Why Being a ‘Great Business Leader’ is Not Enough— Consumer Business Leadership in a Post-COVID Era

No industry has experienced the highs and lows of COVID-19 quite like the consumer sector. From the surge in demand for consumer products to the erosion of the travel industry, COVID-19 has been a crisis like no other. For most of the consumer sector this has been a supply-side crisis as well as, a demand-side one. CEOs have had to combine operational sharpness and ruthless decision making with social awareness, community impact, purpose, and empathy. The demands on leaders have never been so great and the leadership traits that enable success never so varied and vast. As the consumer sector looks forward, it is clear consumer behavior has changed, and with it so must the way consumer executives lead.

Objective and Methodology

In the fourth quarter of 2020 Russell Reynolds interviewed over 50 consumer sector CEOs and other c-suite leaders (a full list of the executives we interviewed is in the appendix). Our goal was to look forward and understand permanent changes in consumer behavior; the impact of these changes in behavior on business models and ultimately the leadership requirements businesses will face in the years ahead. We also conducted a “route-to-the-top” analysis of CEOs from the top 300 consumer companies global, to assess the background and experience of these leaders against the requirements their businesses will face in the future.

Consumer 3.0 - a New Paradigm

Consumer business leaders are agreed that COVID-19 has accelerated pre-existing trends in the sector as well as introducing entirely new behavioral shifts. “Two years ago we would have said that focus on the customer and digital is important, but for the foreseeable future it’s really table stakes and non-negotiable.” said Geoffroy van Raemdonck, Chief Executive Officer of Neiman Marcus. During the first peak, many companies in the consumer sector were able to pivot, operate in an agile fashion and leaders were surprised at their own organizations’ ability to rapidly adapt, improvise and innovate, to serve their customers’ needs. Now companies are re-evaluating their business models and making strategic adjustments for the new consumer paradigm. Executives are unanimous that consumers have changed, and the companies that are able to stay ahead of future consumer behavior, maintaining that speed and innovation will be the most successful.

“We need to execute the best against the new consumer paradigm. This new consumer behavior will impact innovation, marketing, customer partnership and SKU management. Our space just got a lot more interesting.”

Steve Cahillane, Chief Executive Officer, Kellogg’s

The new consumer paradigm – what we call Consumer 3.0 - is one in which a consumer has completely turned the table on brands, retailers, and hospitality companies alike. According to Peter Feld, the Chief Executive Officer of GfK, “83 percent of shoppers across Europe changed their behavior” over the course of this year due to COVID. For the past decade companies have talked about customer centricity, the need for omni-channel solutions and the desire to be ahead of the end consumer, but few have truly embraced against this. Through our interviews we have identified four fundamental changes in consumer behavior:

• Digital Amplitude 
• Life Rebalancing
• Hygiene Standards
• Social Purpose

“E-everything we think will stay. In-home food consumption will moderate, people have become more family-orientated and are keen to share. Hygiene will stay, moderately, with people still wearing masks post vaccine. Giving back to the community was nice to do in previous roles, now it is essential.”

Fabian Garcia, President, Unilever North America

Digital Amplitude

The acceleration of digital adoption is almost a cliché, such has been its prevalence in COVID-19 business conversations. As put by Steve Oakland, Chief Executive Officer of TreeHouse Foods, “even my 85-year-old mother uses Instacart.” Ecommerce adoption has often occurred at changes of life stage. Events such as buying a home, getting married or having a child have led to consumers adopting online purchasing habits in new category channels. For consumer businesses, the crisis has driven the adoption of digital channels by multiple consumer groups at one time. Categories which would have previously taken a decade or longer to reach specific levels of online penetration -online grocery purchasing, for example - have reached these levels almost overnight.

