Leading European consumer goods with commercial excellence

In today’s highly fragmented and rapidly evolving retail environment, consumer packaged goods (CPG) industry companies must scale commercial excellence to outperform their peers,¹Jessica Moulton, Pavlos Exarchos, and Warren Teichner, “Rescuing the decade: A dual agenda for the consumer goods industry,” McKinsey, June 11, 2024. leading their categories in execution and advanced capabilities to grow revenue and market share.

McKinsey’s 2024 Growth Capability Excellence (GCE) Survey shows that top-performing European CPG companies are doing just that, with bold moves grounded in commercial excellence principles and best practices.²McKinsey GCE Survey, 2024. Sample included more than 100 European CPG leaders and more than 45 CPG companies. The data was collected via online surveys. McKinsey identified the following four best-practice areas common to the top-performing CPG companies surveyed:

• creating a simplified, focused, and shopper-centric portfolio
• winning in internationalized modern trade
• excelling in outlet execution across channels
• digitalizing route-to-market models in fragmented trade

In this article, we explore how focusing coherent capability-building and deployment programs in these four areas helps build competitive advantage and scale commercial excellence to outperform peers.

Commercial excellence best-practice adoption aligns with profitable growth among European CPG companies

Consumer goods leaders acknowledge that commercial excellence capabilities matter more than ever, but only one-third of European CPG company leaders say their capability-building programs are successful.³McKinsey GCE Survey, 2024. Sample included more than 100 European CPG leaders and more than 45 CPG companies. The data was collected via online surveys. This is, in part, because the recipe for best-in-class commercial execution is changing at an exceptional pace and expanding the gap between industry leaders and their competitors. In fact, compared to other companies in the European consumer goods market, CPG companies ranked as top performers⁴Top performers are defined as CPG companies that self-assessed their maturity as above average for a respective commercial capability. Others are CPG companies that self-assess their maturity as average or below average for the respective commercial capability. in commercial execution, as evidenced by the following metrics:

• 200 percent higher gross profit CAGR
• 45 percent higher market share growth year over year
• 21 percent higher share of commercial excellence best-practice adoption

Specifically, the survey showed that gaps between top performers and other CPG companies are related to companies’ adoption of best practices in four areas, and top performers put these best practices into action far more frequently than do other companies (Exhibit 1).

As explored in this article, the four best-practice areas we identified among GCE survey respondents collectively represent a path to achieving at-scale commercial excellence in the European CPG market.

Creating a simplified, focused, and shopper-centric portfolio

The first of the four best practices we identified, simplifying product portfolios, helps CPG companies reduce complexity and operational costs while streamlining their operations. Crucially, tailoring portfolios to anticipate and meet the needs of particular channels and shoppers allows CPG companies to focus on core products that drive growth and profitability. Yet only 50 percent of top-performing CPG companies and 25 percent of their peers report using real-time consumer insights to reimagine offerings in their portfolios.

CPG companies focused on high-performing products can allocate resources more effectively, helping to ensure that investments and efforts are directed toward areas with the highest growth potential. Furthermore, a streamlined product range can allow CPG companies to respond more swiftly to market changes and consumer demands, increasing their agility and competitiveness in a dynamic market environment.

A narrower range of products can also provide opportunities to strengthen a company’s brand equity building and engage in more-focused and targeted communication with consumers, both of which can help to foster brand loyalty and differentiate companies from their competitors.

In particular, using a 6-R approach to simplify its portfolio can help a CPG company position itself for growth (Exhibit 2).

Using this approach, CPG companies can eliminate non-value-adding—or unrewarded—internal complexity while maintaining external differentiation that is rewarded by consumers’ willingness to pay for it.

