Amid a shifting macroeconomic landscape, we surveyed 175 European executives to better understand how mid-cap consumer companies grow, what kinds of challenges they’re facing, and what levers they plan to use to boost future growth. This survey’s respondents are C-level executives at European-based companies with annual revenues between €50 million and €3 billion.
The survey was in the field during March 2023 and builds on a survey conducted in fall 2022. While the previous survey revealed actions that have delivered success in the past, this survey focuses on the future plans of companies with high-growth ambitions. Among its major findings: novel challenges are surfacing, core business activities are gaining in importance, and companies are updating their investment priorities. It will be critical to carefully manage ROI in a future where growth slows even as investments in growth increase.
Companies will need to adopt bolder mindsets as growth outperformance becomes more elusive
Expectations for growth have dimmed. About 40 percent of all respondents report that their companies experienced high growth—meaning compound annual growth rates (CAGR) topping 10 percent—from 2020 to 2022, but only about 25 percent of respondents express ambitions to reach that rate of growth over the next three years. The winners of the past do not necessarily expect to be the winners of the future: of respondents whose companies previously logged high growth, only about 45 percent expect to continue at the same pace or exceed it.
Within this challenging context, one group’s ambitions stand out: respondents from companies owned by venture capital or private equity firms report higher growth goals than their peers. Other types of companies might consider adopting similarly bold mindsets as a means of pushing themselves to achieve more growth.
Challenges are shifting, new concerns are emerging, and companies will need to stay agile to adapt
It’s no surprise to learn that pandemic-related issues head the list of growth obstacles that mid-cap consumer executives faced over the past three years. Supply chain disruptions (67 percent) and supply chain inflexibility (30 percent) remain top of mind—just as they were in our previous survey—when respondents were asked to rank the five greatest challenges impeding recent growth.
But as the world emerges from the depths of the pandemic, respondents expect to encounter an altered mix of challenges. Rising inflation is becoming a major concern—named by 42 percent of respondents. Sinking consumer sentiment has also entered the picture, with 27 percent of respondents placing it on their top five lists. Beneath these headline items, however, the survey reveals significant differences among sectors. Consumer goods executives name competitive pressure as their number-one future growth obstacle; retail executives name operating model challenges; and restaurant executives name (overwhelmingly) inflation.
Faced with unpredictable headwinds, companies should ensure that they have a strong system in place to spot new challenges as they arise while maintaining the flexibility needed to quickly update plans in response.
Companies plan to use a broad set of levers to achieve future growth
A company can benefit from exploring three approaches to seeking profitable growth: strengthening the core of its business, expanding into adjacencies, and igniting breakout businesses. Survey respondents expect more than half of future growth—including long-term growth—to come from their core businesses (meaning existing categories and markets). The expected importance of this core has increased since our previous survey, in which respondents projected that about 40 percent of growth would be core-driven. That said, the role of adjacencies and breakout businesses in driving growth is expected to increase in importance over the longer term.
Whatever the mix of levers chosen, fast execution is a common goal. Several survey respondents say that not acting faster is their number-one regret when they review their performance over the past three years.
Further nuances in emphasis emerge at the sector level. Consumer goods manufacturers list product innovation and expansion into new categories that are closely adjacent to their core businesses as their top growth levers. But among those who report comparatively higher future growth expectations, a slightly different mix of levers comes to the fore: these executives are more likely to underindex on marketing efficiency and expansion into closely core-adjacent categories while overindexing on pricing, expansion into new markets distant from their core businesses, and backward vertical integration (a process in which companies gain control of operations that exist further up the supply chain).
Retailers are eager to establish their own marketplaces
Retailers envision using a mix of levers (including store experience optimization, assortment optimization and expansion, and omnichannel integration) to strengthen their core businesses, with no single lever being the dominant choice. Respondents with high-growth ambitions focus in particular on assortment expansion and optimization, while putting less emphasis on store optimization. When expanding into adjacencies, respondents expect to focus primarily on new categories and new channels. However, for retailers with high-growth ambitions, new channels rank much further down the list (in ninth place). Respondents expect their efforts to launch breakout businesses to be focused on establishing their own marketplaces and on disruptive product innovations (with companies that express high-growth ambitions placing added emphasis on establishing their own marketplaces).
Restaurant executives hope to expand into new channels
This edition of the survey adds executives from restaurant companies to the mix of respondents. When asked how they plan to grow their core businesses over the next three years, restaurant executives report that they expect their top growth levers to be improving same-store sales, opening new channels, and maximizing digital channels. Restaurant respondents also project that digital solutions will remain the most important factor in their efforts to expand breakout businesses, while caveating that digitization will become slightly less relevant in comparison to the role it played over the past three years. Asked how they plan to help breakout businesses succeed, restaurant executives say they expect to increase focus on backward vertical integration.
Investment levels are projected to increase, with optimization of ROI becoming more critical than ever
Overall, respondents expect their companies to increase investment levels over the next three years (compared with the past three years) in an effort to create more growth. Capital expenditure is projected to be the number-one investment area overall, while external marketing tops the list of investment areas for companies with high-growth ambitions.
At the sector level, consumer goods manufacturers report little change in their ranking of investment priorities, with capital expenditures and external marketing leading the way. For restaurants, upskilling and training are expected to be major investment areas—ranked second in priority after capital expenditure over the next three years. Retailers expect external marketing to become their most substantial future investment area, followed by capital expenditure and R&D innovation.
In general, companies with low historic growth rates and low growth ambitions tend to invest less than their peers.
To deliver continuous, profitable growth, a company can pursue three growth pathways: growing the core of its business, expanding into adjacencies, and igniting breakout businesses. If a company ignores any of these crucial avenues to growth, it risks falling behind its competition. Our prior research suggests there are four crucial lessons to learn from companies that have succeeded in the past:
- Apply a venture capital or private equity mindset to your growth strategy.
- Don’t underestimate the potential contributions of your core business.
- Make sure you have a sharply defined strategy and sense of direction for growth.
- Link your strategic growth vision and direction to a clear and essential set of targets and key performance indicators.
Our new research confirms these insights and also sheds further light on how companies plan to achieve high growth in the future—with challenges shifting, high-growth rates becoming even more difficult to achieve, and optimizing ROI for growth becoming more imperative than ever.
Asking several diagnostic questions can help stress-test strategies for extraordinary growth in the consumer sector:
- Are you continuously choosing growth—by emulating a venture capital or private equity mindset—even if you have achieved high growth in the past?
- Are you equipped to quickly notice and react to evolving barriers to growth, as well as evolving opportunities?
- Are you exploring all three avenues of growth (core, adjacencies, breakout businesses)? Are you focusing enough on growing your core business?
- What set of levers will you trust to drive growth?
- Are investment decisions in line with what is needed to boost growth in a more challenging context? How are you managing ROI, given increased pressure?