“Our online business accelerated 5-7 years in the last 9 months and our physical and digital platforms will never be the same again”

Ian Moir, Chief Executive Officer, David Jones

The uncertainty for businesses is whether consumers will revert to physical formats when they have the opportunity. The leaders we spoke to did not think that was the case. “The consumer will only go forward, they will not go backwards,” predicted Stefan Larsson, the President of PVH Corp., who will assume the CEO role in February 2021. Instead, leaders are predicting a multi-faceted digital customer, with broader behaviors and engagement points with brands.

“There are many versions of the new digital customer. There was the store customer who is now omni-channel and many that are now pure-digital, and there are also those that never bought online that are now buying online.”

John Galantic, President & COO, Chanel Inc.

Life Rebalancing

The unique nature of 2020 has meant that consumers globally have experienced the same phenomenon. The collective readjustment of what society values and the revaluation of “self” will perhaps be the most lasting impact of COVID-19. Increased time spent at home has had a huge impact on consumer spending while the shift to working from home has negatively impacted restaurants, travel and impulse categories, perhaps permanently.

“People are coming out of 2020 with a different outlook and adjusted priorities. People believe that a commute to the office is not going to be normal. They have enjoyed the ability to spend time with family and friends and embraced having more control over their life in general.”
 

Ronan Harris, Vice President & Managing Director, Google UK & Ireland

The investment in home will have a lasting impact beyond the current crisis. Having developed home offices, purchased at home fitness tools, and even upgraded their kitchens, consumers will look to spend time more at home and gain a return on their investment. This trend has certainly been true in China, where at-home consumer behavior has continued post-lockdown “Cooking ingredient sales are still growing even now – consumers developed the skills to cook at home and even after the quarantine restrictions have been lifted, the preference for food delivery or cooking at home has continued even amongst younger generations,” said David Yu, Chief Executive Officer for the retail business unit of Greenland Group and Vice President for Greenland Commerce & Trade Group. Health and wellness, both physical and mental, have also been drawn to the forefront of consumers minds. This will have a longer-term impact on products and categories consumers buy as they reevaluate their priorities.

Hygiene Standards

Individual hygiene has never been more prevalent. Hand washing, sanitization and masks will continue to be a way of life for some time. Beyond the obvious growth in these categories, there will continue to be growth in adjacent categories and a short-term impact on natural products. “We see an imbalance in consumer behavior, where anything hygiene-related has lots of momentum. Liquid soap, for example, settled at 50 percent up related to pre-COVID levels. People washing hands more often is a trend that will stay,” said Jonathan Myers, Chief Executive Officer of PZ Cussons.

“Pre-COVID, safety and security didn’t even register as principle drivers of consumer behavior. They were not on the list as consumers knew hotels and travel were safe. These items are now center in the minds of travelers.”

Keith Barr, Chief Executive Officer, Intercontinental Hotels Group

Prior to March 2020, consumers may have chosen where they shopped based on cleanliness, and may have been less willing to visit specific stores during busier times, but these factors would have ranked behind proximity, price and quality on any priorities list. Going forward, consumers will prioritize their shopping, travel and social interactions based on hygiene and cleanliness to a far higher degree. “There will continue to be a focus on health and safety — and it will influence how consumers shop, where they shop and what they expect from retailers and brands” said Patrice Louvet, Chief Executive Officer of Ralph Lauren. This means that locations such as shopping malls will continue to suffer in terms of footfall, whereas open air shopping locations will benefit. Large format grocery stores will also see a continued rise in shoppers compared to smaller locations.

Social Purpose

“We did not have one crisis, we had three.”

Fabian Garcia, President, Unilever North America

COVID-19 has been the primary narrative of 2020. However, in North America especially, it has not been only significant theme during the year. The death of George Floyd in Minneapolis on May 25, 2020 threw further light on racial injustice. It was a watershed moment. The values of diversity, equality, and inclusion (DE&I) rose to even greater prominence in consumers’ minds around the world. “We need to be representative of the communities where we sell our product and provide our services,” said Christie Fleisher, Chief Executive Officer of Benefit Cosmetics. “This may mean different things in China, in Paris, and at Headquarters. We need to make sure we are doing things that are appropriate for all skin tones. We need to make sure our recruiting, education, teams, and marketing strategy all reflect this.” Boards and CEOs across the world have recognized the need for their businesses to do more in tackling inequality for their customers, their employees and their shareholders.
 

