, against a backdrop of a deteriorating global economy. Nevertheless, there are still opportunities for those businesses who can manage effectively to track and foresee changing consumer needs, and who can meet and anticipate those needs with relevant brands, products and services.

The next year will also be characterised by further industry consolidation as those business with strong balance sheets and good cash reserves seize opportunities to acquire attractively priced assets that are a good strategic fit for their businesses. What's very clear is that the decisions businesses take over the coming year will be pivotal in shaping their destinies over the next ten years.

Strategies for a changed economy

Success in today's more challenging market environment will therefore depend critically on understanding and anticipating changing consumer needs and responding with relevant products and solutions at the right price points.

Questions for consumer businesses

Some important questions for consumer products companies to consider are:

  • How are shopper and consumer needs changing, both in the short term and longer term?
  • Are our historical market segmentation models still relevant, or do we need to find different ways of looking at the market and the changing landscape of available revenue and value capture?
  • What do we need to do to protect and enhance our brand's reputation and ensure its relevance to consumers, whose mindsets are very different from a year ago and to whom extravagance seems inappropriate, even to the better-off?
  • What is the most effective way of communicating our brand value proposition given the fragmentation of media and barrage of messaging that consumers and shoppers receive? How can we most effectively integrate messaging outside the store with that at the point of purchase?
  • How can we keep our existing customers and consumers loyal, and win new ones?
  • How can we stay ahead of the curve in anticipating their needs and accelerate innovation and time to market?
  • How should we steer the focus of this innovation to respond to changing consumer needs for value and pricing while preserving the values we stand for?
  • What do we need to do to adapt our business model to establish the capabilities needed to compete effectively in today's marketplace?
  • Where do opportunities exist to improve operational efficiency and reduce costs – for example, in marketing, sales, customer service, distribution, manufacturing or the back office?
  • How should we adapt our sourcing strategies for affordability, sustainability and security of supply?
  • And how can we most effectively manage and reduce food safety risks given the new issues in the changed economy and increasingly global supply chain?

Winning in challenging markets and beyond

In answering these questions, to claim that there is a "one size fits all" recipe for survival, prosperity and future market leadership for all businesses in the industry would be to greatly over-simplify. Different businesses find themselves with differing priorities. For many mid-sized and smaller suppliers cash flow and liquidity are the critical issues, alongside pressure on prices and margins and the need to reduce costs. Larger, better-capitalised businesses, while also focused on costs, are often more focused on tracking and anticipating changes in the market by category and geography and prioritising investment accordingly to meet changing consumer and shopper needs.

There are four critical areas that all businesses should think about when developing strategy appropriate to their particular situation:

Strengthening the balance sheet

Focusing on sources of funding, working capital and cash management.

Optimising trading performance

Focusing on commercial and operational excellence, winning in the current market by maintaining/growing market share with reduced resources while carefully managing pricing and costs.

Positioning for future leadership

Focusing on re-assessing longer-term strategy regarding where to play and how to win.

Building confidence among stakeholders

Focusing on leading and motivating people in a downturn; managing shareholder interactions and expectations; and collaborating with suppliers and other business partners.

Strengthening the balance sheet

Liquidity is the biggest problem facing many businesses today. Banks are reluctant to provide new lending or even renew existing facilities. Retailers are bolstering their own cash flow by insisting on extended payment terms from suppliers. Many suppliers carry high levels of long-term debt, especially those in private equity ownership and those that engaged in substantial acquisition activity at or near the top of the market. As the economy has slowed, more and more businesses are challenged in servicing their debts and ensuring adequacy of working capital.

Leading consumer products companies are increasingly concerned about the stability of their supply base, as indeed are leading retailers.

