Following a decade of turbulent macroeconomic conditions in which top-line growth has faded away and global consumer packaged goods (CPG) companies’ shareholder returns have plunged from the top to the bottom quartile, the CPG industry has entered a period of reckoning.
As inflation slows, the industry must take up an ambitious dual agenda to reimagine portfolios for growth and reinvigorate performance to enhance operational efficiency. As McKinsey has written previously in reference to CPGs in Europe and other regions, advancing commercial excellence depends increasingly on digital tools and analytics, including AI, to unlock deeper and more-focused channel and consumer insights. In Latin America, as channels and media strategies shift and evolve in response to industry changes, demographics, and consumer trends (such as value-driven purchasing decisions), CPG companies are forced to operate differently and implement practices that set them apart from their peers.
The 2023–24 Consumer Excellence Benchmarking (CEB) Survey of Latin American CPG companies reflects these new realities (see sidebar “About the Consumer Excellence Benchmarking Survey”). Informed by our latest survey data, this article explores how leading CPG companies in Latin America are outperforming their regional peers in net sales growth, commercial spend efficiency, and marketing performance. They are achieving this by using five key commercial excellence best practices:
- articulating clear product portfolio roles with distinct approaches for renovation versus innovation
- strategically collaborating with retailers and distributors, leveraging data to manage sales force and third-party performance
- implementing in-house marketing that relies on testing and measuring return on ad spend (ROAS)
- empowering revenue-growth management with analytics to support price, promotion, and innovation decisions
- embedding e-commerce efforts in the annual strategy and emphasizing e-merchandising
How commercial excellence has evolved in Latin America
Consumer goods companies in Latin America have gained tremendous ground in some areas of commercial excellence in the three years since the previous CEB Survey (see sidebar “Developments in commercial excellence in Latin American consumer goods”).
This progress reflects channel dynamics and modernization in the region. For example, fragmented trade in Latin America is defying global trends by demonstrating remarkable resilience and modernizing to incorporate omnichannel opportunities. As traditional points of sale move rapidly toward digitalization, and as new B2B and B2B2C platforms emerge to create new product and service opportunities, CPG companies are using technology to improve service efficiency and become more competitive. For example, we’ve seen multiple CPG companies in Latin America use BEES, a B2B e-commerce and software-as-a-service platform, to provide digital ordering options through traditional channels or develop their own platforms.
According to the CEB Survey, significant majorities of companies in the region are deploying best practices for commercial excellence in important capability areas:
- More than 95 percent of companies consider category price evolution and competitive positioning in defining their revenue growth management strategies.
- More than 70 percent of companies have internal design capabilities that support new-product development.
- More than 95 percent of companies include customer-specific goals in their e-commerce strategies.
The insights gleaned from the most recent CEB Survey also highlight that leading CPG
companies in Latin America are far more likely than their peers to employ commercial excellence best practices in all aspects of their operations. The sections below explore in greater detail how leading CPG companies engage in five of those best practices.
Articulating clear product portfolio roles with distinct approaches to renovation versus innovation
Leading companies know that renovation and innovation require different approaches, and they know which path each part of their portfolio should follow. For renovations—small tweaks to products—a structured and clear stage-gate approach is ideal. Innovations, on the other hand, need to be supported with a robust, agile process informed by consumer testing—an iterative process, rather than the linear approach suited to renovations.
To improve their innovation game, leading Latin American companies are taking more-structured approaches to innovation and renovation, including by deploying incentives and a stage-gate process for investment allocation to enhance renovations. Leaders are nearly twice as likely as their peers to manage innovation and renovation differently (60 percent versus 33 percent), and use clear investment road maps as well as incentives (Exhibit 1).
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A series of three stacked bar charts shows that leading CPG companies are 27 percentage points more likely than their peers to use different operational approaches to managing innovations and renovations, 33 percentage points more likely to have clear stage gates for innovation investment, and 43 percentage points more likely to have incentives aligned to innovation.
Source: Source: McKinsey 2023–24 Consumer Excellence Benchmark Survey, n = 17, 7 companies classified as leaders and 10 as others
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The substantial advancement of innovation capabilities offers a sharp contrast to previous surveys, which showed Latin America lagging behind other regions in innovation.
Constantly evaluating portfolio roles is a hallmark of leading CPG companies in Latin America. They identify and clearly articulate each brand’s role in terms of segments, categories, and occasions, setting guidelines that ensure consistency while allowing flexibility. Notably, according to the CEB Survey, leading CPG companies are twice as likely as their peers to have specific guardrails and guidelines for each brand, and 100 percent of leading companies reported that they have clearly articulated portfolio roles for most brands, versus 83 percent of their peers.
Strategically collaborating with retailers and distributors
Within modern trade, leading CPG companies understand the role of retailers and promote partnerships with them (Exhibit 2).
