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CHICAGO -- Large consumer-packaged-goods (CPG) companies are renewing their focus on driving volume growth instead of raising prices as they try to fight off share loss to smaller companies. It seems to be working, as the pace of share loss slowed over the past year.
According to new research by The Boston Consulting Group (BCG) and Information Resources Inc. (IRI), the top three large companies showing strong growth momentum are The Hershey Co., Lorillard Inc. and Mondelēz International.
Among midsize companies, Green Mountain Coffee Roasters Inc. and Chobani continue to hold the No. 1 and No. 2 spots, as they did last year, followed by McKee Foods at No. 3. Leading the small companies are KIND Healthy Snacks, Paris Presents and Talking-Rain, the research found.
"The 2013 rankings show the importance of maintaining a focus on the base business," said Dan Wald, a Chicago-based partner at BCG. "The winners innovated, but they innovated to complement their base business, not replace it."
For the second consecutive year, BCG and IRI examined more than 400 CPG companies with annual U.S. retail sales greater than $100 million and then ranked them on the basis of their growth performance using a combination of three metrics: dollar sales growth, volume sales growth and market share gains.
The annual study, which also analyzes the trends driving performance in the sector, includes both public and private CPG companies and focuses on what consumers actually bought in measured channels as opposed to what factories shipped.
Because manufacturers of different sizes face disparate challenges and opportunities, BCG and IRI generate three top-10 lists of the best-performing companies: small ($100 million to $1 billion in IRI-measured retail sales), midsize ($1 billion to $5 billion), and large (more than $5 billion).
Overall, the U.S. CPG market expanded by just 1.5 percent in 2013, down from the 2.8-percent growth rate seen in 2012. A key reason, according to the report, is that companies were more restrained than in the past when it came to raising prices.
However, that did not slow the small and extra-small (less than $100 million in sales) companies, which collectively grew 4.3 percent in 2013. Large companies lost 0.5 percentage points in market share, mostly captured by extra-small companies.
According to the research, since 2009, large players have ceded 2.3 share points to midsize, small and extra-small companies, representing $14 billion in lost sales. The inroads by small and extra-small companies in particular have come in part through reduced barriers to entry, including the emergence of digital media, which lowers advertising costs, and the rise of online and specialty retailers, which offer new selling opportunities for small and extra-small players.
Despite a decline in their overall share, large companies collectively performed better in 2013 than in 2012. This is especially true for the five top-ranked large companies, which broke away from the pack in 2013 and recaptured market share. Improvements were largely driven by a renewed focus on delivering volume growth instead of raising prices to achieve short-term gains in dollar sales.
"It is important to note that the large-company winners are using multiple tactics to drive volume growth, such as garnering more shelf space with the right assortment and revenue management," said Dr. Krishnakumar Davey, managing director at IRI Consulting. "However, small players are clearly discovering new pockets of growth within mature categories, so it's imperative for all companies to spot trends quickly and capitalize on them."
Regardless of size, the strategies of winning companies share similarities:
- Of the top 30 companies across all size categories, 28 generated growth from their base business.
- High-performing companies have successfully created offerings that are focused on specific, unmet consumer needs and that often serve as a replacement to undifferentiated products found in large, established categories.
- Winners tend to use pricing to enhance volume growth, while laggards tend to use it as a short-term tactic for driving dollar value growth in the face of declining volumes.