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MARCH, 2020
Some companies are avoiding the looming margins crunch by taking a new approach to supply chains.
  • Our proprietary research found that consumer goods companies can expect margins to shrink as much as 30% by 2030, as they deal with major industry disruptions.
  • To maintain their margins and prepare for evolving consumer and retailer needs, some companies are upending their traditional view of supply chains.
  • The most successful companies take a future-back and unconstrained view, build segmented supply chains and rigorously assess the digital tools that support them.
Consumer goods companies face tremendous disorder. Their consumers are evolving fast, seeking greater convenience, demanding sustainable goods, embracing insurgent brands and private labels. Consumers want more from brands: transparency, traceability, and goods that support their well-being and are customized enough that those products seem to have been made just for them. Their retail customers have evolved, too. They’re grappling with tectonic shifts caused by the surging growth of e-commerce and the prevalence of everyday value. As a result, they fiercely negotiate to maintain already razor-thin margins.
“Looking ahead, the traditional value chain in which consumer products companies manufacture goods that retailers sell to consumers could be further turned on its head.”
Retailers are already moving up and down the value chain, into territory they once actively avoided. Grocers now own manufacturing facilities and have access to world-class comanufacturers to produce sophisticated private labels masquerading as insurgents. They operate farms to grow their own fresh offerings. Also, new channels and intermediaries are emerging at breakneck pace. There’s more competition from direct-to-consumer models and food delivery, for example, and channel fragmentation has enabled consumers to purchase products at their point of need, whether that’s the gym, a hotel or—coming soon—on the street with drone delivery.

This squeeze from both consumers and retailers can take a huge toll on brands that don’t act quickly. Bain & Company estimates consumer goods companies that fail to take adequate steps could lose as much as 30% of their margins by 2030 (see the Bain Brief “Overcoming the Existential Crisis in Consumer Goods”).

In many cases, margins are being eroded by rising supply-chain costs. Those costs mount as companies have to serve more channels with distinct requirements, meet retailers’ demands for better service, address consumers’ growing preference for customized products and provide a broader portfolio of channel-specific packaging. In the US, half of those diminishing margins could result from rising supply chain costs. By comparison, only one-sixth of the margin drop will be from the cost pressures of retailer consolidation and one-third from smarter and tougher negotiations (see Figure 1).

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