For years, consumer-packaged-goods (CPG) companies have approached cost reduction as a budgeting exercise: Set top-down targets, then task functions to identify cost levers from the bottom up—often resulting in hundreds of function-led initiatives. In recent quarterly earnings calls, consumer leaders have mentioned embarking on some of those very initiatives, such as cutting underperforming SKUs or reducing operating expenses.
Today, that approach is not enough to stay competitive. One-off initiatives take too long to show results, and separating cost from strategy can lead to short-term fixes instead of long-term advantage. Zero-based budgeting, for instance, can save on costs on a quarterly or annual basis, but if done without alignment to strategy, it often trims innovation-related spending that constrains future competitiveness. On top of that, price growth has outpaced volume growth in CPG for years, signaling a threat to long-term competitiveness and shareholder value.
To get costs under control and find ways to spur volume growth, CPGs must get “fit to win.” That means getting “fit” by identifying and removing cost burdens that neither contribute to growth nor create competitive advantage, and “winning” by reallocating freed-up resources toward the high-impact commercial bets and innovations that will drive sustainable top-line momentum. Together, these actions can help CPGs reduce costs by up to 30 percent.
In this article, we explore how CPG players lost their edge, the two tracks of the fit-to-win approach, and four steps that leaders can take to transform their business.
What changed in the CPG sector?
Since 2019, CPG sales growth has averaged 4 percent, with more than 90 percent of that growth driven by pricing—masking a 1.4 percentage point decline in volume (Exhibit 1). At the same time, SG&A has grown faster than gross profit, and input costs remain volatile1 due to inflation, commodity shocks, and tariffs—putting pressure on gross margins.
As a result, CPG companies, which investors long viewed as reliable growth engines, have dropped to the bottom quartile in total shareholder returns across sectors. The dynamics that powered the space—including steady volume growth, pricing power, and consistent profitability—have broken down.
CPGs are at an inflection point: Growth is slowing, investor expectations are rising, and strong returns now hinge on both margin improvement and top-line gains. Fit to win offers a new way to get there.
The twin engines of the fit-to-win approach
Companies that take the fit-to-win approach think about costs differently. They align long-term ambition with near-term performance goals, both of which are grounded in what the business can realistically afford to execute. Using a fitness analogy, one should be clear about their goal—weight loss or a faster mile time, for example—before they can decide the steps needed to get there.
At the heart of the fit-to-win approach are two distinct but interconnected tracks: one focused on positioning the business for sustained, long-term performance; the other on building leaner, more efficient operations in the near term. Both are essential.
The first track, which we call “resetting the business,” requires making strategic “bold moves.” These moves address structural cost drivers across the value chain—including the portfolio, footprint, and operating model—and enable the business to achieve full-potential performance. Typically, bold moves are either technology focused or represent strategic resets for the business. The second track, “best at basics,” targets quick wins and smart automation to realize immediate value.
What sets this approach apart from other cost-cutting playbooks is integrated, end-to-end execution, linking planning, ownership, and delivery across the organization—including both the transformation effort and day-to-day business performance, which are too often managed in silos. Unlike traditional transformations that can take years, this approach yields results in just a few months. At its core, the approach reframes cost discipline as a way to fund growth, sharpen competitiveness, and rebuild resilience in a margin-constrained world.
Reset the business: Structural moves to reshape the profit and loss
Resetting the business is about structural transformation—making bold, targeted moves that reconfigure how a company creates and delivers value. This isn’t about optimizing around the edges; it’s about stepping back to ask what kind of business the company needs to be to win.
Tech-enabled bold moves, in particular, are critical: These moves involve using technologies, including gen AI, digital twins, and intelligent automation, to drive significant, structural change in how a CPG company operates. They rewire core processes across domains such as R&D, procurement, supply chain, and corporate functions to boost speed, accuracy, and cost efficiency. The most effective transformations combine cross-cutting tools (such as those for data and performance management) with domain-specific solutions that target the company’s biggest cost or productivity levers.
The fit-to-win approach calls for leaders to make bold moves on three fronts:
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Where to play: Reimagine the portfolio to unlock growth and long-term value. Consider divesting divisions, markets, or brands that distract from the core value proposition; shifting product offerings to become a margin player rather than a volume player; or discontinuing underperforming brands or SKUs.
A global CPG company pursued a structural bold move by offloading its home care brands—which generated $2.5 billion in revenue—to refocus on core healthcare and hygiene segments. Although the move reduced short-term revenue, it aligned the portfolio with long-term strategy, improving focus and capital efficiency.
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How to operate: Fundamentally change how products are produced and delivered to drive leaner operations. For example, consider splitting the business into “upstream” production and “downstream” sales or digitizing the supply chain at scale.
Opting for a tech-enabled bold move, a global food manufacturer used AI to optimize recipe formulation, reduce physical prototyping, and boost efficiency through data analysis. This resulted in reduced R&D costs and increased speed to market by up to five times.
While outside the CPG sector, a real estate investment trust offers a compelling case of asset-light strategy in action. As a shared infrastructure provider, it allowed telecom companies to lease tower assets instead of building and maintaining their own, which significantly reduced its capital expenditures and operating costs. For CPG players, similar models could include shared warehousing, logistics, or co-manufacturing partnerships to unlock flexibility while reducing fixed costs.
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How to enable: Redesign workflows to reduce back-office overhead. This might include using gen AI to model workload capacity, redesign roles, and inform zero-based organizational structures.
One global food and beverage company recently adopted an AI agent platform primarily to address retailer support and operational efficiency. The agents help manage workflows, prepare customer meeting briefs, and consolidate key commercial data—like inventory, orders, and promotions—across systems. This reduces the time spent on manual coordination, improves speed to insight, and enables the company’s support teams to focus on higher-impact activities.