Creating a simplified and focused portfolio that matters most to customers and consumers can entail the following:

• identifying the long tail of marginally profitable products, white spaces to grow the portfolio, and SKU redundancy from a consumer and customer perspective
• understanding shopper-driven purchase structures to test product transferability
• reducing stockouts of high-performing items via a better understanding of demand
• defining drivers of complexity, such as fragmentation of raw materials, packaging, and processing technologies
• quantifying the cost of complexity, such as trapped capacity, waste, changeovers, and overhead
• defining scenarios in which simplifying and platforming (creating a common architecture covering multiple products) can result in true cost savings—for example, removing product lines
• creating transparency on trade-offs and balancing commercial, financial, and operations leadership with complex governance

Reducing portfolio complexity has helped many companies optimize their portfolio from end to end, ensuring a straightforward front end and a streamlined back end focused on high-performing items. Doing so could, according to McKinsey analysis, potentially help CPG companies realize substantial cost reductions (about 5 to 10 percent in categories) alongside component reductions (up to 5 percent).

Ultimately, value-additive differentiation, increased speed to market, and streamlined production processes with standardization and late-stage differentiation can help unlock sales growth.

Winning in internationalized modern trade

As the European retail market continues to evolve and modern trade becomes increasingly internationalized, CPG companies must revamp their key account management strategies to stay competitive. Addressing key industry trends with the support of advanced tools and technologies can help CPG companies enhance customer relationships and drive growth.

European retail trends signal a need for new customer management models

Successful key account management—effectively managing relationships with major retailers—is a critical building block of European CPG growth, essential to remain competitive in the market and meet the evolving needs of customers.

Multiple trends shaping the European retail environment⁵“The return of polarization,” in State of grocery Europe 2024: Signs of hope, McKinsey, April 10, 2024. are especially relevant for European CPG companies competing in the intensifying key account management landscape. They include the following:

• increasing margin and cost pressures
• contradictory upticks in consumers’ demand for savings as well as high-quality and premium products
• declining consumer purchasing volumes
• rising commercial technology investment among European grocery retailers
• growing retail media ad spending

In response to these trends, retailers are increasingly turning to international negotiations to secure necessary funding and improve their purchasing prices and conditions from CPG companies. Because this can strain relationships between companies and retailers, CPG companies must upgrade their key account management capabilities to navigate such negotiations successfully.

The CPG customer management flywheel for modern trade

To thrive in an increasingly internationalized modern trade environment, consumer goods players competing in European retail should consider enabling joint category value creation, engaging in tougher and more transactional negotiations, committing to omnichannel activation with retail media, and taking their key account management teams to the next level using a customer management flywheel model (Exhibit 3).

Delivering an exceptional customer experience to foster growth lies at the heart of the CPG customer management flywheel. Beginning with a robust understanding of customers and categories, each segment of the flywheel helps generate momentum and create a positive feedback loop of growth, while key account management teams highly skilled in negotiations and relationship building reduce any friction that could otherwise disrupt momentum.

The GCE survey yielded insights into CPG companies’ activities in each segment of the customer management flywheel, discussed below.

Deep customer and category understanding. For most CPG companies (78 percent of top performers surveyed and 82 percent of others), a data-backed understanding of historical growth drivers in their category and channel, along with tailored merchandising guidelines based on category vision, are table stakes.

A shopper-centric category growth plan. Surveyed CPG companies that reported best-in-class channel and customer management stand apart from their peers, with 67 percent (versus 45 percent) regularly collaborating with customers to test configurations or assortment and planograms and with 75 percent (versus 38 percent) establishing multiyear strategies to collectively grow categories.

Rigorous management of multilevel, international customer negotiations. Most CPG companies surveyed (75 percent of top performers and 63 percent of others) have deployed insight-backed selling techniques. However, the intensifying key account management landscape means CPG companies need to level up even further and rigorously manage their international customer negotiations.

Managing international pricing in European retail is increasingly challenging for CPG companies as retailers expand globally and adjust prices accordingly. As more European retailers join buying groups and negotiations become more internationalized, CPG companies must deploy technology, data-driven strategies, relationship building, and strategic international pricing to remain competitive.