Beyond DE&I, consumers have also started to expect more of corporations themselves. This has placed demands on corporations to provide social guidance, to stand for more than their shareholders and profit and to be a force for good. As George Zoghbi, Chief Executive Officer of Arnotts said: “This will have a profound social impact. In other business crises it’s been an economic event. In this case it is more like war. There will be social scars.” Going forward, consumers will increasingly choose brands based on how they behaved during this crisis, how they treated their employees, how they communicated with their customers and the ethics that they stood for.

“We see a deep divide and lack of trust in large scale enterprise and government. Consumers want purpose-driven brands, trusted brands, brands that align with things that they stand for.”

Glen Walter, Executive Vice President & President North America, Mondelez

The Business Implications of Consumer 3.0

Our interviews with consumer leaders across the globe identified four key business implications as a result of the new consumer paradigm.

• Consumer Centricity
• Digitalization
• Operating Models
• Consolidation

“This is the biggest trial period in consumer history, especially for traditional brands. Fifty percent of consumers of these brands are new,” said Dirk Van de Put, Chief Executive Officer of Mondelez. Brands have either acquired customers at record levels or have seen their businesses deserted due to legislation or falling demand. Customer retention and customer acquisition are not new challenges; however the circumstances of these situations are unique and present critical questions for how leaders choose to invest in their businesses going forward.

“The question for us is how much do we invest in the short-term to win the consumer in the long term? Our supply chain is a constraint on this. I believe you should invest in winning consumers if two things are true: First, the capacity to service the demand exists. Second, there is evidence that you will be get a return on that investment.”

Sean Connolly, Chief Executive Officer, Conagra Brands

Consumer Centricity

Companies can no longer play lip service to customer centricity. Inability to meet consumers with the right products, in the right channels, at the right time will lead to failure. Organizations must place the customer at the heart of their business, building their data and insight, innovation, and channel strategy around the end purchaser. As an example, successful CPG companies are already building e-commerce specific products, utilizing new sizing and pack architecture, which recognizes that online shoppers have different product demands compared to when they shop in store.

“The consumer is moving very fast and their journeys are constantly evolving. That is why consumer centricity is key. If you are unable to keep up with the consumer, you will lose. They are in charge and you will need to develop the right KPIs to understand what maers and where to focus.”

Patrik Frisk, Chief Executive Officer, Under Armour

There are three central business issues tied to customer centricity that executives identified:

Digitalization

“If you were a digital business, you need to double down on digital. If you were not a digital business, you need to double down on digital.”

Nathan Coe, Chief Executive Officer, Autotrader

Investment in digital channels and digital operations is paramount. Many companies have been able to pivot quickly and develop new digital muscles to cater for consumer demand during COVID. However, in many cases this has come at the expense of margin. Going forward, customer acquisition, operations and sales channels will need to be optimized for both revenue generation and profitability. “Digital will be the backbone of the future of retail, and digital commerce presents a huge opportunity. However, it’s not just about growing digital revenue - critically, it must be done profitably” said Patrice Louvet, Chief Executive Officer of Ralph Lauren. Physical and digital can no longer be separated – they are part of one consumer eco-system. Consumers don’t separate how they access brands, so companies must now meet consumer demand profitably in every channel.

There are three central business issues tied to digitalization that executives identified:

Operating Models

“Our mindset as a company is as a frugal company, in spite of being one of the most valuable companies in India. Costs are fixed or variable costs based on dimension of time. In the long term, everything could be made variable. In the time of crisis, we need to convert a large part of fixed costs to variable so that it gives you optionality.”

