BRANDS PORTFOLIOS
Brand portfolios are growing at a breakneck pace, creating challenges across the value chain. Consumers are overwhelmed by
the abundance of branded offerings. Retailers are pushing back to maintain room for their own private-label offerings. Manufacturers
are frustrated by disappointing returns on their portfolio investments.
What's the answer? There is no single remedy, but we believe manufacturers can improve performance by taking a more proactive approach to managing their brand portfolios. A winningformula requires attention to three improvement levers:
• Restructuring the portfolio, not for the success of individual brands but for the portfolio as a whole
• Developing a stronger customer-versus-category perspective for the portfolio to align brands with consumer needs and to identify new growth opportunities
• Adopting a capital-allocation mind-set to highlight investment trade-offs among brands to optimize spending across the portfolio These levers must be underpinned by an organizational structure that views portfolio management as a top priority. Such a commitment is critical because a successful portfolio transformation will be a long journey - spanning several years - that requires ongoing assessments of potential value creation versus risks across the portfolio. The impact of this approach, however, may be worth the wait: Experience suggests that an effective portfolio strategy can generate 5 to 10 percent increases in top-line growth and up to 15 percent profitability improvements.
Brand portfolios are expanding at a staggering rate in many industries: pharmaceutical companies upped their average number of brands by 78 percent from 1997 to 2001; beverage manufacturers increased the size of their portfolios by 25 percent over the same period; companies in the food/household goods industry added 81 new labels to their portfolios, pushing the average number of brands beyond 630.
Indeed, more than three-quarters of the 25 consumer goods companies in the Fortune 1000 manage more than 100 brands, including sub-brands and line extensions
We see four main drivers behind this surge. The first is the steady stream of M&A activity over the past decade. Mergers announced
worldwide experienced an 11 percent compound annual growth rate (CAGR) from 1992 to 2000. Often in these deals, a targeted brand
acquisition – Pepsi purchasing Gatorade, for instance – brings with it a legacy of additional brands – Rice-A-Roni, Cap’n Crunch, etc.
While the performance of mergers is not wholly dependent on how well the brand portfolio is managed, research shows that historically
70 percent of mergers fail to create value.