On the surface, consumer executives have a robust view for growth in the economy and in sector revenue, as 94% of executives say the prospects for the global economy are improving and 88% say the same for the sector. Both results are up sharply from a year ago.
This positive view is understandable: many consumer products companies are reporting improvements in organic growth, as the focus on cost cutting over several years has freed up capital, allowing companies to invest more on increasing market share and driving category growth. Retail executives are even more positive about the sector (94% see it improving, compared with 86% for consumer products executives). However, this may be relative. The optimism comes following a significant period of bankruptcies and store closings, as the retail industry was one of the first to face massive digital disruptions. Retail bankruptcies and store closures will likely continue; the pace has merely slowed.
Rising costs, economy top challenges to growth
Still, the current revenue growth rate for the consumer sector remains at 4%, and sector executives also showed a touch of pragmatism. Almost one-third said slowing economic activity is the greatest external risk to their business.
More directly, both consumer products (22%) and retail (18%) executives cite increasing production costs as the most significant challenge to growth. The push for more natural and less processed foods is one factor driving up costs for consumer products companies. At the same time, companies are investing in technology to meet consumer demands for transparency on sourcing and food safety. Retailers, meanwhile, face the cost of maintaining both traditional and digital distribution channels. They are investing to provide unique, personalized shopping experiences as they also focus on reaching consumers where and when they want.
Only 11% of retailers mention new market entrants and only 10% cite disruption from more technologically advanced competitors as the most significant challenge to growth. This indicates a predominant short-term view focused on quarterly or annual financials. Hence their top issue is rising production costs, with inflation coming from many directions, including labor or tariffs.
Digital investment a primary focus
Still, the digital world makes it easier for startups to find customers through social media and digital advertising and compete more easily with established companies. At the same time, technology makes it easier for consumers to compare on price, making it more difficult for retailers and manufacturers to pass rising costs on to consumers.
To counter, 97% of executives plan to invest in technology. This includes investments for internal efficiencies or creating new products and services and improving the customer experience. Companies are also exploring artificial intelligence (AI) and automation to improve front-end and back-office processes.