FMCG has been buffering stock to keep profitability stable

Despite many challenges facing FMCG companies, the 20 largest companies in Europe have been able to keep profitability stable. They have done so by increasing both their prices and their stock positions – the first to counter rising inflation, the second to defeat the many supply chain issues. However, FMCG executives need to be careful because both mechanisms will not work year after year – as can be seen by looking at the 20 largest global FMCG companies.

Over the past decade, companies in the fast moving consumer goods (FMCG) sector have faced a series of challenges. These range from supply chain disruptions and high inflation, to decreasing volumes and the divestment of business units due to geopolitical instability. 2023 seemed to top it all. It is regarded as a dramatically poor year for the FMCG companies, a sentiment echoed frequently in the news and in boardrooms.

However, analysing the 20 largest FMCG corporates globally and in the EU (amounting to 30 companies in total) and correcting for outliers (two companies have been excluded: BAT due to a large non-cash impairment charge, and 3M due to high costs for litigation) reveals that the situation is not as dire as portrayed by many. Despite the difficult market conditions, FMCG companies seem to have managed to keep their costs under control and increased their prices to such an extent that profitability remained relatively stable in 2023 compared to the past decade. But now, the question is: How long can the relative stability continue?

Upon analysing the data, we discover some intriguing insights among Europe’s top 20 FMCG companies in 2023 (excluding BAT and 3M). Their average earnings before interest and taxes percentage (EBIT%) stood at 14.9%, a slight dip from 2022’s 15.0%. Globally, the picture is nuanced too: 15.6% in 2023, just below the 16.7% recorded in 2022. Yet a critical trend emerges: inventory turnover rates have hit a decade-low. Among the top 20 global companies, it has steadily declined from an average of 6.2 in 2014 to 5.0 in 2023. Similarly, for Europe’s leading twenty FMCG companies, it dropped from 5.2 to 3.7. … … …

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