Greater discipline in managing receivables, payables and working capital tied up in inventory is good practice but hardly sufficient to make much impact on the scale of the problems many face. More drastic action is required and businesses need to work with their lenders to develop workable solutions. New equity investment can reduce short-term debt but can adversely impact existing investors. Selling off non-strategic business units may be necessary, though the values realised in today's market may be low. New approaches to supply chain finance, where invoices are settled on presentation at an affordable discount rate, may be one of the most effective parts of the overall solution, given that many businesses have 60 to 90 days of revenue tied up in receivables.

Optimising trading performance

There are a number of levers that businesses can pull, and in many cases are already pulling, that can materially impact business performance in the short term. Optimising trading performance requires both commercial and operational excellence. Speed, focus and reducing complexity are key themes. It is often as much about deciding what to stop doing because it is not value-adding as it is about what to do that is new or different.

Improving the effectiveness of marketing spend should be a critical focus for any brand-based business. Even before the current economic circumstances, changing media trends and consumer behaviours were driving consumer goods companies to re-evaluate their marketing approach and media mix. New shopping and buying patterns are now also challenging the allocation of marketing investment across brands and channels. It has never been more important for consumer goods companies to spend their marketing money wisely.

Pricing and promotions is one of the most important areas of opportunity. Deloitte research shows that a focus on optimal price-setting and disciplined pricing execution offers the highest potential to improve both top line sales and bottom line profitability. Brutal priceled competition, both between retailers and in many cases with direct competitors, has put pressure on prices and margins across the industry. However, many businesses could do more to win and sustain the price increases they need.

Promotions are important, and promotional intensity will increase in the current economic environment. While shoppers like everyday low prices, they are even more influenced by promotions. The winners in maximising return on this investment will be those that go beyond promotions as simply being a "ticket to play". They will learn from each promotion and apply that learning to future investment activity in ways that add value and reinforce the case for closer collaboration with channel partners. Using shopper insight down to the level of the individual will become increasingly central to the ability to target promotional spend on the right consumers. The challenge for many will be how to reconcile the short-term imperative to indulge the consumer's appetite for promotions with the longerterm objective to protect brand values and avoid commoditisation.

In times of plenty, many businesses – especially strong, brand-led businesses – could afford not to focus on the profitability of individual customers and products. But times have clearly changed and understanding where value is created and where value is destroyed has become critical to more and more businesses. Realistic customer cost-to-serve models are becoming an important business intelligence tool, but they are not yet well established across the industry. Businesses using such models have an important commercial advantage, both in margin management and price negotiation.

Understanding product profitability provides a vital starting point for SKU range simplification and a reduction in business complexity, which is a major driver of cost.

It also focuses effort in product value engineering, which is increasingly important in protecting margins. Short-term sourcing optimisation – such as fully capturing the benefits of recent commodity price falls – is an important part of this. In the case of some food businesses, for example, procured materials often represent two-thirds of the cost of manufactured goods at the factory gate, and therefore represent a key area of focus.

Improving operational efficiency across the supply chain is also important. If not already in place, this typically includes establishing an effective sales and operations planning (S&OP) process, optimising the supply network, and establishing the right distribution partnerships. This is also an important foundation for providing outstanding customer service from supplier to retailer, which is integral to the ability to access wider joint business development opportunities.

There are also housekeeping matters that, if not already addressed, should at least be considered as a part of optimising overall business performance. Many consumer businesses have already addressed cost-efficiency in the back office through consolidation and outsourcing. Most publicly quoted organisations have a duty to release the potential value to their shareholders that this affords. However, clear business partnering models and servicelevel management frameworks need to be in place to assure quality and value for money from such arrangements. Managing the effective tax rate of the business also presents opportunities to protect cash and increase the capacity to invest.

Positioning for future leadership

In parallel with pulling the levers that can help protect margins and deliver strong business performance in the short term, the businesses that are going to be future leaders need to be laying the foundation for longer term success now. This requires being clear on both where to play and how to win.