Specifically, CPG companies competing in European retail need a comprehensive international pricing strategy that includes the following:

• transparency on the starting point of the negotiation, enabled by understanding alliance-specific net prices used in negotiations and exposure-generating starting points
• robust rationale to explain international, alliance-specific net price differences from market, consumer, trade term, and cost-to-serve perspectives
• mitigation of non-defensible net price exposure aligned with approved market and category guidelines
• simulation of impacts on net price exposure, profit and loss, and estimated trade margins
• sell-in stories and compelling arguments for retailers

Systematic retail media activation. The shift to omnichannel shopping necessitates the integration of retail media. In the European market, CPG companies’ efforts to evolve their position on retail media have lagged behind. Nevertheless, they are beginning to embrace the potential of retail media by investing in advertising platforms and retail partnerships. And robust retail media initiatives are foundational to kick-starting growth for CPG companies in the European market via deeper insights into consumer behavior and preferences; driving higher engagement, conversion rates, and sales; and optimizing marketing strategies for maximum ROI.

Focusing on the following points in particular can help CPG companies to implement their retail media strategy successfully:

• Identify objectives, and determine the role of retail media in the media mix. Use retail media as a growth lever, and focus on retail partners.
• Achieve spending transparency, allocate and optimize spending across different channels and tactics, and determine the optimal amount to spend on retail media.
• Define the measurement and performance strategy with clear metrics and a holistic retail media partner map.
• Identify necessary capabilities and processes for effective execution, establish a governance model and organizational setup, and move toward omnichannel decision making.

Next-level key account management. As key account management teams increasingly need to engage in tougher net price negotiations and closer supplier–retailer collaborations, CPG companies must ensure that they are working effectively to enhance their sales teams’ dealmaking and business skills. While the majority of CPG companies surveyed indicated they regularly assess capability gaps, fewer deploy critical capability-building practices such as designing compelling learning journeys and tracking progress against learning goals. Only 37 percent reported prioritizing upskilling sales cohorts with requisite capabilities. And yet, alongside next-generation digital key account management tools such as generative AI copilots, upskilling is a core component of creating next-level key account management teams. Thus, the skills of key account management team members need to evolve beyond negotiation to also incorporate technology use, relationship management, and business building.

Investing here can create a competitive advantage and maximize joint category value creation to increase volume and value. Top-performing CPG companies reporting best-in-class capability building in our survey distinguish themselves by using talent as a source of competitive advantage (80 percent of top performers versus 67 percent of others). Likewise, 80 percent of top-performing CPG companies (versus 53 percent of others) report assessing the gap between current sales capabilities and those needed to unlock their three-to-five-year strategy. And there is clearly even more room to improve upon these numbers, given that more than a third of CPG companies (60 percent of top performers and 40 percent of others) did not report deploying upskilling programs for sales cohorts that include multiple learning interventions or tracking progress of people managers in providing on-the-job learning and coaching.

Excelling in outlet execution across channels

Excellence in outlet execution includes effective strategies and tactics for sales force management, merchandising, and market segmentation aimed at reaching and engaging with consumers via various outlets.

While about 47 percent of CPG companies in the European market report mastery of in-store execution as a core sales capability, consumer goods companies face the challenge of identifying the right outlets and segments on which to focus their efforts. And yet very few CPG companies (20 percent) report automating low-value manual field activities or using real-time AI (25 percent). Among top-performing CPG companies reporting best-in-class in-store execution capabilities, however, 89 percent report engaging in several best practices to address this challenge: segmenting stores based on enriched data sources (versus 55 percent of others), using store segmentation to tailor field sales visits (versus 36 percent of others), and understanding how merchandising execution affects promotion performance (versus 55 percent of others).

By applying data analytics and geospatial analysis, companies can segment at the microregional level and gain valuable insights into outlet attributes, consumer profiles, and shopper behavior. These insights enable them to tailor their strategies to optimize service levels based on outlet potentiality and cater to the evolving needs of their target customers. In fact, 60 percent of CPG companies with best-in-class data and tools report that their field sales teams regularly use digital tools to enhance in-store sales execution, compared with only 40 percent of other CPG companies.

Leading CPG companies in the industry typically use an integrated solution ecosystem comprising three layers: best outlet execution, best coverage mix, and best route to customer (Exhibit 4).