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Two sets of four paired bar charts show how much more likely leading CPG companies are than other CPG companies to prioritize different types of collaborations with strategic retailers and to align with baseline and differentiating commercial excellence best practices in these collaborations. Leading CPGs are 27 percentage points more likely than their peers to align with two baseline best practices: expanded assortment and a shift in trade spend to more productive activities. On differentiating practices, leading CPGs are 36, 32, and 24 percentage points, respectively, more likely than their peers to align with customer relationship management–based tactics, new-shopper marketing programs, and incremental distribution.
Source: McKinsey 2023–24 Consumer Excellence Benchmark Survey, n = 31, 8 companies classified as leaders and 23 as others
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These companies are 2.2 times more likely than other companies to have multiyear planning horizons with strategic retailers, develop joint KPI scorecards, and plan collaborations centered on expanded assortment, new merchandising strategies, trade spend, and pricing.
Additionally, leading CPG companies use data to manage sales force and distributor performance, especially in traditional trade. They also leverage a wide array of data sources to influence their channel and customer strategies, such as forward-looking projections and historical channel and customer profitability for various categories. Leading CPG companies are also more likely to collect in-store merchandising metrics, store-level audits, and point-of-sale data from distributors (Exhibit 3).
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Two sets of paired bar charts show how much more likely leading CPG companies are than other CPG companies to leverage multiple data sources to track and analyze baseline and differentiating metrics in managing their stakeholder performance. Leading CPG companies are 17 percentage points more likely than their peers to track and analyze baseline stakeholder metrics such as net sales or revenue, sales growth volume, and sales growth value year over year. On differentiating metrics, leading CPGs are 23 percentage points more likely to track and analyze securing secondary displays and 32 percentage points more likely to track stakeholders’ performance in managing out of stocks.
Source: McKinsey 2023–24 Consumer Excellence Benchmark Survey, n = 31, 8 companies classified as leaders and 23 as others
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Implementing in-house marketing that leverages testing and measures ROAS
Data-driven marketing sets leading companies apart—they are 1.4 times more likely than their peers (83 percent versus 60 percent) to measure digital content engagement through ROAS. They prioritize in-house capabilities for digital content while using third-party agencies for traditional media. Marketing-optimization testing has become a staple in the region, with all CPG companies engaging in some degree of testing.
Empowering revenue-growth management with analytics to support price, promotion, and innovation decisions
Leading CPG companies equip their revenue-growth-management teams with the tools, analytics, and granular data they need and empower them to influence the rest of the organization to react and deliver price changes and promotional guidelines quickly into the market. The revenue-growth-management team works with sales and marketing to make portfolio, pricing, and promotional changes rather than serving in a supporting role.
In a high-inflation environment, it is critical for CPGs to be consistent in sustaining net-price increases. Leading companies in this dimension achieve this consistency by using the following effective practices:
Developing a deep fact base to create pricing strategies and track their execution. Leading companies are more likely to track competitors’ prices than their peers: 100 percent of leading companies have a clear view of price execution in the market, giving them the tools to formulate better revenue-growth-management strategies. Leaders are nearly twice as likely as their peers to conduct structured pricing reviews of their entire portfolio, rather than making partial changes, and 1.5 times as likely to adjust list prices at least quarterly, rather than fixing problems as they arise (Exhibit 4).
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Two paired column charts show that leading CPGs are 1.8 times more than their peers to conduct structured reviews of prices for their entire portfolio and 1.5 times more likely to adjust their list prices at least quarterly.
Source: McKinsey 2023–24 Consumer Excellence Benchmark Survey, n = 31, 8 companies classified as leaders and 23 as others
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Developing granular promotional guidelines. Leading companies are twice as likely as their peers to develop granular promotional guidelines at a customer, brand, or promoted-product level.
Expanding the scope of revenue growth management and increasing stakeholder engagement. All CPG companies in the region have advanced their revenue-growth-management functions and are increasingly involved with other stakeholders. Leading companies are more likely to leverage their revenue-growth-management teams’ knowledge and experience to influence strategy in other areas, such as innovation and pricing.
Embedding e-commerce efforts in the annual strategy and emphasizing e-merchandising
Leading CPG companies in the region have evolved their e-commerce capabilities since previous iterations of the CEB Survey. These outperformers are twice as likely as their peers (57 percent versus 27 percent) to include their e-commerce strategy as a core component of their annual plan. In execution, leaders are more likely to have e-merchandising capabilities and content development for e-commerce (Exhibit 5).
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Three paired column charts show that among levers for e-commerce execution, leading CPG companies are 1.7 times more likely than their peers to use best practices for basic online merchandising and richer content for product pages and 1.6 times more likely to use best practices for placement on category pages.
Source: McKinsey 2023–24 Consumer Excellence Benchmark Survey, n = 31, 8 companies classified as leaders and 23 as others
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Even in a challenging, ever-changing environment, winning CPG companies in Latin America have been able to outperform peers and reduce expenses. To continue thriving, they must clearly define brand roles, evaluate marketing investments, and collaborate with strategic retailers. These practices can guide companies to enhanced performance.
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