With economic confidence declining and individual consumption patterns rapidly changing the market landscape, traditional market segmentation and value quantification models risk irrelevance. At the same time, the resources businesses have available for investment are becoming increasingly constrained. To make the difficult decisions and tradeoffs that will lay the foundation for future success, management require solid quantitative evidence of value creation potential. Deciding where to play and gaining stakeholder commitment requires robust insights into how available market revenue and value pools are evolving. These insights require high-quality, timely analysis of past, current and anticipated market trends to determine where the business should focus – on which consumer segments, in which geographies and channels, in which types of outlets and with what products. As shown in the chart below, they also require both an outside-in view of the opportunities based on the changing market landscape and an inside-out view that informs the ability to exploit those market opportunities profitability.

The result is both a clear view of where to play and an agenda for the changes required in the business to play successfully and profitably. Longer-term, businesses should make granularity of market analysis a core discipline to support strategic thinking and embed revenue and profit pool landscape tracking in their routine management processes.

Based on clear priorities about where to play, many businesses will choose to make changes in their category and geography portfolios. Non-core businesses may be divested. Attractively valued assets that fit the strategy may be acquired, benefiting from the challenges that many other businesses face in today's market. Some businesses will find that existing brand architectures and strategies will need to be refreshed to ensure relevance and resonance in each priority market.

We will see major changes in the way in which businesses reach consumers and shoppers. Traditional brand and product marketing approaches are fast being abandoned in favour of more shopper-centric approaches. This is the result of fragmenting media, where individuals actively choose to pull content rather than being passive receivers of broadcast messages. It also reflects the growing power and marketing capabilities of the retailer. Success in reaching the future consumer and shopper will depend on tightly integrating activity outside the store with that inside the store. This in turn will mean breaking down the traditional barriers between marketing and sales; for example, integrating current and actionable shopper and consumer insights to inform brand, channel and communication strategies. Effective execution, then, requires a strong marketing mix model; an effective digital media strategy; good management information regarding the allocation of marketing resources; excellent marketing sourcing processes; and real management commitment to the alignment of marketing and sales activities. That this issue is becoming more important is borne out by the 2009 CIES Top of Mind survey of food retailers and manufacturers: consumer marketing has risen three places to number eight in a ranking of senior executives' priorities.

Focusing product innovation and portfolio management on changing customer and consumer needs will also be crucial to longer-term success in the industry. In spite of the economic challenges, key consumer trends that were evident eighteen months ago such as convenience, good nutrition and health, packaging reduction, interest in provenance, environmental impact and ethical sourcing have not gone away. At the same time, affordability, perceived value, and price will become relatively more important drivers of shopping and purchase behaviours for the foreseeable future than has been the case historically. Some of these shifts to more frugal consumer behaviours may prove much longer lasting than the downturn itself. Those businesses that succeed in bringing new products to market that reconcile these different needs, and at the same time generate a good margin, will win market share and capture value.

Moving to the supply side, the commodity price spike the industry experienced in 2008 in some sectors was a wake-up call for many in the industry, highlighting what occurs when demand and supply come into finer balance. While we are now in a more benign period of commodity pricing from a buyer's perspective, underlying trends such as population growth, rise of the middle class in major developing economies, and climate change are unlikely to go away. As the global economy eventually moves out of recession and demand for commodities and resources accelerate again, supply-side challenges will emerge. Therefore, the coming year will be a good time for many businesses to revisit longer-term sourcing strategies to secure supply at the right quality and cost. More and more businesses will identify needs for greater vertical integration to secure supply and will assess potential partners and suppliers according to criteria such as sustainability of supply, risk profile and climatic exposure, and long-term capacity. Strategies for water and energy use will also become increasingly important to supplier choice.

Building confidence among stakeholders

Perhaps one of the most important things for businesses to do in the current downturn is to build and keep the confidence of their various stakeholders – their shareholders, their customers, their suppliers, their employees and others. Management needs to focus on leading and motivating the people inside the company through the downturn by setting a clear direction, managing expectations and communicating regularly. The requirements are very similar with shareholders – explaining strategy, managing expectations and avoiding surprises.