Five steps to optimized outlet execution

Supported by digital technology and resources as well as AI, CPG companies can optimize their outlet execution model with the following five key steps:

1. Harness data and build foundations. A foundational outlet-level database is established, and analytics as well as AI data features are engineered.
2. Develop a dynamic outlet segmentation plan. Segment variables such as traffic patterns, consumer type, outlet performance, festivities, and outlet size (capacity) are defined and verified against business objectives to ensure alignment.
3. Analyze and optimize performance drivers. Prioritizing the right execution tasks at the outlet level helps optimize strategic KPIs such as net sales revenue, volume, and return on sales relative to cost-to-profit.
4. Craft an outlet-specific picture of success. A dynamic picture of success—consisting of optimal marketing schemes to drive demand—is developed at the outlet segment level and adapted for applications at the store level.
5. Elevate outlet service levels. Service levels are differentiated by outlet segments based on growth potential versus cost-to-profit opportunity. This includes determining the interaction mix per outlet (such as representatives, telesales, agency, and bot), frequency and length of interactions (such as in- or offseason), and target execution model (such as next best action).

Digitalizing route-to-market models in fragmented trade

Most CPG companies (75 percent) report deploying a fit-for-purpose route-to-market strategy that considers both channel and geography. But while 78 percent of CPG companies reporting best-in-class route-to-market capabilities use digital tools to track distributor performance, only 18 percent of other CPG companies report doing likewise. This 60-percentage-point gap represents an opportunity to realize benefits from digitalizing or creating an omnichannel route to market (in its entirety or in part) to drive sales growth, unlock new revenue opportunities, achieve operational efficiency, and improve service levels and customer experience.

Despite a high cost to serve, engaging fragmented trade outlets (through on-premises trade and traditional trade channels) under a direct coverage model is strategically advantageous for CPG companies, driving higher top-line growth, stronger brand building, and customer engagement. Nonetheless, owners of fragmented trade outlets are more open to connecting digitally and having an omnichannel experience with CPG companies.

Consequently, CPG companies are focusing on evolving the way they reach and engage with customers and consumers, adopting new digital capabilities and disrupting current operating models while unlocking new value creation levers, such as the following:

• Extended network coverage and order efficiency. Using analytics to better equip sales representatives who are promoting higher-margin products and to enable better order recommendations, increasing basket size and total outlet performance.
• Granular data insights. Using outlet-level data to enable personalized offerings and prevent or minimize stockouts.
• Meeting previously unmet needs. Delivering a brand-aligned experience to target profitable, underserved segments and enhance brand recognition.
• Building eB2B ecosystems. Creating unique value propositions to build loyalty and increase customer lifetime value. An ecosystem of paid value-added services comprises diverse revenue streams that include app marketing fees, buy-now-pay-later options, and exclusive category and brand education material, as well as sales support activities.

The rise of eB2B platforms: Implications for consumer goods

As marketplace platforms that provide integrated solutions (value-additive services), eB2B platforms simplify the sale and acquisition of products for resale. A digital commerce platform can help a CPG company administer the order management process with its distributors, wholesalers, and customers while potentially enabling other services and capabilities. Because they provide real-time data and analytics, eB2B platforms represent substantial opportunities for CPG companies to enhance and inform their decisions, adapt to market changes quickly, and respond to shifting consumer demands more effectively.

Yet few CPG companies—only 22 percent of top performers and 36 percent of others—reported adopting integrated eB2B systems to reach underserved stores or complement physical visits. Likewise, only 44 percent of top performers and 27 percent of others use a digital self-serve approach for small, high-cost customers.

In the wake of the pandemic, amid abundant private equity and venture capital as well as rising digitalization, the large and fragmented European wholesale market, with its low margins, is increasingly ripe for consolidating, putting the outlet at the center, and reducing costs. For CPG companies in Europe, four fragmented business archetypes are relevant when considering eB2B activity: away-from-home businesses, such as restaurants, bars, and pubs; trade in services, such as in hair salons, nail salons, and spas; independent pharmacies; and traditional trade.

