WHITE SULPHUR SPRINGS, W.V., June 11, 2007 (PRIME NEWSWIRE) -- The 11th annual Grocery Manufacturers Association (GMA) Financial Performance Report conducted by PricewaterhouseCoopers LLP (PwC) found that the consumer packaged goods (CPG) industry's median total shareholder return once again achieved historically strong levels in 2006 and outperformed the broader market.
CPG manufacturers and retailers are responding to industry challenges with new and innovative ways of working together, according to the report, which highlights trends, issues and data that illustrate the financial performance of this sector and how companies can best address emerging challenges to stay ahead of the competition.
By collaborating across the value chain, creating more agile organizations, and enhancing its understanding of consumer needs, the industry continues to generate significant financial returns. Median net sales grew more than 6.1 percent between 2005 and 2006, and earnings before interest and taxes (EBIT) growth was strong.
"Consumers have more options today than ever. Manufacturers and retailers are becoming more consumer-centric and differentiating themselves to grow the top line as they compete for shoppers' discretionary income," says Stephen Sibert, GMA senior vice president for industry affairs.
Organizations Confront New Challenges -- Issues and Trends:
The study examines several key trends that have potential for long-term impact on the CPG industry, including volatility in commodity pricing.
"There is no silver bullet for manufacturers to manage risks associated with commodity price volatility, but two methods certainly can help," says John Maxwell, partner and global consumer packaged goods industry leader for PricewaterhouseCoopers. "First, an integrated approach to risk management involving an understanding of the interdependence of risks and their impact across the value chain, and second, organizational agility and responsiveness that promotes innovation, product differentiation and substitution, along with effective supply chain management."
The report also addresses new challenges and opportunities posed by expanding and converging media resources.
"Consumers today have more diverse tastes, are more informed and require new kinds of experiences both in-store and online, through converged technologies of Internet, phone and digital media," notes Lisa Feigen Dugal, partner and North American retail and consumer packaged goods advisory leader for PricewaterhouseCoopers. "While these technologies have helped create a more complex consumer base, they can also be harnessed to enhance manufacturers' and retailers' understanding of these new consumers."
Key Financial Performance Benchmarking:
After uncharacteristically low one-year shareholder returns in 2005, CPG retailers and manufacturers have exhibited impressive returns in 2006. Manufacturers posted a healthy 11.8 percent median shareholder return and retailers posted an impressive 16.2 percent median shareholder return. Five-year median shareholder returns for both manufacturers and retailers were approximately 10 percent, although retailers have experienced relatively more variable returns than manufacturers.
Manufacturers generated free cash flow at a median rate of 6.3% of net sales in 2006, with larger companies generating significantly more free cash flow as a percentage of sales than their smaller brethren. "It appears the industry is continuing to be rewarded for the ability to generate free cash flow," says Herb Walter, a leader of the business analytics practice for PricewaterhouseCoopers "Investors were also rewarded, as market returns for CPG manufacturers outperformed the broader market in 2006 and on a three-year basis."
Retailer Insights
The study found that over the past several years, retailers and manufacturers have become more entwined. Companies are finding that targeted collaboration is increasingly important to provide consumers with products and services that meet their changing needs, while simultaneously achieving efficiencies and ultimately increasing net sales and profitability.
Retailers are focusing on product category growth, leveraging private labels, sharing data efficiency effectively, and customizing products and services to support their diverse formats and consumers. In support of retailers' efforts, there are collaboration opportunities for retailers and manufacturers around planning of product mixes, new product launches, advertising and digital media, data sharing, and data analysis.
Median net sales growth for retailers has slowed between 2003-2004 and 2005-2006.
Long-term trends that are affecting the retailer and consumer landscape include changing age demographics; strategic outsourcing of non-core competencies; the growing importance of digital technology; and an increased need for data security and customer privacy.
The report was presented to senior executives attending the annual GMA Executive Conference at The Greenbrier in White Sulphur Springs, W.V. from June 8-11.
For an electronic copy of the complete report compiled by PricewaterhouseCoopers, Insights Into the Food, Beverage, and Consumer Products Industry: GMA/FPA Overview of Industry Financial Performance and Trends, visit www.pwc.com/us/retailandconsumer or www.gmabrands.com/publications/index.cfm.
About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
"PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
About the Grocery Manufacturers Association
The Grocery Manufacturers Association (GMA) represents the world's leading food, beverage and consumer products companies. The association promotes sound public policy, champions initiatives that increase productivity and growth and helps to protect the safety and security of the food supply through scientific excellence. The GMA board of directors is comprised of chief executive officers from the association's member companies. The $2.1 trillion food, beverage and consumer packaged goods industry employs 14 million workers, and contributes over $1 trillion in added value to the nation's economy. For more information, visit the GMA Web site at www.gmabrands.com.