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The McKinsey & Co report “The consumer sector in 2030: Trends and questions to consider” predicts change and disruption and looks at what companies can do to prepare for it.
The report’s authors raise five questions they believe companies need to think about.
What makes us distinctive?
Challenge everything. Evaluate and rethink your business from top to bottom. Find out what makes you different. What is your competitive advantage? Examples of companies already doing this are Coca-Cola and P&G. “The Coca-Cola Company has been divesting its US distribution assets over the past two years, and P&G has shed more than 100 brands so that it could focus on approximately 70 core brands,” it says. A competitive advantage is not enough; cost reduction is needed. It’s likely that ambitious cost-cutting programmes such as those recently undertaken by Best Buy and Levi Strauss & Co will become much more common.
How can we engage consumers in an ongoing dialogue?
The insights gained through understanding what consumers want and are willing to pay for must inform the products and brands of the company and their evolution. Here the report specifically addresses social media. Recent research proves yet again that social media has a strong influence on purchase decisions: “Across product categories, 26% of purchases on average were spurred by recommendations on social media.” As more people get smartphones and social networks become more sophisticated, more and more consumers will share their opinions on social media. These conversations cannot be ignored by brands.
Are we set up to reallocate resources swiftly and at what scale?
Moving capital, talent and leadership to where it is needed, be it geographical or a consumer segment, will have to take place nimbly. Companies that have operated in developed markets and are moving into developing markets will have to pay attention to the different skills needed. “Research suggests that companies that more actively reallocate investments deliver, on average, 30% higher total returns to shareholders annually than companies with more static budgets. Yet agility in resource allocation is still rare. At most organisations, the current year’s allocation serves as the basis for the next year’s, with only marginal changes.”
What strategic relationships should we seek out and nurture?
Partnerships and acquisitions are critical in an uncertain and rapidly changing world and can assist in managing a company’s supply chain as well as coming up with new ideas. Some companies are integrating up and others down the chain. “Mexican bottling company Arca Continental, for instance, already has a stake in a sugar mill and is looking to expand its position.” The report says the “most innovative companies regularly tap into external sources of skills and expertise, particularly in areas outside their core competencies.”
How can we use technology to differentiate, not just enable?
The report states that the leading consumer companies of the future will also be technology leaders. Therefore, companies need to look at how they can digitise their internal operations and their consumer-facing functions. “By 2030, we expect retailers will be able to create new retail ‘worlds’ — virtual stores that use augmented reality to give customers the experience of walking down a store aisle, for instance, or personalisation engines that link to real-time biometric data to recommend meals with optimal nutritional content.”
In conclusion, the report states that “the future of the consumer industry is neither as unknowable nor as predictable as some suggest. The smartest companies will study and act on the known factors, while responding to the unexpected in a nimble fashion.”
About the Report: The report was authored by Richard Benson-Armer, a director in McKinsey’s Stamford office, Steve Noble, a principal in the Minneapolis office, and Alexander Thiel, an associate principal in the Zurich office.
The Big Take-out: Companies can prepare for the future if they consider known factors and plan and act on them.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.