Companies should identify and act on a handful of high-impact bold moves across these three areas, selected based on their potential to reshape their profit-and-loss (P&L) ratios and not just cut costs. Let’s say a CPG player identified high procurement costs in its supply chain. Rather than simply renegotiating with its supplier, a bold move—one that changes how the business operates in the long run—might be acquiring the supplier. What qualifies as bold, however, varies by company (see sidebar, “What is a bold move?”).
Best at basics: Capturing near-term value
While resetting the business requires leaders to define their ambitions over the long term, they can make shorter-term moves that are aligned with the overall strategy. To become the best at basics and generate value more quickly, CPG leaders should act on the answers to two questions: What are the quick wins that can accelerate value capture with minimal investment? And what can be automated today—at pace and cost-effectively—to free up workforce capacity and improve efficiency? While some companies are already answering these questions, many have yet to reset their businesses in ways that drive value creation, such as by empowering small, focused teams to make decisions and by adopting a digital-first approach.
Answers to the first question could include actions that eliminate unnecessary spend, such as improving sales force productivity, consolidating overlapping vendors, or renegotiating supplier contracts using clean sheet cost models.
As for the second question, CPG players can automate areas such as decision support, spend control, and reporting with the help of tools that perform AI-enabled pricing guidance or SKU optimization, contract compliance, or real-time performance management. A leading European CPG company introduced more than 20 robotic process automation bots across its procurement processes to handle repetitive, manual tasks such as managing supplier catalogs and running sourcing events. This freed up employee capacity, improved procurement accuracy, and ultimately delivered more than $1 billion in savings.
The four A’s: Turning ambition into action
For CPG companies facing margin compression, stagnant volumes, and rising complexity, moving decisively from ambition to action involves four phases: aspire, assess, align, and activate. Together, these phases offer a pragmatic path from strategic intent to measurable impact.
1. Aspire: What could great look like?
In this first phase, an executive team identifies bold moves quickly and acts decisively. Leaders set ambitions and objectives for the transformation. They begin by conducting a market-based diagnostic that benchmarks performance against peer and investor expectations. This provides an outside-in perspective on a company’s performance and potential across five dimensions of impact, including the company’s finances and operations, customers, workforce, societal and environmental footprint, and capabilities. During this exercise, a CPG with strong top-line growth but flat returns, for instance, may learn that its SG&A costs are materially inflated. Based on these insights, leadership identifies up to eight bold moves—for example, discontinuing 15 percent of SKUs or building an R&D digital twin—and drafts a target P&L. This target P&L clearly defines the goalposts, linking specific bold moves and best-at-basics levers directly to impact (Exhibit 2).
The target P&L should translate into stronger margins, which can be critical to a company’s valuation. A McKinsey analysis found that even a two-percentage-point improvement in EBITDA margin could offset a roughly three-percentage-point drop in revenue growth over the next decade, ultimately protecting TSR (Exhibit 3).
2. Assess: How exactly would we get there?
Instead of separate functional assessments, conduct a cross-functional review of the chosen quick wins and bold moves. With its ambition set, a company can begin to identify where and how to capture value with greater specificity. Functional leaders across all domains should collaboratively evaluate opportunities across both the “reset the business” and “best at basics” tracks. For the former, this might mean rationalizing a global portfolio or exploring an AI-powered omnichannel fulfillment strategy; for the latter, it could involve eliminating redundant vendors or streamlining reporting systems. The best CPG players are using technology—including digital twins, portfolio life cycle management software, and spend analytics tools—to evaluate opportunities and accelerate delivery.
At the same time, leadership should assess the organizational and digital capabilities needed to deliver on these goals—such as automation readiness or digital maturity—and identify any talent gaps. From there, they can build a fully integrated P&L that links each lever to expected impact, required investment, and relevant risk. This can help quantify ROI and uncover where dependencies exist (for instance, where consolidation of data systems should precede AI deployment).
3. Align: What’s the plan—and who owns it?
Prioritize only a handful of the highest-financial-impact, most feasible levers. This phase often involves a working session with the executive team to test feasibility and determine how different teams will work together. At this stage, the target-state P&L is finalized, and ownership of each initiative is assigned to the accountable teams.
During this phase, the company also launches the impact hub, a centralized performance engine that coordinates delivery and tracks real-time progress. While it serves as mission control for the transformation—integrating dashboards, KPIs, and lever-specific milestones across functions—the impact hub also tracks the business’s overall performance. In a CPG context, that might mean tracking trade optimization in sales, automation rollout in procurement, or the margin impact of plant consolidation along with the business’s usual operations.
4. Activate: How do we make it real?
Rather than launching scattered initiatives across multiple domains, execute connected quick wins, structural shifts, and capability-building initiatives. The fourth phase is, of course, execution. Agile teams move fast to secure quick wins, such as renegotiating freight contracts or automating trade spend reporting, while simultaneously preparing for more structural shifts—like building an internal next-generation design-to-value excellence center. Capability-building investments roll out in waves to help teams adopt the tools and ways of working required to sustain progress while the impact hub continues to guide delivery, surfacing roadblocks, monitoring live P&L impact, and keeping leadership focused on results.
The fit-to-win approach treats cost reduction not as a constraint but as a catalyst for reshaping how a company creates value and builds resilience in an era of volatility. To distinguish their businesses as market leaders in the years ahead, CPG executives must link cost goals to action, ownership, and measurable results. They should build alignment around the need for bold moves and set an ambition that reflects the full potential of the business.
What matters now is who moves quickly—and how boldly they are willing to act.