Sanjiv Mehta, Chief Executive Officer, Hindustan Unilever

The supply-side impacts of the COVID crisis has favored big companies. They have had the supply chain depth, strength and the operational clout to remain reliable throughout the pandemic. Companies that were over dependent on one sales channel or one supply chain network have struggled. Looking ahead, companies will need to build their own sales channels, local supply chain solutions and partner with their distribution partners to offer true omni-channel offerings to consumers. “We have prepared to be more flexible and resilient. The capacity of our plant was impacted, but as we adopted multiple supplier strategies, and signed large-scale state-owned companies like COFCO as co-manufacturers, this enabled us to have stable capacity during the pandemic,” said Dillon Hu, Former Vice President and General Manager of Greater China at Hershey.

There are three central business issues tied to operating models that executives identified:

Consolidation

“The consumer will have more choices than ever before - brands, products, price and channels. To win with the consumers you have to be more relevant to what they need and aspire to than at any time before. If you are not relevant, you’ll risk falling into an increasingly red sea of generic brands and products.”

Stefan Larsson, President, PVH Corp

As a result of the fiscal support packages, both for businesses and consumers around the world, the full economic impact of COVID-19 has not yet be felt. The continued strength of the stock market has meant that large scale acquisitions started to emerge in fourth quarter of 2020, having been quiet through the first third of the year. Going forward, mergers and acquisitions will play a major role how the consumer sector evolves. Carve outs of less attractive product portfolios, SKU rationalization and consolidation of real estate are all tactics that will be executed in the next few years. With new consumer channels, new operating models and increased operating costs to ensure consumer hygiene, businesses will have to consolidate their operations in some shape or form in generate cost synergies.

There are two central business issues tied to consolidation that executives identified:

Leadership Requirements for Consumer 3.0

“A holistic leader has three components – head, heart and guts. Head is about the ability to think, analyze a situation, recognize a problem and get out of it successfully. Heart is about connecting to people, which is very important during current times. You also need to have guts to tell stakeholders what needs to be done and to take a call whenever need be.”

Arvind Mediratta, Chief Executive Officer, Metro Cash and Carry India

There was no playbook for navigating 2020 and CEOs across the world had to rely on a combination of their value systems, instincts, experiences and, of course, their executive teams to navigate the storm. Empathy and humility were the two most prominent values CEOs identified as being essential in leading their organizations this year. The innate nature of these values means that leaders are often acting on instinct. “You are not trained in business school for these things,” said Sean Connolly, Chief Executive Officer of Conagra. “You have to fall back on your value system to navigate them. You need to build a leadership team that is very skilled and diverse in terms of experience but one that is also very collaborative.”

Russell Reynolds’ model for leadership looks at the innate tensions and competencies that are needed for leaders to succeed in a complex and fast changing world. The events of 2020 have added competing priorities to CEOs’ agendas and significant complexity on top of what was already an almost impossible role. As businesses look to build solutions for the new consumer paradigm, we have identified six fundamental leadership requirements that future consumer CEOs must possess: Agile Mindset, Meticulous Planning, Comfortable Being Uncomfortable, Fact-based Decision Making, Operational Sharpness and Social Intent.

Agile Mindset & Meticulous Planning

Agility has been both a buzzword and a hallmark of this crisis. Leaders have recognized that culture and mindset have prevented agile operations in the past. COVID-19 forced companies to operate under a new mindset, with a more risk-seeking culture that has allowed them to pivot into new revenue streams and working styles. Going forward, the ability to maintain agile and innovate quickly will be critical for success. “Going forward it is going to be important for leaders to be ambidextrous – you have to be able to act with speed on multiple fronts, but you also have to consider the long-term implications for your people and business,” said Prabha Parameswaran, Group President of Colgate-Palmolive.