In fragmented trade, eB2B has the potential to become the primary way of conducting business, to shift existing value pools, and to change industry dynamics by unlocking new revenue streams and profitability levers. This could redefine the balance of power among legacy value chain stakeholders and provide favorable conditions for the entrance of new digital disruptors.

As McKinsey research has found,⁶Erik Brailovsky, Javier Castillo, Fernando Hiraoka, and Miguel Suadi, “The eB2B opportunity for consumer-packaged-goods manufacturers,” McKinsey, April 27, 2023. when developing a winning eB2B seller strategy, CPG manufacturers should consider which platform options complement their objectives, assess fit with their current route-to-market strategy, determine how much value they can add in different dimensions and what their offerings are, and establish an eB2B channel management capability to maximize the benefits derived from the eB2B platform.

Navigating the inflection point in away-from-home channel management

The away-from-home channel has emerged as a critical battleground for CPG companies, outpacing the grocery sector. This surge is driven by promising trends such as minimal grocery overlap, margin boosts through smaller pack mix, and dynamic brand building.

While securing shelf space is more crucial than ever, ongoing challenges remain unchanged, especially considering tighter consumer spending and a challenging downward trend in volume in 2024. These challenges include diverse subchannel characteristics, limited data availability on the outlet universe, narrow product portfolios, high cost to serve due to multiple intermediaries, and inconsistent pricing strategies across different outlets.

Winning in the away-from-home channel is not straightforward. It requires a nuanced approach and mature capabilities. Notably, 76 percent of top-performing CPG companies report mature away-from-home capabilities, compared to a 31 percent average across all CPG companies.

Best practices to foster away-from-home growth include:

• Coherent objectives and a where-to-play strategy focused on micro-growth cells. Decide on the role of the away-from-home channel, balancing volume and brand visibility with unlocking margin accretion potential. Place fewer, bigger, and bolder bets on micro-growth cells that include a combination of country, category, subchannel, and occasions. These bets are then aggregated into strategic growth plays that engender synergistic how-to-win journeys in areas such as revenue growth management, portfolio, and commercial activation. A major global food player, for example, boosts visibility with channel-tailored immediate-consumption packs, small on-the-go packs, and convenience retail-focused packs, all clearly differentiated from larger modern trade packs available at more attractive price points.
• A highly flexible and tech-equipped route-to-market approach. A distinctive route-to-market strategy is crucial. This involves prioritizing outlet visits while leveraging tech-enabled outlet segmentation, often in collaboration with distribution partners. Technology provides sophisticated routing and outlet execution guidance, while access to leading eB2B platforms enables a shift from push to pull strategies. Equipping feet on the street with exceptional point-of-sale material keeps outlet excitement high. For example, a European food and beverages player works with a dedicated away-from-home sales agency, fully integrating it into the company’s sales operations and providing access to a tech suite while maintaining flexibility with project-based resources.
• Channel-tailored revenue growth management. Moving from comprehensive to highly channel-tailored revenue growth management solutions is essential. This includes dedicated away-from-home occasion-pack-price architectures and clear trade spending strategies. According to McKinsey analysis, balancing higher margin pool complexity—given distributors’ expectations of 10 to 20 percent margins and outlets’ 40 to 70 percent margins—is critical, especially with the growing supply of private labels in convenience retail.

Effective away-from-home strategies consider the full value chain to strengthen consumer relevance, customer and outlet relevance, and organizational enablers for away-from-home excellence (Exhibit 5).

Adopting these best practices and focusing on comprehensive value chain management can help CPG companies navigate the inflection point and achieve sustained growth in the away-from-home channel.

While top-performing CPG companies have demonstrated the value inherent in adopting commercial excellence best practices, the European consumer goods market has ample room for growth and enhanced performance. Streamlining a product portfolio, engaging in tactics suited to internationalized modern trade, optimizing outlet execution across channels, and digitalizing route-to-market models in fragmented trade are eminently achievable objectives, even as the landscape continues its whirlwind evolution.