“The consumer products sector is being affected by the downturn in the US market,” said John Maxwell, leader of PricewaterhouseCoopers’ retail and consumer industry practice. “However, executives are preparing to weather the economic storm with continued spending support for operations necessary to remain competitive in the marketplace, as well as for capital expenditures to drive the business long-term.”
Despite economic anxiety, nearly half (43 percent) of executives are planning major new investments of capital over the next year, up from 37 percent last quarter. Plans for increases in operational spending over the next 12 months primarily focus on new product/service introductions (60 percent), marketing and sales promotion (45 percent) and information technology (43 percent). Executives are increasing the mean investment of capital, planning 7.2 percent of total sales versus 4.2 percent planned last quarter.
Optimism in the global economy continues to hold steady, with 48 percent of executives confident about their international prospects. However, this is still significantly lower than a year ago, when 71 percent of executives were optimistic.
International sales are a strong contributor to total revenues of consumer products companies, projected at 19 percent over the next 12 months. Of those companies reporting international transactions, more than half (51 percent) increased sales abroad last quarter.
“International markets offer optimism for consumer products companies in a down domestic market,” said Lisa Feigen Dugal, PricewaterhouseCoopers’ North American retail and consumer industry advisory leader. “Executives hope that the buoyancy of the international markets will bump up their sales overall.”
Building on the bright international outlook, the Barometer found that the majority of executives (83 percent) plan for positive revenue growth over the next 12 months, with 69 percent of those companies projecting single-digit growth and 14 percent expecting double-digit growth.
In the fourth quarter of 2007, 21 percent of consumer products companies increased gross margins while 36 percent decreased margins. In addition to gross margins tightening, 62 percent of executives experienced increased costs and nearly half (48 percent) increased their prices during the past quarter.
Coinciding with current economic uncertainty, consumer product companies lowered own-company revenue growth projections to an average of 5.1 percent for the next 12 months, a noteworthy decrease from the prior quarter’s 6.8 percent. However, this sentiment is not unique to the consumer products industry. Growth expectations for companies regardless of industry decreased from 7.0 percent in the previous quarter to 5.4 percent in the fourth quarter.
Consumer products companies cited increased concern over demand (42 percent) and competition from foreign markets (31 percent) as potential barriers to growth. However, worries over oil/energy prices remained the leading barrier to growth (72 percent) as crude oil price levels move higher each day. This is in line with industrial manufacturing executives who consider oil/energy the top barrier to growth (66 percent), according to PricewaterhouseCoopers’ Manufacturing Barometer. Consumer products executives who are concerned about oil/energy slashed their revenue projections to 4.9 percent in Q4, compared to a 6.5 percent revenue growth rate last quarter.
Hiring plans are also on hold, with less than one-quarter of executives (22 percent) planning to add new workers over the next year, significantly lower than the all-industry consensus of 40 percent and a 10 percent drop from last quarter (32 percent). Despite the decreased hiring plans, only 10 percent of consumer products companies plan to reduce their workforce.
Special Issues Affecting Consumer Products Companies: Product Recalls
Despite the widely-promoted recalls reported by the media over the past few months, the majority of consumer products companies (69 percent) have not experienced a product recall. Only 17 percent of executives believe their companies’ exposure to product or raw-material related recall from foreign sources has increased during the past 12 months.
Looking ahead over the next 12 months, 71 percent believe exposure to product or raw material recall from foreign sources will remain the same. Despite this fact, the majority of consumer product executives (74 percent) are currently taking action to manage risk related to product or raw material recalls, such as conducting supplier audits and investigating alternative suppliers. Fourteen percent of companies are not exercising any risk management actions.
Special Issues Affecting Consumer Products Companies: Sustainability Strategy
Sustainability is an issue of increasing importance for consumer products executives. In fact, nearly half (45 percent) of consumer products companies currently have a formal sustainability strategy in place for their businesses. Only 21 percent of executives reported not having a sustainability strategy in place.
The Barometer reports that consumer products companies that embrace sustainable practices are more likely to make 3-4 changes in their strategy over the next 12 months, including increased compliance monitoring (89 percent), improved sustainability reporting (77 percent), and changing products (73 percent).
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Direct questions about Consumer Products Barometer Kate Glenn, at 203-312-7542 or e-mail to: kate.n.glenn@us.pwc.com.
For more information about Barometer surveys, including recent economic trend data and topical issues, visit www.barometersurveys.com.
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