It's equally important to keep the confidence of suppliers and customers too, ensuring that they see the business as a stable and reliable business partner, able and willing to work with them in navigating a changing and challenging market. This sounds obvious – and it is to most – but with so many competing demands on the attention of business leaders, it is worth noting.

Concluding thoughts

Given the current state of the global economy, many consumer products industry leaders will have no choice but to focus in the short term around costs, liquidity and even business survival. However, the current economic environment also offers opportunity for companies to reflect on how they are run today and what needs to be different to be prepared for the future.

Business leaders are adapting their businesses quite quickly to this very different economic situation, and many recognise that we are entering a time not only of new challenges but also of new opportunities. The winners ultimately will be those businesses that tackle any issues of liquidity and current trading performance without delay. This will allow early focus on understanding and exploiting the longer-term shifts in the market, enabling businesses to capture share while also getting leaner and fitter as a platform for future leadership and value creation.

For most businesses, this means there is a lot to get done. Ultimately, consumer focused businesses are successful not by making and selling products, but by anticipating and meeting the needs of their consumers. Businesses will need to be clear about how they will meet changing consumer needs in light of the economic challenges we now face – providing value and being true to values. This means taking the bold decisions that will shape their destiny over the coming years.

Helping you navigate challenging markets

As leading advisors to the industry, Deloitte provides a comprehensive range of services to consumer products companies ranging from immediate help with liquidity and debt restructuring to long term business development strategy.

Examples of the services that many of our clients are finding especially valuable in today's economic environment include:

Strategic replanning, focus on "where to play"

  • "Choosing where to play" – drawing on economic analysis and consumer insight to understand and own revenue and profit pools in changing markets: targeting which consumer segments, with what products, in which markets and through which channels.
  • "Business portfolio management" – building on the conclusions of the "where to play" analysis, planning and executing targeted acquisition and divestiture strategies.
  • "Channel strategy" – determining the optimal channel mix to serve target consumer segments in each market and how best to support and develop those channels profitably.
  • "Strategic & financial planning" – re-engineering business planning processes to be better suited to today's more volatile markets.

Commercial excellence

  • "Innovation and product portfolio management" – improving innovation performance as a driver of profitable growth and recognising the need to manage range complexity.
  • "Pricing and promotions" – optimising price setting, pricing execution and the returns on investment in trade and consumer promotion activities.
  • "Shopper marketing" – successfully adopting the more shopper centric marketing disciplines that are increasingly important in today's fragmented and complex media environment.
  • "Understanding cost to serve" – better understanding the true cost to serve each channel and customer as a platform for improving profitability and optimising trading terms.

Operational excellence

  • "Supply chain planning" – optimising customer service levels and minimising supply chain costs through improved forecasting and planning techniques.
  • "Supply chain network optimisation" – improving the economics and reducing the adverse environmental impact of physical distribution activities.
  • "Strategic sourcing" – balancing security of supply with cost and providing a platform to reinforce the credentials of the brand through responsible and sustainable resource use.
  • "Indirect spend optimisation" – taking advantage of the combined purchasing power of the organisation to improve indirect spend efficiency.

Optimisation of business resources

  • "Free your cash" – an holistic approach to optimising cash and liquidity and proactively manage the finances of your business.
  • "Supply chain finance" – improving liquidity and business stability through innovative approaches to funding trade.
  • "Back office consolidation and outsourcing" – improving administrative cost-efficiency, providing better support to the business and allowing management to focus on optimising performance in market.
  • "Intelligent rightsizing and workforce transition" – reducing costs while maintaining brand and business reputation and retailing skills that will be crucial to future growth.
  • "Reducing HR spend" – reducing the cost of the HR function while nurturing talent and providing high quality HR services to managers and staff.
  • "Sustainable IT cost reduction" – delivering enhanced services to the business while setting new level of ambition in IT cost reduction targets.

If you would like to find out more about these and the other services Deloitte provides to the industry please contact any of the members of the industry team.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.