Leaders in the future will need to combine agility with clear strategic priorities. Meticulous planning and the capacity to prioritize opportunities have enabled leadership teams to operate with clarity and efficiency, reducing the dependency on the CEO. Several CEOs outlined core principles that they have used during COVID to allow regional teams to make independent decisions at speed. Prioritization and planning, when executed correctly allow global businesses to become agile, removing central decision making and allowing local leaders to react to market demands.

Comfortable Being Uncomfortable & Fact-based Decision Making

The path that has developed leaders in the past will not be the path that creates leaders in the future. Just 11.8% of the top 300 consumer CEOs globally were appointed from out of sector (Source: Russell Reynolds Consumer Route to The Top Analysis 2020). Instead the leaders of the future will have increasingly taken non-traditional paths through adjacent industries, startups, and growth businesses. Today only 16.7% of consumer CEOs have experience in a digital role (Source: RRA), in the next five years that number will rise dramatically.

Being accustomed to dealing with limited information and navigating ambiguous circumstances will be ever more important traits for future leaders. At the same time, leaders will need to be able to make decisions based on facts. They will need to be able to apply frameworks to their decisions and provide their teams with principles that they can use to make decisions independently. “I believe the future will be about global platforms that are locally executed,” said pladis Chief Executive Officer Salman Amin. “The need to get better more proactive talent that thinks globally, will go up. We need more people who are doing proactive thinking about what’s changing in their markets versus waiting to be told.” The capacity to act rapidly with limited information, combined with ability to use fact-based strategic frameworks, will be key attributes of the next generation of consumer CEOs.

Operational Sharpness & Social Intent

The ability to operate an efficient business with social purpose is perhaps not as contradictory as Milton Friedman may have believed. Going forward, executives will need to build leadership teams that balance being uncomfortable with uncertainty and deep knowledge of how a specific business works. The most common path to CEO in the consumer sector is via COO, with 24.9% of leaders having held that role previously (Source: RRA).

As well as understanding the inner workings of an organization, leaders will also be expected to drive social change. CEOs will need be clear on their firm’s values and ensure these are lived by employees, customers, and investors. Balancing both social governance and operational sharpness is a complicated challenge for future CEOs.

There is a clear need to promote female talent, as just 4.9% of consumer CEOs are female today (Source: RRA). Current leaders are fully committed to social change and the need for their organizations to reflect the consumers they serve. Companies need to change the social construct of the executive team and one of the first major steps they can take on this is to focus on diversity, equity and inclusion.

Beyond Being a Great Businessperson

None of us will forget 2020. Consumer life, and consumption, have shifted. Expectations, in terms of what people consume, how they consume, and the role business plays in society, have changed forever. Post-COVID, companies need to adapt faster, act more sensitively and lead more assertively than ever before. A new leader is needed, one that can juggle commercial leadership, rapid innovation, performance management, while showing empathy, humility, sustainability, and compassion. A leader of society as well as business.

“Leading today is very difficult. Not that it was not difficult before, but there was a time when I could just be a great business guy. Now I need to be a great cultural guy, a great diversity guy, a great digital guy. What is actually hard is discarding your previous knowledge, because the process or environment has changed. But there are certain fundamentals that shouldn’t change: mission, vision and values.”

Patrik Frisk, Chief Executive Officer, Under Armour

Appendix:

We would like to thank all the executives that we spoke to, a full list of the people interviewed is below:

AUTHORS

• ANTHONY ARMSTRONG is a senior member of Russell Reynolds Associates’ Consumer sector. He is based in Sydney
• GREG HODGE leads Russell Reynolds Associates’ Consumer sector Knowledge team. He is based in London.
• RHYS GROSSMAN co-leads Russell Reynolds Associates’ Consumer sector and Consumer Digital and Media practice. He is based in London.
• STACEY SHAPIRO is a member of Russell Reynolds Associates’ Leadership and Succession practice. She is based in Atlanta.