CPGS SLOW TO CHANGE, SURVEY SHOWS

NEW YORK - Customer loyalty to brands is fading, the ability to efficiently target consumers in a splintering media environment is eroding, and the rise of discounters and store brands has squeezed profit margins.Yet packaged goods makers have been slow to make wholesale shifts in marketing practices to adapt to this increasingly competitive retail environment, a new survey by McKinsey & Co. here

NEW YORK - Customer loyalty to brands is fading, the ability to efficiently target consumers in a splintering media environment is eroding, and the rise of discounters and store brands has squeezed profit margins.

Yet packaged goods makers have been slow to make wholesale shifts in marketing practices to adapt to this increasingly competitive retail environment, a new survey by McKinsey & Co. here revealed.

"It's not a lot of news to say the world is getting harder, there are fragmenting channels, a fragmenting customer base," said Blair Crawford, a partner at McKinsey who led the research with Susan Mulder, also a partner. "What is surprising is, you would expect a faster level of change than this survey indicates in reaction to that. The overall pace of change is slower than we would have expected."

McKinsey early this year surveyed more than 20 food and nonfood companies, including Kraft, Coca-Cola and Procter & Gamble, for its research, which it plans to share at the Grocery Manufacturers Association's Merchandising, Sales and Marketing Conference, Sept. 25-27, at the Breakers in Palm Beach, Fla.

Within individual areas, such as innovation, customer relationships, marketing and brand strategy, some companies stood out, Mulder said. "What we don't see are two or three of the 20 that are winning across all areas," she said. (McKinsey won't identify the companies exhibiting those best practices.)

Some are doing measurably better, however. The McKinsey research found the average additional growth of players who exhibited best consumer insights, shopper insights and brand portfolio management practices were growing about 2 percentage points above the average growth rate in their category - not an insignificant difference in a generally low-growth industry, Crawford said.

A few companies are working with retail partners toward point-of-sale marketing and customer-centric merchandising and away from traditional media like freestanding inserts, recognizing that shoppers are increasingly making purchase decisions in the store, Mulder said.

"The goal here is more skewed to category growth than share of steel," Crawford said. "It's more of a legitimate version of category management." The pitfall, he said, is that across the board, companies surveyed believe they can't rely on retailers to carry out these POS and merchandising programs reliably. "A biggest challenge is the concern that retailers don't execute consistently."

The survey uncovered these other characteristics of better-performing companies:

They're sharing customer insights with retailers.

They're embracing a decentralized marketing structure, giving brand managers more power in the trade spending and media planning process.

They're giving consumer insights a greater role in the company, so that all departments in the organization may benefit.

They're moving faster to identify and introduce new products.

Rather than treating their second-tier products as discount offerings, they're aggressively using them to gain entry into new channels.

"The average number of brands is increasing," Mulder said. "It's getting harder at managing those portfolios. If you do this well, you're thoughtful about which brands are going to help you move the fastest. Non-core brands are being used more effectively as a way to move into new channels."